As the novel coronavirus spreads, Americans are now all too familiar with stories of hospitals on the brink of capacity overload, hoping that they have enough ventilators, personal protective equipment, and healthy staff members to serve patients in need. However, most of the country is less familiar with how COVID-19 is impacting the rest of the health care system.

While some hospitals in areas with a high prevalence of the novel coronavirus have more patients than they could ever imagine, patient volume in many other health care institutions has dropped significantly, and as a result, they are struggling financially. Hospitals in areas that do not have widespread COVID-19 penetration are financially stressed. These organizations, many serving rural areas, are abiding by federal guidance to halt elective surgeries and procedures, but do not have enough patients to make ends meet. Even some hospitals in harder hit areas with extensive specialty employment have cut pay and laid off workers due to the cancellation of elective surgeries. To reduce patient and staff risk of contracting the coronavirus at an office visit, many primary care or family practices are limiting well and chronic care visits and have been forced to lay off staff, reduce hours, or contemplate closure. Federally qualified health centers (FQHCs) — the first line of defense in underserved communities, serving primarily Medicaid patients and the uninsured — are in dire financial straits. Many FQHCs may be forced to close, either temporarily or permanently. Behavioral health providers, oral health providers, and many specialists face similar challenges.

One primary reason for the financial challenges currently confronting many providers is the fee-for-service (FFS) payment model that fuels our health care system. This demand-based approach rewards providers for the volume of patients that they see. But when demand dries up, FFS crushes providers financially. FFS payment also constrains providers to services tied to a specific set of payment codes.

The restrictive nature of FFS — a roadblock to innovation even in normal circumstances — is particularly problematic in a pandemic when providers need flexibility to quickly adopt new roles and modalities of providing services. Some adjustments to the FFS model, such as Medicare’s expanded support for televisits, are somewhat helpful in maintaining demand, but telehealth has typically been reimbursed at only a fraction of the price of an office visit. In addition, many providers, especially safety net providers, do not yet have the capacity to deliver this type of care and telehealth is not appropriate or feasible for all patients and all types of visits. Furthermore, while some funding has come from the federal government to help mitigate these losses, it only covers about a month of typical hospital revenues, not nearly enough to cover all providers in need for a prolonged period of underutilization. There will certainly be some pent-up demand for these delayed services that will re-emerge at some point, but when that will occur is difficult to predict, and many providers cannot afford to wait.

Prospective Payments: A Potential Solution

One potential solution lies in prospective payments — a payment model that is not as widespread as FFS, yet still well-established in the health care community. Prospective payment models, such as capitation or global payments, pay providers, teams, or organizations a predictable, upfront per-member-per-month (PMPM) payment to take care of a patient. Providers receive these payments whether they perform services for the patient or not. They are intended to: (1) incentivize the provider to keep the patient well; (2) only give the patient the services they need to be healthy; and (3) give providers greater flexibility to deliver services in a variety of ways. Such models could be deployed quickly – with health plans or government payers providing PMPMs based on last year’s utilization, offering a short-term solution for provider cash flow problems. In response to COVID-19, the Centers for Medicare & Medicaid Services recently indicated that states could use a State Plan Amendment to make these changes to their Medicaid programs.

Prospective payment models have already been deployed through value-based payment (VBP) programs, many of which were authorized through the Affordable Care Act and subsequent pilots through the Center for Medicare and Medicaid Innovation. Many successful prospective VBP models, such as the Comprehensive Primary Care Plus (CPC+) model, the Next Generation Accountable Care Organization model, the Accountable Care Organization Investment Model (AIM), and Minnesota’s Integrated Health Partnerships have given a portion of anticipated fee-for-service payments to providers in advance and then reconciled it at the end of the year based on cost and quality performance. More advanced VBP models do not reconcile advance payments at the end of the year based on cost; instead, these approaches pay the provider a full PMPM upfront in exchange for assuming financial risk for the population if quality targets are met (though encounters are typically tracked for rate setting in future years). Examples include the Massachusetts Primary Care ACO model and New York’s VBP Innovator Program.

Adapting Prospective Payment Models for a COVID-19 Response

Current approaches to prospective payment would likely need to be adapted to meet the needs of the pandemic. First, tying payment to quality measures may not be feasible given COVID-19’s disruption to the health system. The federally mandated Quality Payment Program for Medicare providers is making quality reporting requirements optional for 2020 for this reason, and other VBP programs are expected to follow suit. Second, while VBP programs are typically designed to reduce utilization and costs, it could be fruitless to try to compare costs to anticipated cost benchmarks in this unusual environment.

Like any health care payment model, prospective payments are not a silver bullet. In the long run, there are legitimate concerns raised about prospective payment methodologies incentivizing providers to deliver fewer services than a patient requires. Payers would also need to consider how to adjust prospective payment if pent-up demand materializes in the immediate aftermath of the pandemic.  However, even with these considerations in mind, these VBP examples may serve as a helpful starting point for payers to implement prospective payments to sustain providers in the short-term. Once the immediate crisis has passed, these initial approaches could serve as a potential stepping stone for continued development and further adoption of more flexible, sustainable VBP models in the long-term.

Sustainable Payment Now and in the Future

Prospective payments are one way to pay providers to do what is needed in the moment, whether it is working overtime to contain a coronavirus outbreak or delaying procedures to prevent one from starting in the first place. Health care payers should consider prospective payments as one solution for keeping frontline providers’ doors open now, and laying the groundwork for the payment models of the future.  A prospective, global payment allows providers the flexibility to care for their patients in a team-based way, across provider organizations and institutions, and in the setting preferred by patients.

A crisis can be a catalytic opportunity for change.  The way we currently pay for health care has left our providers in desperate need of funding. A rapid shift to prospective payment would both address providers’ current needs and accelerate the pace of payment reform in the United States.