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October 31, 2018
David Burda
Economics Policy System Dynamics

It’s Commercial Health Plans That Are Keeping Fee-for-Service Alive

Far from pulling the plug on fee-for-service medicine, commercial health plans continue to give it CPR. A new report says well over half of commercial health plan payments to providers in 2017 were under FFS contracts.

The Health Care Payment Learning and Action Network, or LAN, released the report,  which is based on data from Medicare, three state Medicaid programs and 61 commercial health insurers. LAN is a public-private partnership launched by HHS in 2015 to track the progress of the industry’s shift to value-based reimbursement models. The 15-page report, issued on Oct. 22, is LAN’s third-annual VBR report card.

The group separates payments to providers into four buckets:

  1. Traditional FFS or other legacy payments with no link to quality or value
  2. FFS payments linked to quality or value like care coordination fees or pay-for-performance
  3. Alternative payment models like shared savings, shared risk and bundled-payment schemes
  4. APMs like population-based payments or global budget-based payments

LAN considers APMs in the third and fourth buckets to be true VBR models.

Overall, 34 percent of payments to providers in 2017 were through APMs, according to LAN’s new report. That’s up from 29 percent in 2016 and 23 percent in 2015. That’s good.

On the other end of the spectrum, 41 percent of provider payments in 2017 were traditional or legacy FFS payments. That’s down from 43 percent in 2016 and 62 percent in 2015. That’s not as good.

The decelerating decline in FFS payments by payers to providers mirrors the conclusion of a 14-page report released in July by Quest Diagnostics, the Secaucus, N.J.-based clinical laboratory company. That report, based on a survey of 300 physicians and 151 health plan executives, said the transition to VBR has “stalled.”

So who’s opened the parachute on VBR? The LAN report suggests that it’s commercial health plans.

Nearly 57 percent of payments made by commercial insurers to providers in 2017 were under FFS or other legacy reimbursement contracts, according to the report, which is the first of the three annual LAN reports to breakdown payments by carrier type (commercial, Medicaid, Medicare Advantage and Medicare FFS).  The percentage of commercial payments that were FFS was more than five times the percentage of Medicare payments to providers under FFS arrangements.

Only 28.3 percent of provider payments from private health plans were through APMs last year with only 1.7 percentage points of that coming through the most aggressive population-based or global budget-based reimbursement models.

LAN didn’t explain the less than enthusiastic support of APMs by commercial health plans other than to say that the commercial health insurance market lacks uniformity, is fragmented, isn’t publicly financed and typically lets Medicare go first when experimenting with new payment models.

Here’s one possible explanation: Commercial health insurance carriers can make more money from FFS than they can from APMs right now. It’s much easier and less noticeable to raise premiums a little and lower FFS payments a little to pump up profit margins—certainly a lot easier and cheaper than it is to mess with all those cost, quality and value metrics.

Let’s see how much things change in next year’s report from LAN.


David Burda is a columnist for 4sight Health and news editor of 4sight Friday, our weekly newsletter. Follow Burda on Twitter @DavidRBurda and on LinkedIn. Read his bio here.

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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