Drew Guerra

Reflections on the Session: What Is the Optimal Payment Model For the US To Transition To?


On January 21, 2021, The Zetema Project’s Panel and Fellows convened to discuss and debate the question: What is the optimal payment model for the US to transition to?

Two competing ideas rose to the forefront of the session, both of which quickly disposed of the idea that capitation is a magic pill that can sufficiently address ever-increasing health care costs and growing inequities. First, a significant subset of the panelists argued that the opportunity is primarily in cutting administrative waste - specifically, that today's health ecosystem cost structure is loaded with an unnecessary administrative burden, and that health care stakeholders aren't actually making much money due to these inefficiencies. The competing viewpoint was that prices are the core issue of sky-high costs, healthcare stakeholders are making plenty of money given these high prices, and that any solution which does not directly tackle pricing will be unsuccessful in sufficiently reducing costs and resulting inequities.

I think the latter point of view has a stronger case to make, for several reasons. First, it is easiest to draw distinctions between the U.S. system and others to find reasons for higher health care expenditures - and the data consistently points to higher prices, not administrative complexity. Second, we know there is enormous price variability even within geographical regions for near-equivalent health services or goods, making clear that some businesses are able to successfully operate with lower prices. While margins for hospital systems or insurers may not be especially high, this is often by design - partially because many of these organizations are non-profits that must redistribute their 'excess profits' elsewhere and partially because while the businesses themselves may not be reporting large profits, they employ executives, providers, and various other professionals and pay them salaries that are many multiples of the median American's income. People are making plenty of money in healthcare. This evidence demonstrates both a clear problem and clear opportunity. Finally and ironically, those making the argument to instead cut administrative waste are sometimes healthcare 'administrators' themselves or those without direct roles in the provision of health care goods or services - are their jobs also fair game for cuts, or would they put only a very limited component of the administrative burden on the cutting floor? If the latter, the opportunity for reducing administrative waste is greatly reduced - making an even stronger case for price reductions.

Finally, although I recognize the difficulties inherent in risk-adjustment and pay-for-performance models that must be overcome to successfully implement capitated payment at a broader scale, I think that capitation can and should be used as a means of tackling prices - by setting capitated rates at a significant reduction from average fee-for-service reimbursements. Of course, other measures must be taken to restrain prices too, from global or regional budgets to regulated pharmaceutical pricing, but capitation can certainly be a valuable tool in our toolbox.