California could serve as model for physician payment reform

The California HealthCare Foundation is floating a proposal that insurers do away with fee-for-service payment, which rewards providers for the quantity and complexity of their services, and replace it with a system of financial rewards that encourages the best health outcomes while using resources more efficiently.

Much of California's population gets its healthcare from organized physician groups that receive comprehensive payments to care for enrolled patients.

California's experience with capitation – also known as the "delegated model," since risk is delegated from health plans to provider groups – offers several lessons that bear consideration in the national reform debate, said the CHCF.

According to an issue brief titled “Reforming Physician Payments: Lessons from California,” three concepts founded in federal proposals share features with the delegated model in California: payment bundling, accountable care organizations and the medical home.

“Oversight to assure that providers are delivering appropriate care takes different forms, depending on how payments are structured,” said the CHCF brief. “When healthcare providers are paid a fixed amount regardless of how much care is delivered, an important area for regulator oversight is ensuring that the amount of care is sufficient.”

The brief contends that for capitation to take hold, formal physician groups and business arrangements must be in place. Also, to prevent undesirable outcomes, such as physician group insolvency and stinting on needed care, robust regulatory oversight is required.

Officials said that paying physician groups by capitation originated with Kaiser Permanente and several other regional group and staff model health maintenance organizations.

“A CHCF-funded analysis shows that hospital use near the end of life is lower among HMO enrollees than patients covered by plans that pay providers under fee-for-service," the brief said.  "With the exception of that focused analysis, however, data on cost, use and quality of care in capitated physician groups are limited, making it difficult to compare the results under capitation with other payment arrangements.”

With respect to capitation's potential to improve health plan efficiency and value, California's experience is inconclusive, the brief said. Documenting such effects will require more transparent and accountable monitoring than now exists.