Growing appreciation for the interconnectedness between patients’ physical well-being and the social determinants of health has led to enormous interest in innovative care delivery models that take a holistic view of patient’s health. In particular, emerging evidence suggests that care delivery models that integrate a broad range of medical, behavioral health, and social services can slow the growth in health care spending and improve health outcomes. Health analysts also believe that integrated care delivery models can reduce health disparities by targeting underlying social and economic inequities and enhancing the care provided to disadvantaged populations.
In an effort to nudge providers toward integrated care delivery models, payors have experimented with alternative payment approaches that move away from traditional fee-for-service payments and instead reward providers who deliver high-quality, efficient care. This shift away from fee-for-service has been widespread, with nearly every government health program, commercial insurer, and employer-sponsored health plan testing one or more alternative payment models, such as capitation, shared savings, episode-based payments, and pay-for-performance.
Although policymakers have shown great interest in alternative payment models, federal and state governments generally have refrained from directly regulating the alternative payment models adopted by commercial and employer-sponsored plans. These payors instead have wide latitude to develop their own unique payment approaches and then negotiate specific payment terms with providers, subject only to the private law rules that govern consensual economic relations. Underlying this approach is the assumption that direct competition among private payors and health care providers will lead to innovative payment arrangements that encourage new patient care models. Unfortunately, this assumption is largely mistaken. Instead, payors’ widespread experimentation with alternative payment approaches is itself an obstacle to the successful implementation of integrated care delivery models.
In our pluralistic health care system, providers typically contract with multiple health plans and employers as well as participate in Medicare, Medicaid, and other government programs. Each of these payors has their own payment incentives and rules. This payment multiplicity complicates providers’ attempts to shift their practices to more integrated care delivery models, especially for small and medium-sized physician practices. First, managing different payment program details, such as tracking multiple sets of performance metrics, is administratively complex. Success under alternative payment models also requires that providers upgrade their electronic health records systems and data analytics capabilities. These changes are beyond many providers’ managerial competence, while for others the administrative burden of alternative payment models outweighs the potential financial rewards.
Second, variation across payment programs makes adoption of integrated care delivery models financial untenable for many providers. For practical and ethical reasons, providers generally apply the same treatment protocols and operational practices across all of their patients. For example, if a physician practice creates an interdisciplinary team to care for its high-needs patients, the team will coordinate care for all of the practice’s high-needs patients regardless of their insurance plan. However, investing in transformative changes such as interdisciplinary teams may not be financially viable if the alternative payment models that support these investments represent only a fraction of a provider’s revenues (e.g., the provider receives full or partial capitation for only 20 percent of its patients, but fee-for-service payment for the remaining 80 percent). Similarly, if some payors do not financially reward a provider for the improved health outcomes and efficiencies generated by integrated care delivery models, this dilutes the return on the provider’s financial investment and weakens incentives for practice transformation.
Third, the different performance incentives offered by multiple payors often are in tension with one another, particularly for providers participating in a mix of fee-for-service and alternative payment models. For example, the volume-driven focus of fee-for-service payment rewards providers who see as many patients as possible, whereas many alternative payment models encourage a holistic approach that requires spending more time with each patient. These conflicting incentives complicate providers’ attempts to shift to integrated care delivery models.
Addressing these challenges requires a comprehensive regulatory response that harmonizes the payment approaches adopted across public and private payors. The chapter concludes by outlining two such regulatory options, one rooted in a single-payer health system and the other involving government-sponsored multi-payer alignment initiatives.
