Global Payments? Sounds Like Deja Vu All Over Again

02/04/2011 03:57 pm ET | Updated May 25, 2011

Cost cutting seems to have replaced "quality measures" as the mantra for all health care discussions. Not that "quality " measures have gone away, but the focus is on trimming the cost of health care in the United States since it is about 15 percent of the GDP ( as measured in 2004) more than any other country, without commensurate superiority in outcomes measures.

So the current solution seems to be global payments! No more pay per visit/procedure/hospitalization/operation. Rather with global payments the physician receives a fixed payment per month based on the complexity of the patient i.e. how many chronic diseases the patient has. Thus, the doctor is no longer incented to visit-churn or do unnecessary referrals to specialists; hospitals no longer hang onto patients, and alternatives to emergency rooms are provided during off hours.

Sounds like a plan. The only problem is that this has been tried before with very mixed results. It was called capitation then. Those physicians and hospitals that did well under the old capitation system knew how to game the system in their favor. Certainly there were some good practices put in place under capitation that saved costs without sacrificing quality.

While health care providers and systems are not primarily driven by money, they are just as susceptible to responding to dollar incentives as the rest of the human ecosystem. As a warrior from the days of capitation, let me offer some lessons learned from the bad old days when our medical group had several large capitated contracts.

In 1996 as the new medical director for our multispecialty group, I inherited several large capitated contracts from major insurers in the New England area. It was my job, along with other administrators, to understand these contracts and educate our providers, to stop the financial bleeding from these contracts, and to serve as an intermediary for the numerous patient complaints. We were also losing patients steadily from one large insurer, and the insurer demanded to know why.

There were quite a few challenges to providing cost efficient capitated care, particularly in an urban setting with a challenging socio-economic patient mix. Populations that used large academic hospitals that balanced clinical care with teaching responsibilities and research were harder to manage in such a complex, and often inefficient setting. The medical groups that made money under capitation in general had efficient information systems with computerized records, a relatively healthy, younger, and homogenous population, and used a local community hospital that was close by for specialty care and hospitalizations.

The thinking behind global payments is to encourage alternative approaches to health care. Instead of having a patient come to see the doctor for each ailment, care may be provided by a phone call, a Skype visit, e mail, or nurse practitioner visit. Group visits with a doctor or nurse for chronic conditions such as diabetes encourage sharing of information. Since ER visits cost the provider under global payments, groups are incented to offer after hour's access in the primary care setting. Some capitated plans stationed a nurse in the emergency room to head off inappropriate visits to the ER and redirect the patient to a more appropriate setting. Specialty referrals were given sparingly since the cost of those visits came out of the provider's health care budget. Visits to physical therapists, chiropractors, and mental health providers were monitored by the primary care physician if the practice was to stay solvent.

Under capitation the patient had no incentive to help manage the cost of their health care. So while many efficient systems were put in place to monitor health care costs, the downsides to this system were many.

1) The pressure fell on the primary care provider to manage the care and costs of the care. While this made primary care providers the fulcrum of the system, the specialists had no incentive to change their ways.

2) Under global payments hospitals receive a set fee for a condition. For example, mothers are discharged from the hospital within 48 hours after giving birth whether they are ready or not. As a pediatrician I have seen too many mothers come into our office barely functioning, in tears, in pain, without a clue how to manage their new baby.

3) Battles between primary care doctors and patients ensued over referrals to specialists. A patient might want to see an orthopedist for back pain. The primary care provider argued that there was no need as he or she could treat the problem.

4) Managing the appropriate number of visits for physical therapy after automobile accidents or other injuries was unpleasant. Trying to determine the correct number of mental health provider visits for a depressed patient was impossible. Limiting the number of visits to such providers led to many unhappy patients. Denying care in these situations could lead to shouting and/or lawsuits. Doctors were often perceived as withholding care. But failure to try to manage these referrals led to financial doom for a practice.

5) A crass term, "patient dumping" was used to describe a common practice under capitation. Say, for example, a patient developed colon cancer in the suburbs. The patient's provider used a community hospital for all his referrals. But the patient in this instance wanted to go to an academic medical center for his care in this situation. Rather than agreeing to send the patient to an oncologist at the academic medical center, the provider would say, "We don't use that hospital (the large inefficient and more expensive academic hospital). Why don't you switch to a primary care doctor who uses that hospital?" If I hadn't witnessed this phenomenon first hand, I would find this hard to believe.

6) Finally, if global payments are based on how sick a patient is, how do you make that determination? All physicians know that some patients take more time and effort than others, based on personality type, number of illnesses, age, language and severity of illness. All sorts of factors go into determining a "complex" patient. If physicians are paid based on how sick or complex their patients are, you can be sure that we will have an influx of sick patients in each doctor's panel.

Good people are trying to solve this complex conundrum of how to control escalating health care costs without jeopardizing quality. Of course, there are many other efforts under way to look at end of life care, drug utilization, patient compliance, and disease management. Global payments seem to be on the table again. I just hope there were some lessons learned from the days of capitation. Changing the name is not going to eradicate the many unintended consequences we have seen before. And as always, follow the money ...

Victoria McEvoy, M.D., author of "The 24/7 Baby Doctor: A Harvard Pediatrician Answers All Your Questions From Birth To One Year"