Abstract
Background
With the growing prevalence and cost burden of chronic disease, it has never been more important to disseminate the most promising approaches to replacing conventional disease management programs focused on long-term symptom management with models aimed at actual disease regression and long-term cost containment. Functional medicine offers a scalable and promising solution to this problem. There is a rapidly growing workforce of physicians and other health care practitioners who have invested in the training necessary to apply root-cause-focused functional medicine interventions with their patients. However, the challenges of sustaining this type of practice in the fee-for-service reimbursement system have restricted access to functional medicine by pushing many practitioners to operate outside of the third-party payer system in small, cash-based practice models.
Problem
Outdated payment models and misaligned incentives have conspired to arrest the forward progression of medicine. While an incredibly promising driver of long-term value, functional medicine requires practitioners to invest time with patients—particularly at the onset of the relationship in order to successfully find and address the causes of chronic disease. In a system designed to motivate and reward providers based on the volume of services delivered above the value of those services, this investment of time, along with the reliance on other lifestyle medicine interventions that are poorly reimbursed by payers, is often crippling to functional medicine practices. As the payer system slowly evolves to reward value, stakeholders must devise new ways to commercialize functional medicine at scale in a fashion that appropriately rewards practitioners while protecting payers from the potential for poorly controlled, spiraling costs.
Conclusions
Packaging functional medicine in fixed-price, bundled episodes of care targeted to specific populations offers a promising solution. This approach intuitively appeals to consumers and many payers, and it empowers and focuses practitioners on value-optimizing care pathways to achieve desired outcomes. By establishing an all-inclusive price, and targeting episodes to specific members of the population, this approach provides payers with the necessary degree of control to start taking steps toward large-scale deployment.
Introduction
The single greatest obstacle to improving health care is the way in which we pay for health care services.
The dominant payment model in the United States, and many other countries, is the fee-for-service (FFS) system. The common, and escalating, criticism of FFS is that it rewards the quantity of care delivered (within the spectrum of services covered by payers) but not the quality or efficiency of that care.
The unsettling fact of the matter is that FFS actually rewards poor outcomes. Falling short of resolving patients’ health problems leaves people dependent on the health care system and drives further utilization of the services for which providers are paid.
In April 2018, this issue was bluntly addressed in an internal report from Goldman Sachs called “The Genome Revolution,” in which the author overtly challenges the business model of actually curing diseases that would otherwise be chronic.
Because the FFS model rewards duplication of effort and lack of coordination among providers working in their various organ-system-defined silos (cardiology, endocrinology, dermatology, GI, etc), it removes any economic pressure for the medical delivery system to reorganize itself to align with a modern understanding of systems biology. Further, it obstructs the natural tendency of providers to coordinate their efforts by forming multidisciplinary care teams focused on efficiently resolving particular patient health issues.
In voicing their disdain for the FFS payment system, US providers tend to focus their frustrations on its onerous administrative, coding, billing, and collections burdens. For functional medicine practitioners who have devoted themselves to approaching health issues by finding and addressing their underlying causes rather than hastily relying on costly symptom-suppression strategies, this frustration is multiplied. Third-party FFS fee schedules do not cover (or do not sufficiently cover) much of the time, services, and personnel that are required to apply functional medicine in clinical practice.
Having lived in the FFS model for their entire careers, when they finally decide to break their dependency on the payer system and redesign their practice revenue models, most functional medicine practitioners actually continue to embrace the FFS model. They merely choose to bill patients directly on either a fee-for-service or fee-for-time (hourly) basis rather than relying on reimbursement from third-party payers.
While certainly more viable than a practice model that hinges solely on third-party, FFS reimbursement, this approach does not begin to resolve the dysfunction inherent in the FFS system and will never produce the health or economic outcomes that these practitioners are capable of delivering.
Capitation
The most common alternative payment model today is to allow providers a fixed annual budget to care for patients (AKA capitation). This model has its own serious shortcomings as the budgets are not set as a reflection of the health or health care needs of individual patients. When institutionalized, these fixed budgets drive long wait times for nonemergency care and give rise to an inevitable tension between cost-conscious payers and health care providers seeking to increase their budgets.
In the growing field of private-pay medicine, the fixed budget model (better known as concierge medicine or direct primary care) is less toxic but still fundamentally flawed for the same reason. It is impossible to establish a single budget to properly serve the needs and priorities of a diverse patient population without forcing lower-utilizing patients to unknowingly subsidize the care of higher utilizers.
At the level of a single practice charging a membership fee of roughly $100 per month or more for primary care, this issue is reasonably well masked in 3 ways:
The provider typically manages a much smaller population of 400 to 600 patient members, allowing all patients to enjoy a markedly superior service experience.
The multitude of ways by which patients ascribe value to the relationship with this type of practice allows providers to sustain a member base while subsidizing the care of more demanding patients with the fees paid by healthier members.
Using an alternative payment model to sell care to patients who purchase their services on a purely discretionary basis forces providers to differentiate themselves from other practices in their community. This market-driven mandate to provide some form of added value overrides the more corrosive behaviors that emerge from the system-wide application of the fixed budget (capitated) model.
While the membership model has proven viable for a number of providers, its imperfections are magnified when used as the sole means of compensating a functional medicine practitioner. Two challenging factors tend to emerge:
As practitioners grow their base of functional medicine knowledge and skills, the difference in the cost to the practice between serving the most and the least demanding patients multiplies in comparison to that same cost differential in a conventional primary care practice.
Further amplifying this problem is the fact that functional medicine practitioners tend to attract an increasingly complex patient population as their skills and reputations develop.
Not unlike the global health care system, functional medicine practitioners need a better way for health care to be purchased that rewards the delivery of superior value to an individual patient.
The Shift to Value
This transition toward value-based reimbursement has been accelerating in the United States, but the term actually encompasses two very different approaches to payment. The first is a form of capitation that places health care organizations at financial risk for overages in the cost of managing all of the health needs of a given population. If costs are below the set threshold, providers share in the savings. If they exceed the threshold, providers are penalized.
At an institutional, or system-wide level, one can easily imagine the array of perverse behaviors this structure might motivate on the part of health care organizations as they desperately seek to contain cost while somehow managing to satisfy population-level quality metrics.
The crux of the problem is that capitation is an incentive system focused on reducing the overall cost of care delivered to a given population while failing to create motivation or accountability for creating value at the level of the individual patient. This model places the actuarial risk that should reside with insurance carriers onto the shoulders of providers who should be focused on creating value for individual patients. For this reason, it will never fully enable the payer system to realize its potential as a driving force behind real innovation in health care delivery.
Bundled Payments
“Care bundles are coming. To say you’re against learning and experimenting with them is like trying to shovel the tide” (2015/16 PWC Strategy & Bundles Survey: Hospital respondent).
The second model under the umbrella of value-based reimbursement is called bundled payments. In a bundled payment system, providers are paid for the care of a patient across an entire care cycle. In the “bundle” are all of the services, tests, drugs, devices, etc, used to treat a patient in a given scenario such as a hip replacement.
Rather than paying for each element of the care as a stand-alone item, a price is established for the whole episode of care from presurgery through recovery and rehabilitation.
This revolutionary approach to purchasing health care may feel oddly familiar to you. That is because it is. This is how you purchase pretty much everything other than health care.
If you want a table for your kitchen, you do not buy a bag of screws, some wood, and sand paper from 3 different vendors and hope that things come together in such a way as to leave you with a stable surface to hold dinner off the ground. You buy a table.
It is similarly illogical for consumers seeking to achieve a particular health objective to purchase laboratory testing from one set of vendors, interpretation and prescriptive advice from another vendor, nutrition and lifestyle counseling from another, and nutritional supplements and other products from yet more vendors—all the while, never really knowing what this concoction of products and services will cost nor the odds that these purchases will harmonize to actually yield the result they want.
The 2015/16 PWC Bundles Survey revealed that 80% of US consumers would pick a well-designed bundle over their current care. The reason is that consumers tend to perceive and experience medical care as discrete episodes. A person in need of a knee replacement generally understands that addressing this need involves a process with a defined starting point that resolves with the achievement of a targeted objective or conclusion.
The concept is hardly new. In the United States, arguably the main driver of the use of bundled payments has been the Centers for Medicare and Medicaid Services (CMS) with successful pilot initiatives dating back to early 1990s. Despite its promise, however, many hospital systems, commercial insurance carriers, and group purchasing organizations prefer capitation, arguing that bundles are too complicated to design, price, negotiate, and implement.
Holding aside the virtues of the model for reshaping incentives around patient-level value creation, critics also tend to overlook the simplicity of administering bundled payments relative to FFS and capitation models.
Another significant skepticism held by critics is that an interdisciplinary care team will actually work together. To the contrary, physician groups across the United States and internationally have demonstrated the ability to successfully collaborate to implement bundles that have produced significant savings while measurably improving outcomes.
The Ideal Payment Model for Functional Medicine
As the health care system continues to wrestle with the transition to bundled payments, functional medicine practitioners should seize the opportunity that bundles represent today.
The bundling of functional medicine interventions addresses a number of issues that are critical to accelerating the evolution of medicine to embrace root-cause focused approaches to chronic conditions:
Consumer preference. The simple fact that consumers have a clear preference to purchase, for a transparent price, health care interventions that target their specific objective(s) is reason enough for functional medicine practitioners to embrace this model.
Patient engagement. Beyond appealing to consumer preference, the bundled delivery of interventions mitigates the natural tendency present in all FFS models for patients to withdraw prematurely from the treatment process as their symptoms subside. Having committed mentally and financially to the entire episode, people are inclined not to cheat the process, or themselves, by disengaging before they have received the full value of their investment.
Outcomes tracking and optimization. Because the bundled payment model requires providers to work consistently to a defined care pathway within a set budget, providers that track and analyze outcomes are able to value optimize their bundles and establish an ever-expanding evidence base to support their interventions.
Fair value exchange. Whether providing bundles to individual consumers or to commercial and employer health plans, the bundled payment model returns the power from third-party payers back to clinical experts to determine the services included in the bundle and its price. On the basis of actual outcomes and value creation, the marketplace will either accept or reject the provider’s judgment regarding the fair exchange of value.
Functional medicine practitioners commonly lament the fact that this approach to managing health is not “well reimbursed” by payers. Consider the challenges facing any third-party payer that may wish to appropriately underwrite the cost of functional medicine services using the conventional, FFS model:
To prevent every provider in the system from upcoding visits to a new, functional medicine reimbursement level, the payer would need a reliable way of determining whether a functional medicine visit actually occurred.
It would need the ability to confirm the provider was actually trained to provide this visit and to interpret functional medicine laboratory testing that provider may order.
It would need a way to determine when and how to reimburse prescribed nutritional supplementation … and a way to value and reimburse the services of other care team members (ie, health coaches).
This list of hurdles is far from comprehensive but illustrates the point that FFS reimbursement is not the likely first step for the system-wide adoption of functional medicine.
Bundles, on the other hand, eliminate the great majority of these challenges. Because the bundle is attached to a provider (or provider group), payers are able to draw their own judgment related to that specific provider’s ability to fulfill the service as promised. The bundle proposes to address a defined health issue in exchange for a fixed price, so payers are able to draw their own informed conclusion relative to the value proposition without being forced to make sweeping changes to its reimbursement policies. Finally, because bundles are designed to target a specific health objective or care scenario, payers are able to more easily assess the return on their investment in the bundle. For these reasons, it is difficult to imagine a vehicle more ideally suited than bundled payments to enable the health care system to embrace functional medicine at scale.
Real-world Application of Functional Medicine Bundles by Employers
The future of bundled payments for functional medicine has already begun to materialize. In late 2017, LeadHealth, a joint venture partner of the Institute for Functional Medicine (IFM) unveiled the first functional medicine-based bundled episode of care designed to serve high-cost autoimmune patients with 1 of 5 diagnoses that lead to long-term reliance on specialty medications (rheumatoid arthritis, psoriatic arthritis, ulcerative colitis, Crohn’s disease, and plaque psoriasis).
The LeadHealth bundle, which is based on a therapeutic framework developed by IFM in cooperation with the Cleveland Clinic Center for Functional Medicine, provides patients a high-touch and precisely choreographed 12-month episode of care delivered entirely via telemedicine (with the exception of lab draws). The episode is implemented by care teams lead by IFM trained physicians who are supported by functional medicine trained clinical nutritionists, coaches, and rheumatology and GI specialists.
It also provides a perfect example of health plans agreeing to pay for a mix of ordinarily non-covered services when they are thoughtfully bundled in an expert designed episode and targeted to a specific patient audience. The LeadHealth bundle includes physician, nutritionist, and coaching services; certain specialty laboratory tests; and nutritional supplements specifically sourced through Pure Encapsulations, a NSF-GMP registered manufacturer that exceeds the standards of the United States Pharmacopeia (USP).
LeadHealth has also disproved the notion that multidisciplinary care teams will not work together. In recent months, the company established the first national network of IFM certified Functional Medicine physicians, each eager to be a part of the LeadHealth care teams.
The market is responding enthusiastically. In the limited introduction of its autoimmune bundle, LeadHealth has already engaged four self-insured employers in Pennsylvania and Tennessee to deploy the program, and early results have been extremely promising. The company plans to develop a menu of similar bundles for other chronic conditions that are well addressed by the root-cause-focused functional medicine approach.
Contrary to the public refrain, LeadHealth has concluded that the largest driver of cost in most health plans is not chronic disease. Rather, it is the default reliance on symptom-suppression medicine in the form of costly and ineffective disease management pathways. Left unchecked, this outdated approach to chronic disease leaves health plans and their members no alternative to ongoing, escalating dependence on medications and medical interventions.
LeadHealth has observed that employers are spending large sums on chronic disease management when, given the option, many of their chronically ill plan members would welcome the opportunity to deescalate or even reverse their conditions by finding and addressing their root causes. Bundled programs appear to be the ideal structure to enable employers to make these opportunities available to plan members in a highly controlled and measured way.
Biography
Tom Blue is a health care entrepreneur and the director of industry strategy and partnerships for the Institute for Functional Medicine, the global leader in functional medicine education. For nearly 10 years, he served as the executive director and chief strategy officer of the American Academy of Private Physicians, the national professional association for concierge and direct primary care (DPC) physicians. He also developed and launched the nation’s first Affordable Care Act exempt-, DPC-integrated medical cost sharing program, Liberty Direct. .