Hospice explores capitation, betting on lower hospitalization

Payer and hospice incentives agree on moving dying into the home

In the early 1990’s, a strange word was being whispered in hallways and conference rooms of physician practices: capitation. At the time, commercial insurers embarked on a campaign to give physicians the risk — and the promise of greater profit — associated with financing the health care costs of beneficiaries.

Instead of being paid on a fee-for-service basis, insurers proposed paying physician groups a predetermined amount of money per patient per month to cover a set amount of patients, most of whom were unlikely to set foot in the doctor’s office. That meant that every covered beneficiary who didn’t come in for a visit represented money in the physicians’ pockets. The only catch was to keep the costs of those patients who did come in that month from exceeding the monthly payment.

A decade later, the financing model that was supposed to sweep the country never did, but a few large multispecialty practices still accept capitation. The payment methodology didn’t catch on for a number of reasons: the appearance that physicians would withhold care to keep costs down; the lack of physician experience in managing risk; but mostly because the physician-insurer and physician-patient relationships operated according to diametrically opposed incentives. In short, insurers wanted doctors to spend less, while patients demanded high-cost care.

While capitation for physicians has gone the way of the Tickle Me Elmo doll and the Rachel haircut, the fad hasn’t completely died out. Hospices are now experimenting with capitation. The risky proposition seems a sound choice for at least one reason: Both hospice and payer incentives are aligned. Insurers don’t want to foot the cost of long-term hospital stays for terminally ill patients. Similarly, the hospice philosophy has always been to allow patients to die at home where they are most comfortable, says Brad Stuart, MD, medical director of the Sutter Visiting Nurse Association and Hospice in Emeryville, CA.

Sutter VNA and Hospice is a large, established home health and hospice provider in San Francisco’s East Bay area, within the regional multisite nonprofit Sutter Health system. The hospice launched a program called CHOICES (Comprehensive Home-based Options for Informed Consent about End-stage Services), a program of care coordination, patient/family education, advanced care planning, and home-based medical, psychosocial, and end-of-life care for high-risk, medically unstable patients enrolled in Medicare risk plans. Under the CHOICES project, Sutter VNA collaborated with North American Medical Management (NAMM) of Ontario, CA, a nationwide physician management group that has many doctor members in the East Bay caring for seniors enrolled on managed health plans.

While the hospice was able to succeed with its program, Sutter hospice officials recently decided to discontinue CHOICES following the retreat of insurers from Medicare risk programs. As payers abandoned Medicare risk plans, the number of covered lives dwindled to a point where the return was too low and the risk too high, Stuart says.

Most of the managed care organizations offering Medicare risk plans in the Bay Area have since dropped Medicare+Choice, the Medicare managed care program. NAMM’s enrollment of such patients for medical services under capitation shrank, choking CHOICES in the process.

Still, a lot can be learned from Sutter VNA’s experience with capitation. Capitation allowed Sutter to reach patients earlier with palliative care, and it enabled more patients to die at home.

According to Sutter hospice, the CHOICES program was able to provide palliative and end-of-life care further up the continuum of care, offering it concurrently with active treatment. This meant a broader population of patients was served, compared to those typically enrolled in hospice. Patients with cardiac illnesses and other chronic but terminal illnesses that carry uncertain prognoses have always been tough referrals. Through CHOICES, however, Sutter hospice was able to treat more of these types of patients and get them into hospice care sooner.

CHOICES served patients for a median of 260 days, much longer than the local median hospice length of service of 21 days. Patients in the program who ended up in hospice with short lengths of stay already had the advantage of earlier palliative care. Pain was being addressed and advanced care plans were in place. Crises and related hospitalizations were uncommon.

Fifty-nine percent of all patients enrolled in CHOICES died at home, a home death rate much higher than the national rate of 22% and Northern California’s rate of 26%.

It is important to note that the above observation illustrates the aligned incentives payers and hospices have for end-of-life care. Both hospices and payers favor patients dying at home, where patients are comfortable and cost is far less than terminal illness hospitalization.

How it worked

While accepting capitation allowed Sutter hospice to configure a program that provided the opportunity to deliver care concurrent with treatment and to reach patients sooner in the disease process, there is a whole other side to success under capitation. Hospices that are able to design delivery models that improve quality of care but that don’t pay attention to details related to cost are doomed to fail.

Capitation is rooted in holding providers financially responsible for specific services. The payer defines the group of beneficiaries, sometimes referred to as the covered lives, and proposes a set fee for each covered life, known as per member per month (PMPM) payment. For example, 10,000 covered lives with a PMPM payment of $50 garners a total monthly payment of $500,000.

While the idea of depositing $500,000 into your operating account each month seems tempting, you need to know what the payer expects you to cover with that money: Routine hospice care? All care related to hospice, including expensive, high-tech care? What about the population itself? Is it prone to more chronic and terminal illness than average populations? These are all questions that directly affect how much it will cost to provide the care the payer is putting the hospice at risk of covering.

Overutilization must be avoided

Avoiding overutilization is essential for provider organizations to thrive — or even survive — on the PMPM rate that managed care companies pay, says Stuart. For a senior population with multiple chronic health conditions, that means supporting patients in making treatment choices reflecting their values and preferences while preventing or responding quickly to medical crises.

"CHOICES was based in a Medicare+Choice HMO setting," Stuart says. "That was a fruitful place to innovate, particularly in end-of-life care, because capitated payment means that financing incentives are aligned with better care management to keep people out of the hospital. Unfortunately, the future of Medicare+Choice itself is uncertain. The health care market has definitely changed."

What Sutter learned was that information is a key component to understanding costs and being able to fully understand the cost savings a hospice is providing to a payer.

"The challenge for creative palliative care projects is to shake loose enough savings from preventing hospitalizations and then persuade whomever is paying for those hospitalizations to pay for the preventive coordination instead," Stuart says. "The program could pay for itself by saving even a few hospitalizations."

However, amid mergers, changes of leadership, and incompatible information systems, cost accounting has proven difficult. The project’s experience underscores the need to collect actual health utilization data, rather than just claims data.

The next generation of reimbursement

The remaining payers in Sutter’s market realized that because hospice incentives are indeed aligned, capitation was not needed to coerce hospices to keep costs down by moving patients out of the hospital and into their homes.

The creators of CHOICES have consolidated their experience in a new project called AIM (Advanced Illness Management). The goal of AIM is similar to CHOICES in that it offers palliative care services concurrent with treatment. The difference is that staffing and services are delivered by home health workers, with hospice workers acting as consultants until the time comes for hospice referral.

"In CHOICES, we provided what the patients needed. We could do that and ignore some of the silos’ or artificial bureaucratic separations between different categories of service and coverage" because of capitated financing, Stuart says. "CHOICES made it easy to operate outside of the silos, but in AIM we’ll be consciously operating within the silo of home health care."

Stuart is exploring a Medicare waiver or demonstration status to ease the impact of some of the home health regulations that don’t exactly fit AIM, including language related to skilled nursing needs, evaluation, and homebound status.

The CHOICES approach could be expanded through better coordination with hospitals and especially with emergency room staff, Stuart notes. An integrated health care system could view programs like CHOICES and AIM as a worthwhile investment because home-based transition management and palliative care prevent unnecessary hospitalizations.

For example, on average, elderly patients who die at one of the nearest hospitals in the Sutter system do so after 16 days in the hospital, and their Medicare DRG payments on average cover only about one-third of the hospital’s costs.

Identifying appropriate patients while not bringing on too many too soon is key to the success of this approach. The cost of managing and monitoring chronically ill but stable patients, such as those who suffer from dementias or long-term debilities, could become prohibitively expensive. Stuart stresses that the financial viability of programs like CHOICES and AIM depends on identifying and enrolling the highest-risk patients with complex needs.

"Transition management is for people who are really sick," he explains.