It is well known in healthcare that conventional, activity-based payment models lack system incentives for improving value, but they also create disincentives for doing so. In efforts to improve its healthcare value, Singapore is shifting to a capitation model, through which healthcare clusters will receive pre-determined fees for every resident living in the region they are responsible for.
This could trigger concern in healthcare clusters, with an instinct perhaps to view this as a shift of financial risk onto providers, potentially leading to rationing of care. Health Minister Ong Ye Kung has clarified that “absolute budgets of each healthcare cluster will not be affected…but instead will go up a little bit. What will change is the basis of calculating the budgets….with this shift there will be a natural incentive for hospitals to try to keep residents healthy through preventive care.”
Singapore has never shied from experimenting with innovative new models — albeit in this case with the intent to streamline the system and minimise any sudden shocks in the important arena of healthcare. In the third of our series on capitation in Singapore’s healthcare ecosystem, we explore learning around an effective strategic model for this transition.
The gradual evolution from conventional, activity-based payment models to value-based payment models has been seen for some time. Singapore healthcare clusters started the journey to value-based financing through the introduction of bundled payments for selective conditions, for example end-to-end care incorporating surgery, inpatient care, and rehabilitation for patients with hip fractures. A bundled fee ensures one clinical team oversees the overall care plan with close monitoring of quality measures.
The challenge with capitation is to scale up such measures to a population level, knitting together different payment models into a coherent cluster-wide model. Capitation, in various forms, has long been in place at integrated payer-providers, often living alongside value-based models. Examples include Kaiser Permanente, Geisinger, Intermountain Healthcare in the US, National Health Service (NHS) primary care in the UK and the general practitioner (GP) networks in Switzerland.
At Boston Consulting Group (BCG), we studied more than 30 value-based payment initiatives globally. While there has been extensive experimentation and innovation in designing new value-based models, the results have, so far, been mixed. It is critical for Singapore to embrace a clear view of what works and what doesn’t work before embarking on its own transformation.
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Defining target segment and scope will be critical
Implementing capitation is complex, and not every health system or healthcare cluster has sufficient capacity, scope, and the requisite systems to administer it effectively. Because capitation requires providers to function akin to an insurer and manage financial risk, it works best when providers can manage the risk across a large population of patients.
For instance, early experiments in using capitation to manage system costs in the UK foundered because of the narrow scope of initiatives. As a result, capitation did not really function as an effective incentive for managing total system costs.
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An approach that has shown results is to create targeted capitation payments for specific population groups. For example, capitation is used in the UK for primary care and mental health, and in the US by Medicare Advantage programs which are offered to those aged over 65 by US private insurers. The latter have been shown to deliver better health outcomes than traditional fee-for-service programs at nearly one-third the cost.
Small but meaningful bonuses can influence provider behaviour and improve quality
Evidence from our own benchmarking increasingly suggests that meaningful financial bonuses can influence provider behaviour in ways that improve quality.
The Accountable Care Organization (ACO) in the US sees healthcare providers agree to share collective accountability for the quality and cost of care delivered to their enrolled patients. Annual spending to ACO-affiliated providers is compared with a historical benchmark, and if the spending is below the benchmark the ACO is eligible to share in the cost savings — assuming the ACO also meets predefined quality benchmarks.
In Switzerland, GP networks have the potential to earn a bonus when their network’s quality of care score is above a predefined threshold and the total cost of care for the pooled patient population is below risk-adjusted expectations. Bonus design in Swiss GP networks follow some distinctive characteristics.
First, the bonus is capped at a modest 10% of base compensation. This is enough to focus providers’ attention on optimising the quality and cost impact of their decisions but not so big that it encourages providers to game the system. Second, the bonus only has an upside, to build trust between payers and providers. Third, the bonus is collective, calculated for the network as a whole and shared equally among the doctors in the network to avoid intra-team competition and to encourage collaboration.
Different payment models need harmonisation with capitation
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As Singapore pursues capitation, it will also need to define the necessary linkages among varied contemporary payment models. Today, the Singapore population accesses financing support through numerous channels such as Ministry of Health (MOH) subsidies, Medisave, Medishield Life, Community Health Assist Scheme (CHAS), CareShield Life and others. These are further tiered by income eligibility, creating several sub-journeys as patients flow through the system. Choice will also come into play with about 70% of Singapore residents having private Integrated Shield Plans (IP). During their lifetimes, patients will have diverse needs covered by different payment models. Singapore healthcare clusters will need to design an overarching system with capitation that incorporates the different models across varied patient populations and types of providers.
The capitation model needs to go a step further to ensure that it sufficiently addresses the gaps between the different financing components. Such an overarching model will need to be sufficiently comprehensive but not so complex that it becomes unmanageable. The principal should be to make the system as simple as possible for patients and providers, while managing complexity through back-end systems.
The route forward
Implementing a value-based payment system is likely to be a dynamic process with considerable experimentation, learning and adoption. Critical choices and trade-offs will also need to be made around issues such as deciding where to focus a cluster’s initiatives, how to organise provider payments for patients suffering from multiple morbidities, and what kind of data and advanced analytics platforms and visualisation tools will be necessary to provide the insights to drive continuous improvement in patient value.
Further, implementing a capitation framework requires a host of new capabilities for clusters such as enrolment, allocating capitation shares across different network providers, managing financial risk, tracking utilisation and outcomes, and linking them back to the reimbursement model. Clusters will need to build a sub-payer entity which acts as the bridge between clinical and financial aspects.
Singapore clusters need to be pragmatic and action-oriented. Rather than treat the capitation model in isolation, policy makers and clusters need to recognise it as one element in a broader set of system-wide changes, designed to align patient, provider, and payer behaviours around the shared goal of improving healthcare value.
Capitation is undoubtedly a complex transition, but one which can have clear benefits for patients, providers, and payers. The right solution will combine real buy-in from stakeholders, mature use of big data and analytics, and an informed approach to the right capitation model to ensure success for Singapore.
Prasanna Santhanam is managing director and partner at BCG, and Manav Saxena is project leader at BCG
