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Capitation 101 - it's baack!

Wednesday, February 6 2008

Could be. The news that Blue Cross of Massachusetts wants to try a capitation scheme seems to be getting attention in various quarters, so I decided that I should discuss the pros and cons of this quaint reimbursement scheme.

 

Many of you may have heard of capitation, which pretty much died out around 2000, having been the “hot” item of the 1990s. I used to do day long seminars that dealt heavily with the ins and outs of capitation and managing the system – I’d be very happy to come speak with any group who would like an update.

 

Anyway, it works like this: you are assigned a panel of patients who you are responsible for providing certain services if they need it. You are then paid a fixed fee for each patient (“member” in insurance/HMO parlance) each month. With that check, you are to provide the needed services for any patient/member in that group (panel) who needs services from you. Now, many to most patients will never see you, some will see you a lot, and one group will see you an average number of times.

 

Let’s look at an example: An internist has a panel of 1,000 patients, for which he is paid $20 per member per month, or $20,000 per month total. Back in its day, physicians used to complain that “I lose money being paid $20 to see a patient”. That is not the way to look at capitation – you are paid to see a group of patients, regardless of whether or not you provide a service for them. Of the 1,000 patients, only a small group will see you in a month. So, you divide your total payment by the number of visits from the panel members in the month, and you then get to what you were really paid for each visit. Note – there are some more sophisticated (yet simple to execute) analyses for a better grasp of your profit and loss here, such as using RVUs, but this analysis works as a first pass.

 

What capitation does is to move some of the risk of the medical spending (called the “medical loss ratio” in insurance parlance) from the insurance company to the practice. In the 1990s, a number of large medical groups got into serious trouble, and there were some large bankruptcies, as they took on risk for more than just the services that they were providing themselves. You’re not an insurance company, insurance companies have enough trouble managing their own business, so don’t take on the risk that you are not equipped to handle.

 

So: if you are approached about a capitation plan, the contract has to be reviewed carefully, and a financial pro forma has to be built and run. It shouldn’t be a hugely expensive proposition, but necessary. On the other side, you need to monitor the contract and have a good grasp of your costs.

In addition, make sure to read these articles:

  • INTEREST IN CAPITATION REMAINS STRONG.
  • Despite negative publicity about managed care, interest and participation in capitation remain strong, according to a survey of more than 250 administrators or persons in ......
  • Grim outlook for capitation.
  • Healthcare facilities nationwide are choosing not to sign capitation contracts with 1{MOs, according to a recent article in Modern Healthcare (1999;29:52), because they have found ......
  • Realizing the financial benefits of...
  • The financial beneficiary of the float under capitation is influenced by contract structure, timing of payments, and utilization levels. When hen a healthcare provider's medical ......
  • Capitation: implications for provider...
  • CAPITATION Healthcare operating managers understand that capitation has inverted the financial incentives that existed in the fee-for-service environment. However, cost-structure implications are to prosper as ......
  • Southlanders file bulk of state's...
  • Concentration of managed care may be a factor A study of major medical malpractice suits filed in California has turned up an interesting if somewhat ......
  • Thinking strategically about capitation.
  • All managed care stakeholders - health plan members, employers, providers, community organizations, and government entities - share a common interest in reducing healthcare costs while ......
  • Paying specialists and subspecialists on a...
  • CAPITATION Primary care physicians are the focal point of any capitated system. They are the gatekeepers to specialty and subspecialty physicians and to ancillary providers....
  • Positioning for capitation by redesigning...
  • CAPITATION Now that healthcare reform is no longer at the forefront of President Clinton's agenda, competition among providers, practitioners, and health systems will become more ......
  • Is hospital capitation DOA?
  • Hospital capitation has not become a prevalent payment mechanism, despite expectations that it would become the predominant method for controlling healthcare expenditures. In 1997, capitation ......
  • Establishing reserves for capitation contracts.
  • Failure to create adequate contingency funds can have serious consequences for providers of capitated services MANAGED CARE Capitation introduces a number of significant considerations to ......
  • The Truth About Capitation.
  • Let's face it, capitation is an ugly-sounding word. For some, it conjures up images of beheadings and the guillotine. OK, that's decapitation--nevertheless, among mental health ......
  • Using contact capitation to align payment...
  • Contact capitation is a means of paying specialists based on the number of patients managed rather than on the number of services provided or procedures ......
  • The Capitation Sourcebook: A Practical Guide...
  • Scenario: The largest payer in your market has just presented you with a full capitation hospital contract. After the first wave of panic passes, you ......
  • NEW CAPITATION SURVEY REFLECTS TOUGH...
  • The percentage of providers reporting profits under capitation dropped to 34 percent in 1999, compared with 42 percent in 1998 and 52 percent in 1997, ......
  • GUARDIAN FOUNDATION SIGNS CAPITATION AGREEMENT...
  • CORTE MADERA, Calif.--(BUSINESS WIRE)--July 25, 1995--Guardian Foundation, a leading Northern California subacute care provider, announced today that it has entered into a capitation agreement with ......

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