Systemic Problems of Healthcare Fees for Service vs Capitation Payments

Better care costs less because it’s measured, thoughtful, and well-planned to avoid harmful and expensive complications.

Work Right NW hosts the Prennovate podcast – a series where experts in academia, industrial health and safety, elite athletics and sports medicine come together to discuss the benefits and impacts of the collision of innovation and prevention. Recently, our CEO at Modus, Doctor Ali Alhimiri was invited by Nic Patee to discuss the problems facing injured workers as a result of incentivized treatment. Listen to the full podcast on Work Right NW.

Systemic Problems Facing Injured Workers and Corporations

If some medical care is good, then surely more medical care is better, right? Unfortunately, this is not how the system typically works. The rate of use of common medical services across the United States varies markedly, however, measures of health are not better where services are liberally provided. In fact, studies report that in areas where people are receiving more services, the quality measures of health are lower.

There is a constant quest for understanding how to integrate prevention and drive for this mission of maintaining and enhancing patient safety as opposed to applying a “quick fix.”

In today’s world, physicians around the state are financially incentivized to over-treat a patient. However, more treatment is not always in the best interest of the patient’s needs and often leads to worse outcomes.

Monetary incentivization of overtreatment is being increasingly recognized as a major cause of patient harm and excess cost. The American Institute of Medicine suggested that overprescribing of “unnecessary services” is the largest financial burden to the US healthcare system, accounting for approximately $210 billion of the $750 billion spent in excess each year. The current American healthcare system does not penalize physicians for worse outcomes. Instead, they’re only monetarily incentivized to prescribe more treatment. This process has led us on this journey to understand how we can integrate prevention into the payment model that benefits both the patient and the physician.

So, the question is, how?

Firstly, we need to understand how we can give better care when people are injured, whether it be a work-related or non-work-related issue. Below are some of the most prominent systemic problems faced by injured workers and corporations.

Coercion-Based Medicine: A Break Of Oath?

Patients, when they’re injured or sick experience a lot of anxiety and fear, some of which is rational, and most is irrational. The fear factor is inevitable, as most patients would experience a certain level of anxiety or distress when injured or newly diagnosed with a condition. However, some doctors use fear-based messages when counseling patients regarding certain conditions or injuries.

How often do doctors say things like “if you don’t do this, you might… have permanent nerve damage, be in a wheelchair, have a stroke, die” etc, you get the gist. Although there is no specific data to justify just how many doctors practice this form of communication, patients report such conversations are relatively common in clinical encounters.

So, finding a doctor who can truthfully advise a patient on realistic treatment options would be ideal, as opposed to doctors who try to sell them on unnecessary procedures and surgeries using fear. People take doctors very seriously as they are very highly regarded in society. Sometimes, some doctors would take advantage of that respect, and admiration, and instead, prioritize their own interests instead of their patients.

Barriers to Choosing the Right Doctor

When asking to find a reputable doctor, most people would ask a trusted friend, neighbor, or colleague for a recommendation. Most of the time, they will search for their doctor as they would book their hotel reservation – through a Google search. However, a Google search is not always fair to the doctor. Some patients may be thrilled by the great customer service they have received or the amazing office facility, whereas conversely others are disappointed if they don’t receive a miracle quick-fix. Neither of these types of review really indicate if the doctor is truly aligned to your best interests. The point is, online review is good for service level feedback and not for clinical outcomes.

“To give you an example, I practice 15 minutes south of Detroit, and I live about 30 minutes north of Detroit. I can tell you the best doctors in musculoskeletal care around where I practice because I’ve dealt with them and seen their work product over the years. But I have no idea which one to choose where I live and I’m an insider within the industry. So it’s very difficult for everyone, even people working within healthcare.” Ali Alhimiri, MD

This system not only affects the patient. It becomes complicated for employers as well, causing difficulties in deciding which physician or healthcare service to refer their employees to. As Nic Patee pointed out: “A multi-state multinational corporation that’s got 100,000 employees scattered throughout the US would need to understand those marketplaces in every single city. This poses a considerable challenge.”

The Negative Impact of Fee-For-Service

The way we pay for health care is “a pain point for everyone” according to Ali Alhimiri, MD founder of Modus. For patients, about a third of bankruptcies are related to medical bills, employers who pay for the care, and the clinicians who take care of these patients daily. And they have to chase their bills and make sure that they’re getting paid and staying in business. The way we pay for healthcare, most commonly, is via a fee for service. So the more doctors and providers will do, the more they get paid.

A fee-for-service is the most traditional payment model in the healthcare industry which reimburses physicians based on the volume of services they provide. Essentially, this payment system rewards physicians for quantity as opposed to the quality of service.

In our opinion, a fee-for-service system discourages long-term engagement with a patient due to its transactional nature, but capitation encourages less care for more profit. A hybrid of both payments has the best chance of balancing access, quality and cost.

There’s no reward for the overall and long-term outcome of that patient, instead, physicians are rewarded for winning the rat race by more and more volume, and the system punishes doctors with thoughtful, considerate conservative care.

Administrative Burden on Physicians

Today, this system treats all clinicians the same way. All doctors have to be paid the same way. They all have to abide by the system’s ludicrous administrative process of payers pre-auth. This creates a lot of frustration.

Physicians interacting with the US healthcare system will encounter multiple unnecessary administrative complexities – from filling dumb electronic health records systems (EHR), and useless duplicative text-generated medical records, to sorting out insurance pre-auth and the games of billing. Why? To get reimbursed. This, in turn, not only creates a tedious process for physicians to follow but also creates a considerable financial burden on the US healthcare system.

According to the Center for American Progress, the US spends nearly $500 billion on billing and insurance-related costs. When looking at other countries, such as Canada for example, reports indicate that the US has 44% more administrative staff, and US physicians spend nearly 50% more time on administrative tasks. One study looking at time spent on the electronic health records systems (EHR) estimated that on average, a US physician spends half of their workday on the EHR, including dealing with billing, coding, ordering, and communication.

Opportunities to Improve the Healthcare System

Guiding Patients to the Right Doctors

Finding a doctor that you can trust is really invaluable. It would create a great sense of well-being, and mark it as a good gesture for employers to find qualified physicians that service their population.

What patients need is a thoughtful doctor that has an inkling of doubt. Some doubt is beneficial. A doctor with healthy doubt is a doctor who has thought deeply about the variations of treatments available. We often hear about ‘the benefits outweighing the risks’ when it comes to treatment. And so, that’s where we come in. We’re here to tell you which doctors have continuously followed best practice standards to ensure patients are getting better, not just providing more care regardless of the outcome of their patients.

“Occasionally, you hear a doctor who would say “ I did this surgery because it’s the last resort” – which makes absolutely no sense because it would be the equivalent of hiring an arsonist to burn down your house for a pest extermination, leaving you homeless, and with a bigger problem than you originally had. So, applying something as a last resort, implies that it would be beneficial – and a lot of times, it’s not. The right philosophy should be we’re treating someone because we think the benefit outweighs the risk and the harm that comes out of the treatment.” Ali Alhimiri, MD

Modus Clinician’s Responsible Autonomy

One of the most effective strategies for curtailing this financial drain and poor quality is to adopt a population-based hybrid Capitation and Fee-For-Service (FFS) model. A capitation fee is a healthcare payment system that pays doctors a fixed amount per patient. The capitation model creates incentives for efficacy, preventative care, and cost control, while the FFS helps avoid withholding of care.

One of the key benefits of a Capitation system is the decreased costs of overhead and administration for the clinicians. Physicians can bypass the administrative burden as they would not have to wait to be reimbursed for their services, allowing the practice to be more focused, productive, and tailored towards better patient care. At the same time, a lower FFS will ensure patients are serviced timely and encourage access to the doctors.

However, a Capitation system does have flaws of its own, which incentivizes doctors to enroll as many patients as possible, and then withhold necessary care that patients need to demonstrate lower costs. None of this benefits the patient. If, however, the system were to monitor not just cost, but also patient function, we prevent that from happening.

Building Trust Through Transparency

We need a system of trust. A system with a trust score that rewards doctors based on their ability to provide reliable and quality care to patients and minimize poor function outcomes and higher expenses.



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