If there’s one thing I’ll never forget from seventh grade biology class, it’s that mitochondria are the powerhouse of the cell. The function of this organelle is seared into my memory. However, the first day we learned about cells, I was completely overwhelmed by all the new information and strange names. One of the strategies that helped me understand the different parts of the cell was the use of analogies. The nucleus was the control center, the Golgi apparatus was the post office, mitochondria were the powerhouse, and so on.
At Center for Health Progress, we’ve been doing some learning ourselves. As outlined in our new strategic plan, one of our goals for the next three years is to ensure that Colorado Medicaid payment reform efforts address social determinants of health and include payment for upstream factors that drive inequity in the health care system. Payment reform is a new content area for many of our staff and, as we are learning, it is very complicated! Even well-established experts struggle to describe payment reform and talk about it in a relatable way.
We began the year by publishing a Payment Reform and Alternative Payment Models Primer. But it still felt overwhelming. So, we started thinking about analogies for each payment model:
- Fee-for-service: When you take your car into the mechanic, you get charged for every product and service individually. One charge for those new spark plugs, plus a charge to install them. If you’re not a mechanic yourself, you might not know whether you really need that new air filter or to have your brake fluid changed, so you rely on the mechanic’s expertise and hope they only recommend products and services you really need. That’s how our current fee-for-service system works, too. Hospitals and clinics, like repair shops, bill you or your insurance company for each product or procedure and get paid based on how much health care they provide.
- Pay-for-performance: Did your parents ever reward you with a fun activity, a gift, or dinner out for a good report card? Pay-for-performance models operate the same way. If providers hit certain metrics or benchmarks, they are eligible to receive more money.
- Care Coordination: In school, group projects are rewarded with a good grade if they are able to work well and communicate with each other. Likewise, care coordination models reward providers with additional savings if they are able to provide care efficiently and collaborate with other providers.
- Bundled Payments: If you send a package using a flat-rate shipping box, you pay the same amount whether you send one lightweight item or several heavy items—as long as they all fit in the box. In a bundled payment model, providers receive an upfront payment for an entire “episode of care,” such as a surgery. If providers can keep the cost under that initial payment, they can keep the rest of the payment. But, if it costs more for them to provide the care, they are on the hook for making up the difference. If the patient requires some care that goes beyond the scope of the original bundle—say if removing an appendix reveals a tumor on another organ—then additional payments can be made to cover what’s new.
- Capitation: Some companies provide gym memberships for all their employees. Some of those employees will work out every day, and others may go once a month, but each month the gym gets paid the same amount for each membership. In a capitation model of care, providers receive a payment every month for each of their enrollees, called a “per member, per month payment,” to take care of all their patients, even though some patients may require more care than others. This is also largely how K-12 schools are paid. For each enrolled student, they get the same amount of money from the state each year to provide education and support services, although some students will cost more because they need special education, counseling, or have other needs.
What do you think—do these payment model analogies work? If you work in payment reform, how do you explain each payment model?
We know that if designed correctly, payment reform presents a tremendous opportunity to reduce health inequities and decrease unnecessary spending, but in order to advocate for the changes we want to see, we need to have the language to talk about them. My goal is to make payment reform as easy to understand and remember as those middle school biology lessons. Will you help us spread the word?