PMPM vs FFS Setup
[00:00:00] Stacey Richter: Episode 525 PMPM vs FFS—The Perverse Incentives Plan Sponsors Sometimes Miss. Today I am talking with Dr. Cristin Dickerson.
[00:00:35] Stacey Richter: So this one's gonna be a little bit different. Back last year I sat down with Dr. Cristin Dickerson. She is the founding partner of Green Imaging, which is a physician led radiology network doing direct contracting for imaging. And we talked about how imaging can run 6% to 11% of total plan sponsor spend, and how direct contracting can bring that down while actually improving access.
So that is episode 485 if you want to go back and listen to that whole thing, and you should, because it's a great show.
Why Air This Tangent
[00:01:09] Stacey Richter: But here's the thing about a good conversation, it wanders and somewhere in the middle of that conversation, Dr. Dickerson and I went on a tangent that never made it to the final cut of that episode. But we got into this back and forth about PMPM, per member per month subscriptions, which are a way to conceive of and pay for value-based care. It's a capitated per member per month upfront payment.
So we talked about this payment methodology vs FFS, fee-for-service, specifically whether a PMPM, where again, you're paying per member per month, regardless of whether they use the service or whatever that is being paid for, whether this creates the potential for perverse incentives. Maybe a new and excitingly, strange, perverse incentives that could be just as perverse as the old fashioned fee-for-service perverse incentives, depending on who's holding the risk and why.
Supply Chain Pods
[00:02:20] Stacey Richter: It's a really good few minutes that is actually a great follow on from the show from last week [Episode 524] with John Quinn, where he talked about employers, self-insured employers, or other plan sponsors considering buying healthcare like they consider procuring almost every other thing that they probably procure. It's a supply chain, not a one network to rule them all construct.
So John Quinn, he talked about last week, [Episode 524] this whole supply chain analog, kinda like thinking about for each subassembly or pod of care, which he defines as services that have defined boundaries. So you can easily see where they begin and end, and it's possible to kind of look around and see who's doing these defined things, these subassemblies, and then buy the subassembly from whomever the plan decides is doing it best.
And look, a lot of plan sponsors, especially ones who listen to this show are doing or already trying to do this but I thought this kind of way to think about it as a supply chain with pods of care was refreshing and interesting and maybe feels a little more comfy for plan sponsors.
But these subassemblies, they do not have to come with some kind of crazy new payment model. John Quinn last week [Episode 524] made this point and today, this is why it occurred to me that right now might be a great time to air this earlier conversation with Dr. Cristin Dickerson, she makes the same point.
New Look Fee for Service
[00:03:52] Stacey Richter: You can procure with value-based care and PMPMs and bundles with warranties and total cost of care stuff, or you can pay fee-for-service.
[00:04:40] Stacey Richter: Now I would suggest after listening to this conversation and also listening to the shows [Episode 521] with Andrew Tsang and several others that there are also different flavors of fee-for-service.
And maybe we shouldn't be just with a broad stroke saying fee-for-service, actually, because there's fee-for-service where you know the price up front and you can see how much you were charged because you're getting the data so you can compare the price that you contracted for with the price that you actually paid. There's that kind of fee-for-service.
And then there's the kind of fee-for-service where you don't have the data and all you've got is a discount. So you sort of don't know what the price is upfront. And if you do it that way, then you're gonna add at least 20% to your bill or your clinician's expense line for revenue cycle management, hot potato games as again discussed with Andrew Tsang [Episode 521] a few weeks ago.
And I'll tell you another thing you're gonna have to deal with, probably network pricing games like Ryan Kline talked about in his recent LinkedIn post.
But look, you know, it can be fee-for-service, but when the prices are figured out upfront and they're good prices, and you can see if the billed amount matches the contracted rate, again, real prices now, not some wild discount calculus that takes 20 pages of a contract to explain.
I'm talking about when the prices are determined upfront, then, you know, if you do it this way, it could be a new day for fee-for-service. It's certainly the Keep It Simple Stupid Payment Model here.
Sponsors and Credits
[00:06:14] Stacey Richter: My name is Stacey Richter. This podcast is sponsored by Aventria Health Group and our 2026 series underwriter is Payerset. Check them out. They are doing some interesting things in price transparency.
I also would like to thank Patient Rights Advocate for their really nice donation this year. Both of these sponsors, I thank so much for helping us keep this podcast on the air.
And with that, let's pick back up mid-conversation with Dr. Cristin Dickerson.
Who Holds the Risk
[00:06:42] Cristin Dickerson: One of the things that is really important is “yes”, value-based care is good and bad things.
I think when people are talking about value based care and having skin in the game, one of the things that hits us, we have no PEPM, no admin fees. We're just charging for the exam. We're taking on the risk by not charging those things. You know, and the risk that nobody's gonna use us, even though we've put hours and hours of implementation into it. We've done all this electronic investment with the TPA to get hooked up.
[[00:07:13] Stacey Richter: So right if value-based care is paid for as a PMPM (per member per month) and not all of it is, of course. Not all value-based care is paid for in this capitated way. But if we have a PMPM scenario, then who is taking the risk that the service will be used is the purchaser. Right?
Because irrespective of use, unless, I don't know, there's terms in the contract around minimum usage and clawbacks or something, which, by the way, I've seen really bad examples of this, where the plan is still getting screwed. But the point being that if it's fee-for-service, then it's the vendor or the partner who has to drive their own engagement and usage.
The plan is not paying for any services that are not rendered.]]
Reconciling Incentives
[00:08:02] Stacey Richter: Let me ask you this still kind of on this value-based care tangent. You said that you charge fee-for-service because that reduces your perverse incentives that you might have if it was a PMPM. However, the whole reason why value-based care got started was to reduce the perverse incentive of fee-for-service.
So how are you reconciling that? In other words, fee-for-service drives volume. Especially if you've gotten rid of the prior auths or the pre auths.
Protocols and Trust
[00:08:28] Cristin Dickerson: Right. But we haven't, we're doing radiologist protocols instead, which actually saves another 25% probably by down coding where radiologists are taking the contrast away. Getting rid of the, without them with contrast and those things that cause savings.
You know where outcomes are trackable, I think PMPMs may make more sense. Again, one of the interesting things with your conversation with Preston.
[[00:08:54] Stacey Richter: This is the episode with Preston Alexander, where we discuss in some detail the so-called float. When money is collected upfront in premiums or PMPM, as long as you can keep those dollars before you have to pay anything, the more interest you can make on those dollars.]]
[00:09:14] Cristin Dickerson: I would have the money in my pocket already, that would be great. But we really make sure that the patient gets the right exam upfront, their savings associated with that. If I had somebody with a CT of the lumbar spine ordered Monday. You know, no. That needs to be an MRI. We go back to the referring physician. The pre-op process, would just say, okay, this is in the yellow range with the ACR appropriateness protocol. We're just gonna push it on through. It wouldn't switch the modality to the right study.
Or you know, a child who's having some assessment and they've ordered a CT. MRI is gonna do the same thing without any radiation risk. And it comes down to that trust factor. But when you are ethically aligned with the employer, that fee-for-service works great.
Especially if it's not an excessive fee. It's an excessive fee. There you are. But when I can show 60% and now with one of the carriers it's up to 90% because of vertical integration. You know, when I can show that kind of savings fee-for-service makes all the sense in the world.
When FFS Works
[[00:10:12] Stacey Richter: The point Dr. Dickerson is making here, which is along the same lines of the point that I talked about John Quinn in the intro, I'm gonna talk about this again.
It's along the same lines as the point that John Quinn was making in the show from last week. Find a service or a care pod or subassembly as he calls them, that in John's words, have clear boundaries. And then like if you can buy it cheaper for a geography, buy it cheaper.]]
[00:10:38] Cristin Dickerson: And I'm not the referring physician. That's the other piece of it.
[[00:10:43] Stacey Richter: Yeah, this is a crazy good point. It's hard to drive excess volume and driving excess volume is the perverse incentive of fee-for-service. But when you don't have the mechanism to drive up volume, you sort of mitigate that perverse incentive.
If you're listening to this and you're trying to figure out when it's okay to pay for fee-for-service vs pay for value or pay for subscription or something, these are a really key factors to consider.]]
[00:11:11] Cristin Dickerson: You know, if I were the referring physician, one of the reasons there, the Stark Laws, is that referring physicians were get paid even in hospital systems for referrals.
I'm not the referring physician, somebody else has deemed this medically appropriate. And so that's the other reason is I'm not lining my pockets because I'm doing more of this that needs to be done.
[00:11:32] Stacey Richter: Dr. Tom X Lee was on [Episode 445] who was the founder of One Medical, and he talked a lot about enlightened leadership, and he actually put it out there as one of the most important aspects if you're trying to balance mission and margin, having an enlightened leader and having dyad leadership is really, really important.
So here you are with a solid commitment to doing the right thing, I think is what you're saying "value-based care" has enough of its own perverse incentives, than fee-for-service. It's not like it's one or the other.
Maybe it's a trying to maximize the good, but there's also a lesser of evil's calculation involved here. That yeah, I think you're raising some very interesting points and there's definitely a lot of contemplation and consideration.
[00:12:18] Cristin Dickerson: Yeah, and you know, the other difference with fee-for-service is our agreements. I mean, our agreements are three year agreements, but an employer can turn us off with plan design tomorrow. If they feel like we're not serving their members' purpose, they can shut us off any day. And so there's that ability that you might not have with other direct contracts.
We're not exclusive number one, and you can terminate at any time.
Four Buyer Criteria
[00:12:43] Stacey Richter: Terminate whenever. That might be our third factor to consider when considering if fee-for-service or figuring out how to structure fee-for-service to make it the payment model of lesser evils, I guess.
Consider if the service is simply cheaper than what might be available in the base network or elsewhere. I'm assuming comparable quality, like why not save money if you can save money. That's the first consideration.
Second, can the vendor drive up their own volume or not? And is this auditable? Like will you have the data to validate whether the care continues to be appropriate because again, volume is the main perverse incentive of fee-for-service.
And then third, getting locked into contracts is never good. But if a direct contract for a subassembly or a pod of care seems like it's less expensive and the vendor or the provider clinic is doing all of the promotion and engagement work themselves, I don't know why not.
Okay, here's one reason why this might not work out. Hopefully the plan sponsor did not sign some crazy anticompetitive network contract with an ASO that forbids them to carve out or steer and tier to high value providers.]]
Data and Clinician Support
[00:13:58] Stacey Richter: Yeah. Well, and also, if anyone's so inclined, there's global appropriateness measures right now. So if somebody wanted to do some kind of global reporting and because you are giving them all of the data. They could be very self-empowered to do some analytics to determine whether there's anything inappropriate or whatever is going on.
[00:14:18] Cristin Dickerson: You know, and it's all relative with imaging too, because when you come to secondary providers, which are more common in some of these cost containment health plan designs. You get more imaging and they need more help.
I think that's where also subject matter experts having clinicians. I've done some great panels with some tremendous providers in the ecosystem about having trusted clinicians in your health plan and subject matter experts in your health plan.
And it's amazing how often I'm just consulting. I'm just answering an employer, a broker, head of HR's questions, or physician's or physician extender's questions about what to order, why, what do we do next?
[00:15:01] Stacey Richter: Well, it's also, I feel like you don't realize how important it is if you've never had it until someone experiences it, and then it'd be you you start realizing how vital it is.
Green Imaging Wrap Up
[00:15:12] Stacey Richter: Doctor Cristin Dickerson, do you wanna talk a little bit about Green Imaging and where someone can find out more information?
[00:15:19] Cristin Dickerson: Sure. Our, our website's a great resource, greenimaging.net.
[00:15:23] Stacey Richter: Dr. Cristin Dickerson, thank you so much for being on Relentless Health Value today.
[00:15:28] Cristin Dickerson: Always great to have a conversation with you.