Key Takeaways
- • CEPR argues that capitated "value-based" payments used by CMS in hospice care, Medicare Advantage and Medicaid Managed Care have failed to reduce costs and instead shift billions of dollars to private insurers and financial investors.
- • Under capitated models, providers receive a flat per-day or per-member fee regardless of care delivered, creating incentives to cut services, narrow networks and deny care that physicians deem necessary.
- • Medicare Advantage upcoding and favorable selection are cited as practices that inflate government payments by billions of dollars annually.
- • Medicaid managed care reached 74 percent of enrollees by 2021; Centene reportedly settled overbilling allegations totaling almost $1 billion across 17 states.
- • CEPR points to Connecticut's 2012 return to fee-for-service Medicaid, where overhead fell to 5 percent versus a 15 percent average for private operators.
Summary
A new CEPR working paper, "Do Capitated Payments Deliver Value in US Health Care?", contends that the payment system CMS uses for hospice care, Medicare Advantage and Medicaid Managed Care, labeled "value-based care," is in practice capitated payment in which providers receive a flat fee per beneficiary per day whether or not care is delivered. The authors argue the model was expected to improve efficiency and cut costs, but that evidence shows it has not, instead directing billions of dollars to private insurers and financial players and creating incentives for fraud. When providers spend less than the fees they collect, they retain the difference as profit, which the authors say encourages cutting corners, narrowing provider networks and denying care.
In hospice, Medicare has paid most costs since the 1980s through a flat daily rate. CEPR contends this encourages operators to reduce services, to prefer patients needing less daily care, such as those with dementia, and in some cases to recruit ineligible patients who remain in facilities longer. The fixed-fee structure has attracted private equity investment, transforming a sector once dominated by small nonprofits into what the paper describes as a lucrative cash cow for financial actors.
In Medicare Advantage, CEPR says insurers control costs through practices such as preauthorization to capture more payment as profit. It cites upcoding, in which risk-adjusted coding classifies patients as sicker than they are to increase up-front payments, and favorable selection, in which insurers seek healthier enrollees. The authors say these practices cost the government billions of dollars each year.
In Medicaid, about 75 million Americans are covered by the joint federal-state program and CHIP. The share of Medicaid children and adults in managed care rose from more than half in 2012 to 74 percent by 2021. CEPR cites Centene, which it says has 13 million Medicaid beneficiaries accounting for more than half its revenues, and which settled overbilling allegations totaling almost $1 billion across 17 of the 30 states where it operates. The authors also note that the Affordable Care Act's Medicare Shared Savings Program and CMMI pilots extend similar incentives to traditional Medicare, and that CMS under the Biden administration in 2021 set a target of moving all traditional Medicare beneficiaries into ACOs or other value-based arrangements by 2030. The article says the Trump administration is considering moving more seniors into Medicare Advantage.
As an alternative, the paper points to Connecticut, which ended privatized Medicaid management in 2012 and returned to fee-for-service payment, reporting overhead of 5 percent compared with a 15 percent average for private operators in the state, along with some quality improvements. CEPR concludes that policymakers should scrutinize the role of payment models in enriching financial actors and investors as health care reform debates advance.
In hospice, Medicare has paid most costs since the 1980s through a flat daily rate. CEPR contends this encourages operators to reduce services, to prefer patients needing less daily care, such as those with dementia, and in some cases to recruit ineligible patients who remain in facilities longer. The fixed-fee structure has attracted private equity investment, transforming a sector once dominated by small nonprofits into what the paper describes as a lucrative cash cow for financial actors.
In Medicare Advantage, CEPR says insurers control costs through practices such as preauthorization to capture more payment as profit. It cites upcoding, in which risk-adjusted coding classifies patients as sicker than they are to increase up-front payments, and favorable selection, in which insurers seek healthier enrollees. The authors say these practices cost the government billions of dollars each year.
In Medicaid, about 75 million Americans are covered by the joint federal-state program and CHIP. The share of Medicaid children and adults in managed care rose from more than half in 2012 to 74 percent by 2021. CEPR cites Centene, which it says has 13 million Medicaid beneficiaries accounting for more than half its revenues, and which settled overbilling allegations totaling almost $1 billion across 17 of the 30 states where it operates. The authors also note that the Affordable Care Act's Medicare Shared Savings Program and CMMI pilots extend similar incentives to traditional Medicare, and that CMS under the Biden administration in 2021 set a target of moving all traditional Medicare beneficiaries into ACOs or other value-based arrangements by 2030. The article says the Trump administration is considering moving more seniors into Medicare Advantage.
As an alternative, the paper points to Connecticut, which ended privatized Medicaid management in 2012 and returned to fee-for-service payment, reporting overhead of 5 percent compared with a 15 percent average for private operators in the state, along with some quality improvements. CEPR concludes that policymakers should scrutinize the role of payment models in enriching financial actors and investors as health care reform debates advance.
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