Skip to main content
Sister Publication Links
  • ESG: THE NEW IMPERATIVE
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • COVID-19
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Transformation
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Digital Health
  • Insights
    • ACA 10 Years After
    • Best Practices
    • Special Reports
    • Innovations
  • Opinion
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • ESG: The Implementation Imperative Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Supply Chain
    • - Hospital at Home
    • - Workplace of the Future
    • - Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
  • Data Center
    • Data Center Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • MORE +
    • Contact Us
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Finance
July 11, 2015 01:00 AM

Commentary: Shift to population-health payment unlikely to come anytime soon

Jeff Goldsmith and Nathan Kaufman
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Goldsmith

    Most industry leaders believe that, in the near future, fee-for-service payment will be replaced by “population-based payment,” intended to reduce incentives to over-treat patients and to encourage prevention. However laudable these goals, we believe the expected shift to population-based payment is unlikely to materialize.

    We take population-based payment to mean time-limited fixed per-capita payment for a defined population of covered lives. Much of the inevitability of the trend toward population health is attributed to the Medicare ACO/Shared Savings programs created by the Affordable Care Act. The accountable care organization has been touted as the eventual successor to DRG and Part B payments in regular Medicare. Medicare's ACO programs now cover about 8 million of its beneficiaries (compared to 17 million in Medicare Advantage).

    While advocates in the CMS claim hundreds of millions in savings (in an overall program spending more than $600 billion a year), the Pioneer ACO program and its much larger younger sister, the Medicare Shared Savings program, have struggled to gain industry acceptance. Medicare ACOs have so far had minimal impact in reducing costs. (PDF) Managed-care veterans (hospital- and physician-based) that have succeeded in Medicare Advantage or commercial HMO markets have largely failed with ACOs.

    After a decade of experimentation, the pattern in these ACO programs is that a small fraction of ACOs generate most of the bonuses, and that excessively high prior Medicare spending, rather than excellent infrastructure and clinical discipline, may be the real reason for those successes. For the majority of ACOs, the return on investment for setting up and operating them is negative and likely to remain so. The recently issued ACO regulations did not materially improve the ROI calculus. In our view, it is extremely unlikely that ACOs will evolve into a “total replacement” for regular Medicare's current payment model.

    Kaufman

    On the commercial side, about 15 million patients participate in ACO-like commercial insurance contracts. More than 90% are so-called “one-sided” contracts, where there is no downside risk for providers who miss their spending targets. Yet some providers are giving up 30% discounts upfront to enter commercial ACOs that are really narrow-network PPOs. The discounts function as withholds with an earn-back if providers can meet spending and quality targets.

    The commercial ACO deals we've looked at are one-sided in more than one sense: they frequently limit future rate increases, so nearly all inflation risk is borne by providers. As structured, they are a no-lose proposition for insurers that deliver real benefits to providers only if their competitors are excluded from the networks. Shifting more insurance risk to providers is unnecessary since insurers have already shifted a large amount of the first-dollar risk to patients (and therefore providers) through deductibles and copayments.

    Moreover, with commercial medical-cost growth trends continuing in the mid-single digits, there is no cost emergency requiring a major change in insurers' contracting strategy; the present hybrid discounted fee-for-service model is doing its job. Deeply discounted fee-for-service with a small fraction of payments tied to “performance'” is not population health.

    While many healthcare executives have embraced population health in concept, it is our experience that many of their physicians are not participating in a meaningful way. A recent RAND study of clinician acceptance of these models concluded that they have not substantially changed how physicians deliver face-to-face care, and that the additional nonclinical work required (mostly documentation) is perceived to be irrelevant to patient care.

    Economists remind us that pursuing a given strategy means sacrificing gains from pursuing alternatives—the concept of “opportunity costs.” Not only are the potential gains from public or private ACO models limited, but the opportunity costs are steep. For hospitals and systems, they include recruiting and retaining physicians; improving hospital operations and profitability; reducing patient risk and improving their clinical experience; and commitment of clinician time to actual practice. Squandering scarce resources on a low-payoff strategy could prove costly for many health systems.

    As industry veterans well know, our field is prone to periodic spasms of groupthink. The inevitability of population health is one of them. Though some may succeed in mastering population-health models, fee-for-service is likely to remain the core of the U.S. healthcare payment system for some time to come.

    Jeff Goldsmith is president of Health Futures and an associate professor of public health sciences at the University of Virginia. Nathan Kaufman is managing director of Kaufman Strategic Advisors.

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    cigna-headquarters-AP_954324192665-web_i_i.jpg
    Cigna profits grew 24% to $6.7B in 2022
    humana_i.jpg
    Humana names CenterWell president, eyes expansion
    Most Popular
    1
    More healthcare organizations at risk of credit default, Moody's says
    2
    Centene fills out senior executive team with new president, COO
    3
    SCAN, CareOregon plan to merge into the HealthRight Group
    4
    Blue Cross Blue Shield of Michigan unveils big push that lets physicians take on risk, reap rewards
    5
    Bright Health weighs reverse stock split as delisting looms
    Sponsored Content
    Daily Finance Newsletter: Sign up to receive daily news and data that has a direct impact on the business and financing of healthcare.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • COVID-19
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Digital Health
    • Insights
      • ACA 10 Years After
      • Best Practices
      • Special Reports
      • Innovations
    • Opinion
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • ESG: The Implementation Imperative Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Supply Chain
        • - Hospital at Home
        • - Workplace of the Future
        • - Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • Data Center
      • Data Center Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • MORE +
      • Contact Us
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing