Confusion about Capitation versus Fee-For-Service versus National Health Care

This is from the Shrink Rap blog this morning the consensus is that capitated care is better than fee-for-service care.  What is wrong with that picture?

Starting out with the much maligned fee-for-service (FFS) -  most medical and psychiatric services are not delivered in that context.  You can safely say that FFS, disappeared a long time ago.  According to a 2012 Medscape survey of 24,216 physicians across 25 specialties only 4% worked in cash only or concierge style practices. That means that everyone else is subject to varying degrees of insurance company discounting.  From my years of providing inpatient care for example,  there is a standard DRG payment based on a global discharge or admission diagnosis.  For the most common psychosis DRGs the standard payment is $4,500 no matter how long a person is stays in the hospital.

The same thing happens on the outpatient side.  I have discussed this more extensively is a previous post.  Looking at the commonest outpatient billing code - actual reimbursement for providing services can be as little as $22.45 per visit.  In the case where bills are submitted with CPT codes (common to all of medicine) Medicare pays 50% of the usual and customary charge for psychiatry compared with 80% for the rest of Medicine.  A lot depends on contracting arrangements since a contract can limit a psychiatrist to billing only a 90862 code and the company can also decide that they disagree that services were provided and either deny payment or demand repayment of a significant amount of money based on a review of the documentation.

The business adaptation to this on the hospital and managed care side (if they own the hospital) is to hire case managers to get patients out of the hospital within 3 or 4 days.  Some of these systems have confabulated their own "guidelines" that allow them to do this that are totally independent of any professional standards.  So if you are a managed care business and you own the hospital you are winning at two levels - you already shift the risk to the providers and hospitals by the Medicare style DRG payment and you do it a second time by insisting that they go along with the business decision to discharge the patient from the hospital.

Strictly speaking, the examples of discounted fees are technically not capitation.  Discounted fees still allow for some elasticity within the system because there is still a fee paid per service event.  Capitated systems of care like behavioral health carve outs can be set up to pay a set fee for managing a specific population.  For example, a system of care is under contract for providing all services to a specific group of employees for a rate that is negotiated irrespective of actual patient visits.

The best way to understand capitated care is that it is designed to provide insurance companies a significant financial incentive for rationing care.  That incentive comes directly out of the total amount of money available for health care spending   Psychiatry, mental health, and addiction services were the easiest targets due to insitutionalized stigma, lack of a vocal constituency, and the political ineptness of psychiatrists.  It is anybody's guess about how much a managed care company can make for denying or rationing care but some estimates of the margins have been as high as 20-40%.

One thing is for certain.  Capitated care is not a comprehensive national health system.  It takes hundreds of billions of dollars out of the health care system and diverts it to CEOs and stockholders.  Contrary to the political opinion it does not contain the cost of health care inflation.  One of the readers of the Shrink Rap blog pointed out that in a national system of health care you might be able to get an expensive medication like aripiprazole but you would have to wait longer.  In our current system of capitated care if your managed care company decides - you will not be able to get it at all.

That is probably the best example of the difference.

George Dawson, MD, DFAPA