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'Annual fee' model an answer to govt's Medicare woes

21 January, 2015

The government is struggling to sell its Medicare co-payment reform because its sole emphasis is on cost control, when it should also be about supporting quality and equity, according to an economics expert.

La Trobe University's Peter Sivey explains why a funding model based on capitation, with some pay-for-performance and residual fee-for-service elements, could actually be a better option.

What is capitation?

Capitation is a system which pays doctors an annual fee for each patient they have enrolled in their practice. The payment is in return for the GP "looking after" that patient for the whole year. So GPs do not receive more money for seeing their patients more often, and indeed will benefit from lower costs themselves if patient's health improves and they require less care in the future.

Capitation has been the primary funding method for general practice in the United Kingdom for more than 100 years. More recent examples of capitation implementation come from North America: from the growth of managed care in the United States, where capitation has been widely used, to the province of Ontario in Canada, where a voluntary capitation system was introduced in 2007.

Evidence from Ontario, Canada is particularly relevant to Medicare in Australia, because voluntary capitation was recently phased in from an existing fee-for-service system. The model has been termed "mixed capitation" as it allows GPs to charge small fees in addition to capitation payments for enrolled patients, plus full fee-for-service for non-enrolled patients up to a cap.

This is how the transition to capitation could be implemented in Australia.

What does capitation achieve?

Early evaluations are cautiously optimistic. A recent study shows the mixed capitation payment method reduced the number of services (consultations) GPs provided by around 6 per cent per day, while increasing their likelihood of meeting preventive care quality targets by 7 per cent.

Another study by the same authors finds no evidence that GPs using the capitation model "cost-shifted" by avoiding enrolling high-cost patients, a potential concern in capitation. This evidence and others has led experts to recommend mixed capitation schemes to reduce costs and support quality.

An added advantage of capitation systems is that because patients are enrolled with GP practices they work well with pay-for-performance schemes. Pay-for-performance is when doctors are paid "bonuses" when they meet quality targets for patient care.

Pay-for-performance arrangements now play a large role in the funding of primary care in the United Kingdom and United States. Australia is lagging behind.

Towards a mixed funding system

Capitation and pay-for-performance arrangements are not completely new to Australia. The Diabetes Care Project randomised 50 GP practices to receive capitation and pay-for-performance payments for their diabetes patients (alongside other interventions). Practices received up-front payments and performance bonuses for achievements on indicators such as patient HbA1c level (indicating good blood sugar control).

The trial finished in 2014 and the evaluation has yet to be published. The results of this trial could be a valuable input into designing capitation and pay-for performance schemes in Australia.

So how can an ambitious reform of GP payment schemes proceed in Australia?

Reform could be incremental and gradual, offering capitation initially as a voluntary incentive for enrolling patients, alongside existing Medicare "fee-for-service" incentives.

Phasing in the new funding arrangements by states would provide excellent opportunities for evaluating aspects of the reform such as different ratios of capitation, fee-for-service or pay-for-performance in the funding mix.

This proposal would not be designed to provide a "quick fix" to health-care costs in the short term. Costs may even be higher in the first years of introducing new payment schemes than they would otherwise be with the status quo, as incentives are offered to doctors to adapt to change.

Health care policy should aim over the time-horizon of our lifespans, not just the budget forward estimates.

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