Can you lose money and save money on a flat-fee model?

By Stephen D. Forman (LTCA)

Long Term Care Associates, Inc.


​Recently, I ran across an article in the Baltimore Sun which lamented the loss of the "family doctor". With medical schools churning out increasing numbers of specialists, how might our future care look different from today?

One prediction — bolstered by pilot funding from the Patient Protection and Affordable Care Act — is the "patient-centered medical home" model. It's a warm and fuzzy idea involving longer visits, more contact, preventive care, and a holistic team approach — what's not to like?

What caught my eye, however, was this: "For these homes to work, experts say, medical practices need to move away from paying doctors just for face-to-face visits to a system that pays them a set amount for each patient, including services outside the exam room, so that the doctor can focus on keeping patients healthy rather than checking off codes."

Sound familiar?

Why yes, it vaguely rings the bell of the Medicare Advantage model on whose reviled backs the Administration is funding nearly one half the cost of its health care reform package. (According to CBO Testimony March, 2011, Medicare Advantage savings as a result of PPACA over the next decade are expected to net between $400 - $510 billion.)

Not wanting to embarrass myself, I reviewed the Medicare Advantage system (I've no shame in admitting my expertise lies in long term care). Sure enough, according to a brief prepared by the Kaiser Family Foundation in May, 2010, things were as I remembered: nearly 1 out of 4 Medicare beneficiaries are enrolled in a Medicare Advantage plan (some 11.1 million enrollees).

In an effort to contain and combat the runaway fee-for-service model, the "capitated" Part C model emerged: for one flat-fee per enrollee, a private plan would cover every benefit Medicare covers. To arrive at the flat-fee the government would reimburse, each plan would submit a "bid" which would be compared to the government's own "benchmark" (ie, the maximum per month Medicare will pay in a given county to provide Part A and B benefits). If a plan's bid is higher than the benchmark, enrollees pay the difference in the form of a monthly premium. If the bid is lower, the plan keeps 75 percent of the difference (Medicare keeps 25 percent) in the form of a "rebate" which must be used toward lowering premiums, reducing cost-sharing, or offering supplemental benefits.

So that's the punchline: We're siphoning money out of a flat-fee Medicare Advantage system (which deploys savings towards ancillary benefits like vision, dental, and preventive services) and into "pilot" programs like flat-fee medical homes which are designed to focus on holistic, preventive services.

Granted, I'm here only to report on the irony, but if the system had worked, how come Medicare Advantage payments are "between 9 percent and 13 percent higher, on average, than local fee-for-service costs"? (same Kaiser report as above)

PPACA includes a number of adjustments going forward which aim to bring the benchmarks closer to the costs of enrollees in traditional Medicare. One truth which emerges from any analysis is that payments to private plans are not the only moving part: a footnote in the Kaiser report makes clear that Congressional action to reduce (or prevent) scheduled reductions in physician fees (what some have called the "Doc Fix") is the flip side of the same coin.

According to a Health Policy Brief put out by the Robert Wood Johnson Foundation in September of 2010, "patient-centered medical homes hold great promise to revitalize primary care," and may make sense for the chronically ill and elderly. But like any pilot, people have their hands out. We finish where we started, with the Baltimore Sun, "[the medical home model] requires more infrastructure, and that doesn't happen for free."