President Biden will face conflict between competition, capitation

President-elect Joe Biden rightly says fighting the pandemic and shoring up insurance coverage will dominate the first six months of his term. But what’s the plan for lowering the cost of care—Americans’ No. 1 pre-pandemic concern?

The incoming administration faces a stark choice. Either it can dramatically expand antitrust enforcement and rely on competition to drive down the exorbitant price Americans pay for care. Or it can vigorously pursue payment reform and aggressively push providers into risk-based payment arrangements where profits depend on delivering better outcomes at lower cost.

To do a little of each guarantees the new administration will fail at both.

A careful reading of the Biden campaign website suggests he leans toward the competition model. On the insurance side, his plan for achieving universal coverage begins with repairing the damage done to the Obamacare exchanges and convincing the last dozen holdout states to expand Medicaid. But he also promised to expand subsidies to make exchange plans more affordable and create a public, Medicare-like option that will be open to everyone, including people in employer-based plans. 

On the provider side, Biden promised to deal with predatory pricing policies by stepping up enforcement of the nation’s antitrust laws. His HHS secretary designee, California Attorney General Xavier Becerra, is eminently suited to that task after successfully bringing suit against Sutter Health. He also called for expanded price transparency rules to promote consumer shopping.

Memo to the transition team: This will never work.

No country relies on provider competition and consumer spending decisions to keep healthcare costs in check.

Moreover, promoting competition will only add to the system’s complexity and could create a new class of providers intent on gaming the fee-for-service system.

Sadly, there isn’t a single mention of payment reform on the Biden campaign website. And the head of his healthcare transition team, Chiquita Brooks-Lasure, a managing director at Manatt Phelps & Phillips, focused heavily on Medicaid reform since leaving the Obama administration. 

To be fair, value-based payment did come into play in Medicaid as managed-care organizations took over most state plans. But Medicare and the private insurance markets are much bigger players, they pay more for each service, and they face more difficult challenges in pushing payment change on reluctant providers.

Pressure is mounting on the new administration to pay attention to payment reform. It is coming from influential thought leaders connected to both political parties. A team of Democratic Party-oriented strategists recently called for the national scale-up of successful alternative payment models like capitated payments and episode-based bundles. 

Another group that included the Bush administration’s CMS head called for better reporting of socio-economic indicators and their relationship to health outcome disparities. Adequate reimbursement based on such measures is a must for safety-net providers to embrace value-based reimbursement.

Meanwhile, some business groups and private insurers are endorsing Biden’s call for a public option with a caveat. It must be run by private insurers willing to jettison fee-for-service medicine. “We need to pay providers, as teams, a predetermined risk-adjusted amount per person per month that provides hospitals and physician organizations with a predictable revenue stream,” according to a piece published in Health Affairs in November; former Kaiser Permanente CEO George Halvorson was lead author.  

Systems receiving capitated payments have performed better financially through the pandemic.

Second memo to the Biden team: Set a goal of making capitated payment the rule, not the exception, in American healthcare, whether that payment comes from private insurers or the government.