Musings on Payment Reform


Charlie Baker is the president and CEO of Harvard Pilgrim, a nonprofit health plan that covers more than 1 million New Englanders. Charlie is a regular contributor to THCB, where he has authored posts on national health reform (See: “Is Massachussetts a Model for National Reform?”  and related issues facing the healthcare sector. (For example: “Shifting Costs From Public To Private Payers“). His posts also appear at his own blog, Let’s Talk Health Care.

This week Charlie confirmed a longstanding rumor, announcing that he will be giving up his position at Harvard Pilgrim at the end of July to run as a GOP candidate for governor of Massachusetts. You’ll find more about his campaign on his web site, CharlieForMA.com.

The Commonwealth of Massachusetts – along with a number of other states (including New Hampshire and Maine) and the federal government – is kicking around a number of ideas concerning payment reform.  The argument goes something like this – since the current health care system, led by the gigantic Medicare program, pays primarily on a fee for service basis.  This “do something” payment model encourages clinicians and hospitals to do “more” for patients than they might do otherwise, if they weren’t encouraged to “do something” to get paid.  Add to that the fact that fee for service – again led by Medicare – pays more for new technology than it does for existing technology, and less for primary care, and you have the primary ingredients in the recipe that’s driven our system to be technologically driven, volume driven, fragmented and very expensive.

In Massachusetts, the group that’s working on payment reform seems to think the solution to this problem is to move everyone away from fee for service and into something that’s being called, “global budgets.”  Put simply, global budgets are a new and improved form of capitation.  Let me be clear on this one – I’m actually a big fan of both.  I believed in capitation when I worked in state government, and I worked for a medical practice (Harvard Vanguard Medical Associates) before I came to Harvard Pilgrim that was built on global budgets.

And before I go any further, I would offer up the cover story in this month’s issue of Health Leaders Magazine – titled “Bundling By Decree” as a solid a representation of the pros and cons of this debate as it winds its way through the national discussion around health care and payment reform.  This article is primarily about bundling payments around episodes of care, but the issues it raises – in both directions – apply in either context.

With that said, I wonder about whether or not global budgets, at least in the short term, are the answer to our health care cost and quality problems.  For some provider organizations, global budgets work – but they work in large part because those particular clinicians believe in them, and want to practice in environments that are based on them (like Harvard Vanguard/Atrius HealthCare).  But that represents a fairly small slice of the practicing clinician community – I’m guessing 10-15 percent.  Maybe 20.  It’s also not clear to me that this issue, above all else, drives our cost/quality problem, since many other countries that spend a lot less than we do on health care and have solid clinical results use fee for service payment systems too.

As far as I can tell, those other countries that spend less than us on health care do two things differently than we do.  First, they spend less on each service than we do – sometimes a lot less.  They also have robust primary care systems.  This, in particular, is just the opposite of our approach.  Our payment policies – and as a result, our medical education system – have been disinvesting in primary care for years.

In the short term, I’m not sure global budgets solve this disinvestment problem.  First of all, it’s financial and operational whiplash for a system that’s been running on fee for service for years.  That, all by itself, will take some getting used to.  It’s also not clear that Medicare or Medicaid – which make up 50-60 of the payments to providers to begin with – would also adopt global budgets.  If they don’t, having private sector payors using global budgets and the public sector payors using fee for service is just about  the worst outcome I can think of for providers and their patients.  The mixed messages these two payment models would send about what matters and what’s important would be virtually undecipherable.

This makes me wonder if our short term approach shouldn’t focus instead on changing the message all payors send under the current fee for service system to providers by improving the way we pay for primary care.  No one thinks we can possibly deliver integrated, coordinated care if we don’t send some signals to the medical and medical education community that primary care matters.  If a young medical student can make $250 an hour in primary care – or $1,000 an hour in dermatology – or $2-3,000 an hour in cardiology or orthopedics – how hard do you think it is to get that person into primary care?  The answer is it’s wicked hard – and the declining number of students going into primary care coming out medical school for the past decade is proof positive of that.  We used to be 50/50 primary care / specialty care.  Now we’re 70/30, and some of the anecdotal information suggests that kids coming out of U.S. medical schools are now running 15/85 primary care/specialty care.

Think about it.  No one disputes the fact that primary care has a key role to play in care management and care coordination – especially as the Baby Boomers get older.  The state’s Payment Reform Commission says global budgets will take three to five years to implement – and expects that every doctor will be using an EMR as one of its requirments for success.  Will this approach really grab today’s medical students and practicing clinicians and say – ”HEY!  It’s time to invest in primary care!”  In the short term, I think we’re more likely to get more capacity, faster, into primary care by boosting, on a relative basis, the fees paid to primary care providers by the private plans, Medicare and Medicaid.

Over time, maybe everybody gets to global budgets, but in the meantime, I think we need to do more to support primary care.