The Full-Risk Capitation Model: Why Make the Change?

By Christopher Chen, MD

Consider a typical primary care doctor who sees 30 patients a day, generating some $600,000 in a year ………………………..

We physicians are playing in a cruel game. We don’t set the rules, nor are they working well for us. Yet, when asked about a move to more value-based care, more than 60 percent of doctors responded that it would have a negative impact on their practice. It’s as if we have Stockholm Syndrome for our broken fee-for-service model that has held us captive from practicing medicine the way we thought we would when we dreamt of becoming a doctor.

Could the solution be as simple as choosing to get paid differently — going beyond today’s value-based care “lite” programs and all the way to a per-patient capitation?

The case for change

The data are clear that change is needed. Doctors lament where the profession has gone, with seven out of 10 physicians unwilling to recommend healthcare as a profession. Older doctors refer to a “golden age” when they had more autonomy. Physician burnout is all too prevalent. And, this year, the COVID-19 pandemic has shattered economic stability for so many doctors, not to mention revealed the extent to which administrators treat doctors like a cog in machinery, expecting us to “run into the fire” whether we are equipped or not. Perhaps worst of all, a bright light has been shone on how distorted the result of our efforts has become due to systemic inequity for different racial and ethnic groups — all of whom we took the Hippocratic Oath for. 

Within the healthcare ecosystem, it is physicians who are closest to the patient. We have the greatest knowledge of what would make a patient’s health better. We have the greatest ability to influence that patient’s decision. Yet, the payment system — both what we can and can’t get paid for, as well as how much we’ll get paid — is mostly sorted out between businessmen and bureaucrats. 

The fee-for-service model is our “captor”

It’s human nature that, if you get paid to do something, you’re more likely to do it. That’s the problem with our dominant payment system of fee for service: It’s all about volume. Doctors don’t like this, but have reluctantly bought in to this approach because it has reliably yielded stability, social prestige, and salaries that are higher, on average, than nearly any other profession. But we’ve traded away our mission. To stay financially successful, the only choice is more volume, taking any priority away from preventative care and the real improvement in health we intrinsically want to deliver to patients.

We are left lamenting the “games” being played to keep up RVUs and billings, the relegation of primary care to the bottom of the totem pole, and the constant squeeze on reimbursement rates — which yields more games to keep up revenue. But, as the saying goes, “The devil you know is better than the devil you don’t,” so it is not surprising that so many doctors report that moving to value-based care would hurt them.

Value-based care — right idea, wrong execution

The “value movement” is something everyone understands intuitively. It’s better to pay someone according to the value they create — to reward them for getting the desired outcome — not just for doing the task. An affordability crisis spurred value-based care, with the Affordable Care Act breathing life into the movement. And today, value-based care is among the rare initiatives that has support from both sides of the political aisle. “The transition to a value-based system has never been so urgent,” notes Seema Verma, head of the Center for Medicare and Medicaid Services. “When implemented effectively, it encourages clinicians to care for the whole person and address the social risk factors that are so critical for our beneficiaries’ quality of life.”

Ms. Verma is right. The problem is that we are going about value-based care the wrong way. We have a potpourri of efforts that require inordinate data collection and scores of metrics — different ones and different processes for each value program you’re a part of. The “carrot” or “stick” is not big enough to actually change the way we work. And the savings to the system are not accruing to the doctors who created the improvement.

Doctors are smart people. They look at the programs and think: This is a lot of effort for very little reward. It feels like a distraction, or worse, an intrusion into practicing medicine. They may be right. There is mixed evidence that any of these value-based care programs are actually working. But that is more of an error in design than principle.

Most value programs are still built on a fee-for-service chassis, meaning that doctors are still limited in what they can do to the traditional billing and coding system. Moreover, too often these programs measure processes rather than outcomes (say, checking for body mass index or blood pressure rather than actually improving it and reducing hospitalizations). It’s not clear that the actions being measured will yield the true desired result of better, more affordable healthcare. And those actions say nothing of the individual patient experience — instead focusing on whether the doctor “checked enough boxes” across a population.

Overcoming the unease of financial risk

Paradoxically, the best strategy for doctors who are ready to get over their Stockholm Syndrome with fee-for-service is not to take a little risk with “toe in the water” value-based care programs, but to take a lot of risk. It’s actually quite freeing and quite possible to do much better financially while serving the best interest of patients.

What would you do differently if RVUs simply didn’t exist? If you were freed to fulfill a single goal: helping patients achieve health and well-being by avoiding hospitalizations, rather than just meeting the criteria for a quality metric.

That is what you get to do when you actually take more risk. Capitation to be exact.

Capitation in action

Consider a typical primary care doctor who sees 30 patients a day, generating some $600,000 in a year (assuming about $80 per visit). This hard-working soul is rushing through patients, drowning in paperwork, and, after covering the costs of running her practice, hoping to take home a fraction of what specialists make — with very little benefit actually coming from value-based care payouts, no matter how good she is as a PCP.

What if she took “full” risk for these patients? If she declared herself “captain of the ship” and was responsible for everything about her patients. With this scenario, things change dramatically. To oversimplify, and assuming the negotiations with payors gets squared away, this same doctor might have $12 million — 20 times the money — to manage. (If she got an average of $500 per patient per month (based on what the insurers thought they would have paid for all care of those patients in fee-for-service) for 2,000 patients). Yes, the risk is that the $12 million gets spent and the PCP is left with nothing, or even a loss. But primary care is worth more than the 5 percent ($600,000 out of $12 million) of total costs she got in the fee-for-service world because PCPs can reshape the “downstream” use of care. Everything becomes about how to improve patient well-being to avoid spending the other 95 percent of preventable, avoidable, and unnecessary care. There is no worry about finding a billable code — just engaging with patients to do what it takes to make a positive impact.

This approach works. The companies doing this kind of primary care, like ChenMed, have driven down hospitalizations 30 to 50 percent lower than industry averages. Our imaginary PCP might drive $2 million in savings from $12 million if hospitalizations went down that much. In other words, in a global capitation arrangement the PCP can spend a huge sum on prevention and, of course, be the direct beneficiary of some of the financial reward for delivering better health.

It’s difficult to describe the intense fulfillment that comes from the time with patients, the move upstream into the social and other factors that drive their health, and the creation of new ideas to help them achieve good health. It’s taking on full risk that gives you the financial freedom to invest in what primary care should look like, and build it for each individual so that we can overcome a system that has left so many behind. If you can find a way to engage with communities of color and help them achieve better health, you will actually create a financial win for yourself while delivering a huge social good. The neediest patients cost the current system the most and, therefore, come with the largest capitation — potentially thousands of dollars, per patient, per month. Put simply, capitation is a system that incentivizes the best care for those who need it most.

Taking full risk is not jumping into the unknown. As doctors, we know what our patients must do to be healthier. When done right, the net effect of full capitation value-based care can certainly be a larger income for you, along with better health for patients and lower costs for American healthcare. Whether you have the nerve to do it yourself or want to make it happen by joining a proven organization that practices this way, it is possible to liberate yourself. You don’t need to remain held captive by the prevailing fee-for-service system and clunky, piecemeal menagerie of value-based “lite” programs that we’ve somehow come to trust in.

Dr. Christopher Chen is the CEO of ChenMed, a physician practice that aims to bring concierge-style medicine and better health outcomes to the neediest populations – low-income seniors managing multiple complex chronic conditions. Dr. Chen oversees ChenMed’s operations through its senior medical centers throughout the