The Hidden Cost of Capitated Payment

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By D. Scott Williamson, MBA, CAE
D. Scott Williamson, MBA, CAE

As the Affordable Care Act (ACA) works its way through the various bureaucracies at the federal level, it is also affecting state programs, such as Medicaid. National O&P organizations are working hard to influence federal reimbursement policy decisions, but there is no coordinated effort to monitor and influence state-level healthcare changes.

Though it was billed as a reformation of the healthcare system, the ACA is really more of an insurance management tool. It is an effort to make payers more responsible for care, and it provides incentives if the payers are able to achieve that level of care more affordably than the fee-for-service (FFS) model. But before we can build incentives, we have to define the desired outcome. The National Quality Forum report on the National Priorities Partnership defines good outcomes as reduced hospital readmissions, reduced infection rates, and few complications from procedures. These measures typically use a look-back period between 30 and 90 days.

When this 30 day model is applied to O&P care, it fails. O&P care takes about 12 to 24 months to "pay for itself" in the form of reduced healthcare expenditures, according to a study undertaken by Dobson DaVanzo & Associates, Vienna, Virginia, on behalf of the American Orthotic & Prosthetic Association (AOPA). Unfortunately, the criteria being created to measure and monitor the healthcare expenditures are focusing on a much shorter time period. This disconnect between the "performance time" and the "pay-for" time means that more than likely, O&P would not be covered in this system.

A significant part of the ACA creates incentives for states to expand their Medicaid enrollment, which will increase each state's Medicaid expenditures. So state agencies will look for ways to cut these costs-enter Medicaid reform. One example of this reform is legislation in Alabama where the process of implementing a capitated payment system for most of its Medicaid beneficiaries is under way. Certain healthcare categories, like dentistry, are exempted from this new capitation system and will remain FFS for the time being, while others, including O&P care, are not. In Alabama, O&P services account for less than 0.1 percent of the state's Medicaid budget. However, the system has been designed with a set monthly stipend that is paid for each beneficiary's care. If the care organization does not spend the stipend, it gets to keep the difference; however, if more funds are required for the patient's care, the organization must make up the difference.

Under this reimbursement structure, imagine a scenario in which the patient needs a lower-limb amputation. That stipend covers all related costs, including the operating room, surgeon, rehabilitation, and any other necessary care. If you were administering the care organization and the initial care for the patient's amputation had already exceeded the stipend for that patient, would be it more appealing to approve a wheelchair or a prosthesis? The stipend does not change significantly, if at all, because the patient now has an amputation. Therefore, it would be irrational for the payer to cover the prosthetic intervention. The O&P community in Alabama is trying to change the way that this new program is rolled out. But the best chance at change was before this approach was enacted into law.

Today, North Carolina is studying legislation that will convert its Medicaid program into an accountable care organization model. Will it resemble the Alabama legislation? Is anyone working with state legislators to educate them about the harm that will come to people with amputations if proper care is not delivered because of poorly designed economic incentives?

Who's watching your state? It ought to be you. No one is in a better position to educate and influence your state legislators than you are. Reach out to them before it's too late. Invite them to your facility. Explain to them what you do. Let them know how little it costs to provide O&P care to their constituents and how important it is to protect this patient population from unwise reimbursement cuts.

D. Scott Williamson, MBA, CAE, is president of Quality Outcomes, Fredericksburg, Virginia