Optimal Healthcare Not As Easy As It Seems

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.

This chart, via Austin Frakt, is one of the weirdest I’ve seen in a while, so I’m going to inflict it on you just as an object lesson. (In what? you ask. I’m not sure. Ask me again some other time.)

The question at hand is: do doctors provide more optimal levels of care if they’re paid on a fee-for-service basis or a capitation basis? On an FFS plan, they get reimbursed for every test and procedure they order, so you’d expect that they might provide too much care. On a capitation plan, they get a flat payment for each patient, so you’d expect that they might provide too little care. According to a clever recent experiment, both of these things are true, but in a surprising way.

In the chart below, Type 1 patients (1A though 1E) are average, Type 2 are healthier than average, and Type 3 are sicker than average. The black dots show “optimal” care levels for each type of patient, the red line shows the actual care provided under FFS, and the blue line shows the actual care provided under capitation. (Well, “actual” in an experimental sense, anyway. See note below.)

So what’s the result? For average patients and healthy patients, capitation is great. Doctors working under this system provide almost exactly optimal levels of care, while doctors working under FFS strongly overtreat.

But what about patients who are sicker than average? For them, FFS doctors provide an almost exactly optimal level of treatment while capitation docs severely undertreat.

Apparently, as long as the level of treatment required (say, $3,000 worth) is less than the capitation payment (say, $5,000), doctors will provide all the care that’s appropriate even if it means earning less money on each patient. But if the level of treatment goes above the capitation payment, they don’t. They aren’t willing to actually lose money on a patient.

Ideally, then, we’d like to compensate doctors on a capitation basis for most patients, but on an FFS basis for the 5-10% of the sickest patients. Figuring out just how to do that, however, is a considerable challenge.

NOTE: This was an experiment with medical students, not a real-life study with actual doctors. So obviously take it with a big grain of salt. Still, there was actual money at stake, and the design of the experiment was pretty good. It’s not a slam-dunk case by any means, but it’s highly suggestive of how things might work in real life.

UPDATE: An email exchange with Austin suggests that I should explain a couple of things. First, by “weird” I only meant that the chart is fairly complex and hard to understand at a glance, not that the results themselves are weird. Actually, the results seem pretty straightforward.

Second, those dollar figures I used have nothing to do with the chart or the experiment. They were just illustrative, on the assumption that for average and healthy patients the cost of proper care is less than the capitation payment, while for sick patients the cost of proper care is higher than the capitation payment. Apologies if this was unclear.

FACT:

Mother Jones was founded as a nonprofit in 1976 because we knew corporations and the wealthy wouldn't fund the type of hard-hitting journalism we set out to do.

Today, reader support makes up about two-thirds of our budget, allows us to dig deep on stories that matter, and lets us keep our reporting free for everyone. If you value what you get from Mother Jones, please join us with a tax-deductible donation today so we can keep on doing the type of journalism 2020 demands.

payment methods

FACT:

Mother Jones was founded as a nonprofit in 1976 because we knew corporations and the wealthy wouldn't fund the type of hard-hitting journalism we set out to do.

Today, reader support makes up about two-thirds of our budget, allows us to dig deep on stories that matter, and lets us keep our reporting free for everyone. If you value what you get from Mother Jones, please join us with a tax-deductible donation today so we can keep on doing the type of journalism 2020 demands.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate