Skip to main content
California's Managed Care Medi-Cal

I thought if I wrote about  “Medi-Cal Managed Care” that my readership may run screaming in the opposite direction.  But hey, what is life without risk?  Anyway, look at this--you’re still here.  Kudos to you for your determination and tenacity.  Here we go:  


In 2013 California decided to change the way Medi-Cal reimburses primary care providers from fee for service to capitation1,2.  Lots of private insurance Health Maintenance Organizations (HMO’s) also reimburse under this model.  For those of you lucky enough not to understand capitation, here’s the quick and dirty:  Traditionally physicians have been paid a set amount for each service rendered:  aptly named fee-for service. Under capitation, a physician is assigned a number of patients and gets paid a monthly fee, generally a few dollars per patient per month (PPPM), regardless of whether the patient receives services or not.  In theory, this is supposed to motivate physicians to keep their patients healthy, so patients won’t come to the doctor often, and in that way the doctor can earn a good income with a reasonable workload.   In practice, this can motivate doctors to “cherry pick” healthier patients, and to provide services that require the least amount of effort.  In addition, capitation supposes that not going to the doctor promotes good health and I am not sure that makes sense.  How are physicians supposed to influence patients to make healthy choices if we don’t interact with them frequently?  In fact, the whole premise of capitation relies on several very sketchy suppositions.


Flawed Assumption Number 1:   

Physicians have control over their patients and can influence their behavior.   Ha!  I just want to run laughing all the way to the bank over that one.  Who in their right mind thinks that a doctor has more influence over a patient’s lifestyle choices than culture, hedonism, advertising, habit, addictions, ingrained behavior patterns, finances etc.?  It’s not like I can lock my patients in the dungeon below my office and force them to eat raw kale while chained to a moving treadmill.  (Now there’s an idea--is there a HEDIS measure for that?) The idea that a primary care provider could wave a magic wand over his or her 800 assigned patients and chant “stay healthy”  and somehow this could be an effective health strategy is outright delusional.  Too many variables are involved over which the doctor has no control.   Capitation cannot be justified with the premise that physicians have substantial control over their patient’s lifestyles.

Flawed Assumption number 2:  

The other assumption, which none of us like to think about, is that capitation is correcting a problem.  The presupposition goes like this:  there is a serious, costly problem that is raising the cost of health care,  and at the root of this problem are bad doctors.  These corrupt and bad doctors see patients that don’t really need to be seen, do unnecessary procedures and make money off their evil actions.  Under capitation, these bad doctors are no longer motivated to do these unnecessary encounters and procedures, and subsequently costs will go down.  Are any alarm bells going off for you about now?  Does it seem reasonable to assume that there is so much corruption in the system that a substantial amount of money can be saved by changing the reimbursement infrastructure for everyone?  Are there really so many bad players out there?  At any rate, if there are so many bad doctors with questionable practices, isn’t it logical that that they could wreak at least as much havoc with their bad behavior under capitation?  Or worse?  Capitation assumes that doctors will be good and see patients when necessary even though they don’t get paid more.  For a capitated system to work, doctors have to be really, really good. Therefore it is illogical to to justify capitation with the bad doctor premise.
As physicians we can’t win.  On the one hand we are viewed as unethical, money grubbing, unnecessary-procedure-performing money hungry animals, and on the other we are hard working saintly creatures who will go the extra mile and provide excellent service even when we get paid identically for the bare minimum.*

Flawed Assumption 3:

Patients who access less medical care are healthier.   WRONG, I say.  Influencing a patient’s lifestyle choices is labor intensive.   Can policy makers really believe that less contact with health care providers results in better health?  Programs to quit smoking rely heavily on support groups, frequent meetings, and intensive therapy.  The physicians I know of who promote healthy eating and nutrition spend countless hours with their patients, educating and motivating them.  They host seminars, provide cookbooks, set up interactive websites, and perform frequent consultations.  None of them do this on a $2 per member per month stipend.  Most take cash and work to some degree outside the standard medical establishment.  Do you think Dean Ornish M.D. met with president Clinton just once or twice?  I don’t know this for a fact, but I imagine the transformation from an fast-food eating, dessert -loving pudgy atherosclerotic former president to the vegetable loving skinny vegan you see today took more than 3$ PPPM.
Capitation cannot be justified on the premise that less medical care results in better health.

Flawed Assumption Number 4:    

Physicians are good, moral professionals who will continue to see patients and provide excellent care even though we get paid exactly the same if we put in the bare minimum of effort.  While I like to think that most doctors are good, moral people, the key word here is people.  Most of us go to work for the paycheck: Is there something wrong with that?  Many of us also do volunteer work, but when we go to our jobs we expect to paid for our work.  That’s the agreed upon social contract.  
Besides, why are we the only ones in the game who are expected to uphold moral and ethical standards to our personal detriment?  The insurance industry is full of lying, cheating, double-talking extortionists who think nothing of holding your very life hostage in return for profit.  I’ll take a transaction with a drug dealer any day of the week over trying to deal with one of the major insurance companies.  
Capitation cannot be justified by claiming that physicians are good, reliable workhorses who will always do right by their patients regardless of the financial incentives.

California Capitates Medi-Cal

While the fee for service system has problems, capitation also has flaws that are equal and opposite in nature.  I find it puzzling that the State of California was determined to convert Medi
Cal to a managed care system, but they did.  In 2013 the State handed over the administration of Medi-Cal to a variety of county-based managed care organizations.  Most of these pay based on a  capitation system.  
In the northern counties we have been experiencing crazy layering upon crazy.  Here’s what happened.  The Department of Health Care Services (DHCS) knew implementation of such a drastic change could be fraught with problems.  Would capitation grossly underpay the clinics compared to fee for service?  Would it pay more?  No one really knew for sure. Additionally there was a roadblock on the path to capitation.  The Federal government has 2 HUGE, vitally important programs that help pay for Medicaid visits--the system of Federally Qualified Health Centers (FQHC), and the Rural Health Clinic (RHC) program.  These organizations are paid on a payment-per-encounter basis or “all inclusive rate”. Fully capitating Medical could leave federal money on the table, so the DHCS decided on a hybrid approach.  After clinics received their capitated rate, they would also be allowed to bill a “Code 18 wrap around” fee so that they would be sure to collect the maximum allowed by whichever federal program they participated in.  

Capitation starts to sink the small, independently owned rural health clinics

I think that the State must have thought that capitation would dramatically underpay  clinics, because many rural health clinics were advised to bill an additional $35-45 fee for each patient seen.  The problem is, no one knew what the right amount to collect ought to be, and the whole new system would have to run for 12-24 months before anyone would know for sure what the right amount would be.  It was utter chaos for awhile.  Some clinics missed the memo about the Code 18 money, and went grossly underpaid.  Others may have estimated correctly and come out even.  I believe the majority of rural health clinics overestimated the code 18 amount and got overpaid, but were not billed for 1,2, or even 3 years. By then, the amount owed was staggering, and many had so much debt that they shuttered their doors and could not continue operating.  As one of the office managers I spoke with said : “They were supposed to make us whole, not put us in the hole”.  This problem played a role in the closure of three of our local rural health clinics-- Humboldt Medical Group, Olkin and Jones and Redwood Family Practice, and continues to cause significant hardship for many of the remaining rural health clinics in the area.  Bill Finerfrock, executive director for the national association of rural health clinics said that Washington State had a similar problem that resulted in the closure of many of their rural health clinics. In fact, his organization had been lobbying the Centers for Medicare & Medicaid Services (CMS) for rules to better protect rural health clinics.  I spoke with Gail Nickerson, president of the California Association of Rural Health clinics who bemoaned the fact that reimbursement is no longer based on a cost basis.  The original idea was to pay clinics based on their costs, not to bankrupt them with debts.  How far things have come.  I was not able to get a comment from Partnership about this issue-no one would return my calls.  
Rural Health clinics represent an ideal public-private partnership that allowed physicians a balance of aid and autonomy; support with independence.  It’s wrong that small independent rural health clinics are dropping like flies with little notice or outcry.  Join me in a moment to mourn this loss.

A Hybrid System with a mix of capitation, fee for service and all inclusive payments is confusing

At any rate, I don’t see how a system can reap the purported benefits of capitation in a hybrid system.  Physicians are getting so many mixed messages from such a variety of contradicting programs that we are ready to tear our hair out.  My HMO patients are fully capitated and we get paid the same whether we we talk on the phone, do an office encounter, or converse in an email.  In order to be reimbursed for my patients on regular private insurance, they must come in for an office visit.  Our MediCal patients are in the twilight zone--we get paid a capitation fee whether we see them or not, but then we get paid some more if we do an office visit.  I’m not sure this mish mash makes any sense at all, and if all this chaos is supposed to motivate my behavior in some way that has been lost on me.  All this makes me want to do is come to a dizzied halt and cover my ears.   

*(The policy wonks did think of this, and their woefully inadequate solution to to keep us motivated is through quality bonuses--but that is another topic altogether--see “QIP...or is it?”, North Coast Physician, January 2017)

1. Medi-Cal Managed Care:  An Overview and Key issues.  Margaret Tater, Julia Paradise, and Rachel Garfield, The Kaiser Commission on Medicaid and the Uninsured March 2016

2. On the Frontier: Medi-Cal Brings Managed Care to California’s Counties, California Healthcare Foundation, March 2015.


Popular posts from this blog

The Slow Demise of the Private Office

Doctors have been bemoaning changes in the practice of medicine for years, and with good reason.  It’s harder and harder to make a go of it in private practice.  In recent years our area has lost several small practices -- Hal Grotke’s Redwood Family Practice closed*, Dr. Garcia retired, Teresa Marshall’s solo office shut its doors, Eureka Internal Medicine transitioned to Humboldt Medical Specialists (which then became St. Joseph Hospital Medical Group), and  Beverly Copeland relocated to Ashland.  As I was writing this, Dr. Windham announced that he is ceasing the provision of primary care at his small office.  Unfortunately, young, freshly trained physicians are not arriving here to take their places.  Most recent graduates take positions with large organizations that can offer loan repayment funds, regular hours and steady salary. It’s no wonder new physicians want to be employees with reasonable pay and limited hours.  If you are not working for yourself, there is no reason to be…

Parable of the Pizza Shop

One day a man decided to open a pizza shop.  The first week he sold pizzas, collected money from his customers; the happy customers ate hot pizza and business was good.

The next week many of his customers who came in had pizza insurance, and had already paid Blue Wall Insurance for their pizzas.  Since so many of his customers had purchased pizza insurance, the man signed a contract with Blue Wall agreeing to discount his pizzas in return for a larger volume of customers.  And so it went with United Pizza Insurance, PizzaNet and Pizzaetna.  

Pretty soon the man started having trouble getting the pizza insurance companies to pay for the pizzas he sold, and he had to wait a few months for his payment.  They also started meddling with his cooking and trying to dictate what toppings he could use.  They even restricted the use of some of the more expensive ingredients.  He had to hire extra employees to fill out forms and paperwork they required before they would reimburse him.  This all cos…