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eDocTalk article

Learning from the past helps care transformation efforts today

March 2016

This is the first in an occasional series about the transition to value-based care, and how it differs from the failed model of capitation in the 1990s. While the two are often compared, we’ll use this forum to explain the differences and gain perspective from a range of professionals.


Why and how is our current shift to a value-based health care model different from the managed care experience of the 1990s? To answer that question we need to examine and learn from what happened in the past. While the path that we are on today is both new and uncertain, this transformation is also informed by recent history. It was only in the late 1990s that our health care system saw a significant increase in managed care through capitation. This experiment ultimately did not improve quality and decrease costs. 

Why capitation failed

The 1990s offered a private-sector experiment with high financial risk for providers: capitation, or the payment by managed care organizations (MCOs) to providers of a fixed annual or monthly lump sum per patient. If a provider organization could deliver health care services to a patient that cost less than the lump sum, it made a profit; otherwise, it lost money. This is provider financial risk at the extreme.

There are a number of reasons why this model did not ultimately succeed:

  • Lack of provider integration 
  • Not enough focus on outcomes and quality of care
  • The absence of population health infrastructure and technology to support value based care
  • Misaligned incentives between hospitals and health systems, providers and health plans

Set up for success

The work we have done over the last several years has positioned us to learn from these mistakes and ultimately succeed in our transition to value-based care. Legacy Health Partners, our clinically integrated network, brings together more than 2,400 providers with a goal of delivering value and improving health. Care support resources provides the analytics and clinical support infrastructure necessary to partner with our providers to best serve our community. The partnership between PacificSource and Legacy Health will allow for true alignment of incentives.

While change is difficult one thing is certain: failure to change only leaves us ready for a world that does not exist. As our health care system moves from volume to value, and as Legacy Health continues to transform, it is important to reflect on the past and learn from those experiences.

Next issue: Physician, payor and administrative perspectives on value-based care.

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