HOW CAPITATED PAYMENT AFFECTS PRIMARY CARE PHYSICIANS - Class 3
Managed health care systems reward physicians whose use of resources is appropriate and efficient, unlike a fee for service payment system, where physicians who help fill hospital beds or order many tests are valued. The managed care environment needs physicians who appropriately keep patients out of the hospital and avoid unnecessary referrals through preventive care and other primary care services.
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Capitation Effect on PCPs
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Capitation challenges providers to know the costs of the services they provide. For PCP’s this means estimating enrollee’s annual utilization rates for services such as office visits, inpatient stays, office surgery, well child visits, laboratory/pathology tests. The annual rates are multiplied by the unit cost of each service and divided by 12 to determine Per Member Per Month cost.
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Three Common Capitation Methods
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The three common capitation methods are:
(1) Per Member Per Month (PMPM) rate. This method works best when more sophisticated calculations are unnecessary because the patient mix and experience have been stable for some time. An example of a capitated rate for a PCP based on "PMPM" rate is the example as used in the preceding chapter:
$11.00 per Member per month X 1000 Members = $11,000.00 per month for all designated services whether rendered or not by the PCP to the Members. PCP would be paid this amount at or around the beginning of each month regardless of the number, scope or intensity of services provided.
(2) Per Member Per Month (PMPM) payment is age and sex adjusted - providers must also be aware of the kind of patient the health plan attracts.
(3) Percentage of premium method - for example twelve percent of the premium received by the MCO is to be paid to the PCP. This method provides more protection to the payer but the payment to provider fluctuates with premium changes. Providers need to understand the plan's marketing and pricing strategies to be sure the mix of patients it is attracting does not increase the amount of risk the provider originally agreed to accept. (see chart below for capitation examples)
Risk-Sharing Pools
Risk pools are compensation arrangements tied to the achievement of medical management goals to influence clinical behavior through shared financial incentives Risk-sharing arrangements may create different pools of risk funds and spell out how these pools of risk funds are to be used Risk pools consist of a percentage of payment the plan withholds from physicians and returns if target costs are met
"There is a new game called managed health care that we didn’t learn in medical school. But we can learn, and be paid very well for it." says Paul Reeb, Jr., M.D., President of 600 physicians in San Diego, California, Sharp Community Medical Group. "We all have to learn new tricks as primary care physicians," Reeb advises. For primary care physicians, Reeb says, the emphasis will be on the management aspects of care, and economic incentives will come from a redistribution in health care spending, all of which will be facilitated by capitated reimbursement.
Terms to be negotiated and defined by PCP’s and MCO’s include:
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Terms to be negotiated and defined by PCP’s and MCO’s include:
What services are to be provided, what services are to be excluded, who the "Members" are, bonus/withhold.
PCP agreements with MCO’s in which the PCP is capitated (paid a flat fee per member per month) usually have additional specific risk sharing arrangements. There is financial risk to providers under capitation in itself because Providers (Physicians) are at risk for providing services within their received capitated amount. This means providers still have to provide services even if their total cost of services exceeds the capitated amount they receive. Under fee for service, there was basically never a risk to providers in terms of provider’s cost of services because providers would just bill for the cost along with a profit margin. PCP and MCO capitated type agreements usually also have risk-sharing arrangements that create different pools of risk funds and spell out how these pools of risk funds are to be used. These pools consist of a percentage of payment the plan withholds from physicians and returns if target costs are met.
Another way to look at this is that clinical behavior can be influenced through shared financial incentives such as risk pools, or compensation arrangements tied to the achievement of medical management goals.
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Per Member/ Per Month Example: $11.00 per Member per month X 1000 Members = $11,000.00 per month for all Covered Services regardless of number, scope or intensity of services provided. |
PM/PM Age and Sex Adjusted Example: Capitation Rate Age Male Female Under 2 $38.72 $34.19 2-6 $9.89 8.24 7-17 $11.43 $16.58 18-39 $14.83 $19.77 40-54 $20.60 $21.42 55+ $23.89 $22.66 Medical Incentive Fund Age Male Female Under 2 $46.23 40.48 2-6 9.57 7.47 7-17 11.53 18.08 18-39 15.86 27.14 40 - 54 23.19 29.24 55 + 27.38 30.81 |
Percentage of Premium Example: 12% of premium received by MCO |
Consider the article by Troyen A. Brennan, M.D., J.D., M.P.H.
Brigham and Women's Hospital Boston, MA, in the New England Journal of
Medicine, "Luxury Primary Care — Market Innovation or Threat to
Access?" (April 11, 2002): "Primary care practitioners in
several states have recently decided to restructure their practices
in a way that enables them to see a much smaller number of patients
and to spend more time with the ones they do see. Patients enrolled
in these practices, referred to as "luxury primary care,"
pay an annual fee to the practice. In return for this annual fee,
they can expect certain amenities that are not currently part of
primary care, such as access to their physicians 24 hours a day, 7
days a week, using cell phones or prompt paging devices."
| "Luxury Primary Care — Market Innovation or Threat to Access?" |