Physician payment reform by capitation, will it work this time?

Paying physicians via capitation was soundly rejected by patients when it was tried in the HMO era a decade ago.

Massachusetts is trying again. According to a state commission, they recommend “replacing fee-for-service with a system that would use a single payment to cover most of a person’s care for an entire year.”

The last time this was tried, patients rebelled as it was perceived that there was a financial incentive for doctors and insurers to deny care. And they were right. Bluntly put, it’s the only way to control health care spending.

Some are skeptical that Capitation Version 2.0 will work. Hospital CEO Paul Levy feels that doctors and hospitals will be at risk of being caught in the middle: “You also need to let the public know what the new environment will be for their care so doctors and hospitals are not caught in the middle, the way it happened during the last experiment with managed care. If the Commission does half the job in its recommendations and leaves the rest to be fixed in the future, it will leave us will a lot of unintended consequences and will undermine the good that might otherwise come from a new payment scheme.”

Health insurer CEO Charlie Baker echoes my skepticism about whether patients will accept the implications of this new model. In addition to the fear that doctors will be incentivized withhold care, patients will also worry about a possible “restriction on their ability to see any physician they wanted to see.”

But, the bottom line is that saying “no” is the only way to control costs. Whether patients will accept that fact will determine whether these payment reforms will be successful.

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