The old health insurance model that's making a comeback

As COVID-19 empties out doctors' waiting rooms, the pandemic could trigger a big change in how health care is delivered and paid for in the U.S.

Physicians groups have done well financially under the traditional fee-for-service payment model, in which doctors are reimbursed for each medical service provided. But it's only lucrative if patients are getting treated.

As people avoid in-person care during the pandemic, tanking doctors' revenues, some primary care physicians will turn to so-called value-based arrangements—many of which offer a fixed amount to keep patients healthy. It's a fresh twist on the oft-criticized health maintenance organizations, or HMOs, that were popular in the 1970s and 1980s.

Walgreens Boots Alliance this month made a big bet on the shift away from fee-for-service, investing $1 billion to put VillageMD clinics in 500 to 700 of its stores in the next five years. VillageMD, a Chicago-based primary care startup, aims to help doctors transition into payment models that are tied to patient outcomes, as opposed to patient volumes.

If the fixed fees and incentive pay successfully keep people healthy and control costs on a large scale—across the nation's second-largest drugstore chain—the partnership could bolster the case for change.

But critics say capitation, in which providers collect a fixed amount each month, could lead doctors to withhold pricey medical services or take on large numbers of patients, increasing wait times. Such concerns have been around for decades, since the heyday of HMOs. But advocates say today's alternative payment models prevent doctors from gaming the system by incorporating incentives for preventive services and patient satisfaction scores, among other quality measures.

STEADY INCOME

Either way, with patient volumes down, primary care doctors should be thinking about what they'd do in the case of another crisis, says Joel Shalowitz, a professor at Northwestern University's Kellogg School of Management. "The best way to protect yourself financially is to get a steady stream of income, whether or not people come in."

Some clinics serving vulnerable communities in Cook County are among practices adopting capitation due to the pandemic. The arrangement with Cook County's Medicaid managed care plan aims to provide federally qualified health centers with consistent payments at a time when volumes are down, in addition to reducing overall costs and ensuring that care is appropriate and high-quality.

"This new structure will enable FQHCs to expand our services to meet the growing needs of our communities in a sustainable way," Verneda Bachus, CEO of Hyde Park-based Friend Health, which operates a small network of centers, said in a May statement.

COVID-19 has made it difficult for doctors to go it alone. Researchers estimate that primary care practices this year will lose $67,774 in fee-for-service revenue per full-time doctor. Practices that have some capitated payments, which are expected to remain constant, presumably would take less of a hit.

For example, Blue Cross & Blue Shield of Illinois' various value-based arrangements, including its 600,000-member HMO, have provided a consistent revenue stream to in-network providers during the COVID crisis, says Salma Khaleq, vice president of provider strategy and partnerships. Between March and June, she says the insurer paid providers $260 million in revenue associated with value-based arrangements, including capitated payments and care coordination fees. That's roughly the same amount that was paid out during the same period last year.

For Deerfield-based Walgreens, VillageMD's HMO-like model supports the company's goal: "To provide an integrated primary care and pharmacy model that will drive better health outcomes, reduce costs and provide a differentiated patient experience to the communities we serve," Alex Gourlay, co-chief operating officer, told analysts during the company's latest earnings call.

Walgreens eventually will hold a 30 percent minority stake in VillageMD, which launched in 2013. The pair first got together in April 2019 to pilot five in-store clinics in the Houston area.

RECRUITING

VillageMD says it will recruit 3,600 primary care providers—doctors, physician assistants, nurses and social workers—to staff each in-store clinic with a physician-led four-person team.

For the deal to be successful, it will need to recruit doctors who have patient rosters and are interested in gradually moving into capitation from fee-for-service—usually over the course of two years, says founder and CEO Tim Barry. It's a good time to be recruiting doctors, he says, noting that hundreds of primary care practices have reached out to VillageMD since COVID-19 started spreading in the U.S. to ask about possible partnerships and employment opportunities.

Sources say that for capitation to be profitable, doctors need hundreds of patients—most of whom are relatively healthy—to balance out the risk.

Dr. Robert Perlmuter says his Near North Side practice, Primary Care Medical Associates, which is primarily fee-for-service, is working to expand its capitated, risk-sharing business. The goal is to spend more on disease and chronic care management, he says, noting that COVID-19 has only reinforced such efforts, with patient volumes still about 30 percent below pre-pandemic levels.

"We're still responsible for X amount of patients, but we're not getting paid if they don't come in," Perlmuter says. "There probably will be a move toward value-based care or capitation arrangements, which have always been available."