Note: I’ve left this post unmodified, but there is a factual inaccuracy I want to correct. The law does not require MassHealth to entirely phase out its fee-for-service plan: it can implement an alternative payment plan that keeps fee-for-service, but adds other payment mechanisms on top, such as a “shared savings” scheme that lets providers keep some share of any reduced costs, or pay-for-performance payments. There is certainly a danger that such plans could drive up the costs of MassHealth’s cheapest plan – which is what happened under Blue Cross’s ACO for example, where the pay-for-performance payments were so high they erased any possible savings. So the plan would not need to entirely abandon its fee-for-service rates, but it would need to supplement them. Thanks to Brian for flagging this issue for me in the comments below and via email.
Last Monday, August 6, Governor Patrick to great fanfare signed legislation that had slowly worked its way through the State House to control health care costs. At the signing, he declared “We are ushering in the end of fee-for-service care in Massachusetts in favor of better care at lower cost.” The law’s largest impacts will be on the state’s own public health insurance plans – MassHealth, Commonwealth Care, and the Group Insurance Commission (the plan for state and many municipal employees). The law requires that MassHealth move at least 25% of its Medicaid enrollees into “alternative payment methodologies” – defined as anything but fee-for-service – by July 1, 2013; then 50% by July 1, 2014; and finally 80% by July 1, 2015. If that weren’t enough, later in the bill all public insurance plans are instructed to implement alternative payment methodologies “to the maximum extent feasible” by July 1, 2014.
In an ironic (possibly intentional?) act of timing, just three days previously the State’s Inspector General released a report showing that the state pays 33% more on average for enrollees in MassHealth’s managed care plans – which are capitated – than for its enrollees in MassHealth’s fee-for-service plan.
In short: MassHealth has been instructed to rapidly phase out its cheapest health care payment plan in favor of plans that are more expensive, but at the center of a national policy fad.
The rhetoric around abolishing fee-for-service revolves around reducing the overuse or “overutilization” of care. However, the Inspector General’s report concludes “While it is theoretically possible that the [managed care] program produces enough savings in utilization to outweigh the large differentials in reimbursement rates, there is little evidence to support that possibility. In fact, studies of the private market have indicated that managed care savings come primarily from price reductions and not from decreases in utilization.”
This echoes recent findings from the Attorney General’s office, which analyzed Blue Cross Blue Shield’s “Alternative Quality Contract” – the largest alternative payment plan in the state, which relies on capitation and pay-for-performance incentives. The AG found that costs for providers entering the AQC contract went up by 10% on average in year 1, compared to an increase of 1.7% for other providers. While the contract does stipulate slightly less generous payments over the next 4 years, the AG’s office calculated that other providers in the state would have to see catastrophic increases in their health care costs every year for the AQC payment methodology to actually result in savings.
I should note in closing that it is universally acknowledged that MassHealth’s fee-for-service payments are too low, and for many providers actually less than the cost of providing care. The discrepancy means that providers servicing low-income communities tend to struggle financially. Increasing Medicaid payments is a necessary step without real reform that reduces the costs providers themselves face, but let’s not pretend that it’s cost control!
so I’m expressing a concern about it that some may wish to debunk. My concern is that while a fee-for-service system sounds as though it would be more expensive and wasteful than a capitated payment system, it is potentially more transparent and therefore may be less susceptible to fraud than a system in which a set or capitated payment is made per patient, regardless of usage.
Under a capitated system, there is an incentive to withhold services, possibly fraudulently. Under a fee-for-service system, you usually have to document the fees and services carefully.
A lot of this was laid out in Malcolm Sparrow’s 1996 book, “License to Steal,” in which he noted that under capitated payment systems, there is often less documentation under the theory that it doesn’t matter where the money is going because the amount is set or capped. This allows pproviders to divert funds to their own pockets through sweetheart contracts, embezzlement, high salaries etc.
there isn’t plenty of fraud in the current fee-for-service system. It’s just that a capitated system tends to shift the locus of the fraud.
The post misses some important distinctions that I hope can be cleared up.
This can get wonky, so please bear with me. I’ll try to explain from the beginning.
MassHealth (our state’s Medicaid program) offers most of their under-65 members a choice in coverage plans. People can either sign up for a managed care plan run by a managed care organization (called an “MCO” in MassHealth-speak), in which case they are limited to providers (docs, hospitals) that are contracted with their MCO. Or they can have their care managed by a primary care provider, who coordinates their care, and the patient can go to any provider who accepts MassHealth. This is called the “Primary Care Clinician,” or PCC option.
Under both systems, the member is in managed care.
Under the MCO plans, MassHealth pays a monthly capitation fee to the managed care companies, and the managed care company generally pays the providers using the fee-for-service system. Under the PCC system, MassHealth directly pays a fee-for-service payment to the providers.
So under both systems today, the providers are generally paid on a fee for service basis.
About 480,000 people are in the MCO plan, and about 390,000 in the PCC plan.
Now there’s a major issue over which system is more efficient. State House Republicans have for years pushed for an all-MCO system. MassHealth (under both Democrats and Republicans) has always said they think the 2-track system is best, since it provides choice. There are lots of complications having to do with mental health and other issues, and a commission is looking at the issue, again. We at HCFA strongly support keeping the PCC option.
But here’s the thing: the move in the payment reform bill to “alternative payment arrangements” does NOT change the current choice of both MCO and PCC options. The PCC option will still exist. Nothing’s going away.
What will change is the service-based payment system that does not adjust for quality of care, and provide all the wrong incentives. The new law directs MassHealth to use different types of payment systems (NOT necessarily capitation – other choices are possible, and likely) to promote better care, and pay for services to keep patients healthy and well.
Here’s an example: We’ve been working with a number of health centers who used a foundation grant to provide extra services to MassHealth diabetic patients. The services included home visits, group visits, phone consultations and extra help with nutrition. None of this was paid for under fee-for-service, so the health centers had to use the grant to cover the costs. Under payment reform, MassHealth could pay health centers an annual payment to take care of these patients that includes funding for these extra services.
Bottom line – the new law gives MassHealth an opportunity to restructure payments to reward quality, innovation and better care. But it does not force everyone into managed care organizations. And it does not take away the cheapest option. It makes the whole system more cost-effective.
Brian Rosman
Health Care For All
under this bill introduce an extra layer of bureaucracy into the mix? As you explained it, MassHealth pays a managed care company a months capitation fee, and the managed care company then turns around and pays a fee-for-service payment to the providers.
It sounds like a complex arrangement with these managed care companies assuming a middleman position in order to take their cut. How is this supposed to be cheaper than having Mass Health directly pay the providers under a fee-for-service system? Is that why the IG and the AG found the managed care, capitated system to be more expensive than the fee-for-service approach?