Medical

Practice

CME.com  

Medical Practice Strategies:  Systems Based Practice - Business Laws Ethics

Janet Lerman, J.D.

Home ] Up ] Classes ] Registration ] Search ] New News ] CME Tests ] Evaluation ] Contact Us ]

 

 

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.

Capitation Effect on PCPs

bulletEstimating enrollee’s annual utilization rates for services such as office visits, inpatient stays, office surgery, well child visits, laboratory/pathology tests 
bulletAnnual rates are multiplied by unit cost of each service and divided by 12 to determine Per Member Per Month cost

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.

Three Common Capitation Methods

bullet Per Member Per Month (PMPM) rate
bullet Per Member Per Month (PMPM) payment age and sex adjusted
bullet Percentage of premium method

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

bulletRisk pools are compensation arrangements tied to the achievement of medical management goals to influence clinical behavior through shared financial incentives
bullet Risk-sharing arrangements may create different pools of risk funds and spell out how these pools of risk funds are to be used 
bullet 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: 
bulletWhat services are to be provided
bulletWhat services are to be excluded
bulletWho "Members" are
bulletBonus/withhold
bulletClarify risk-sharing arrangements that create different pools of risk funds and spell out how these pools of risk funds are to be used

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.

"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?"

New initiatives testing delivery system and payment reforms are being developed and implemented rapidly around the country, including Accountable Care Organizations (ACOs) and bundled payments. The Affordable Care Act (ACA) established a new Center on Medicare and Medicaid Innovation charged with reducing costs in Medicare, Medicaid, and Children's Health Insurance Program (CHIP) while preserving or enhancing quality of care. The Innovation Center develops, tests, and supports new delivery models to increase coordination of care and improve quality, along with new payment systems to encourage more value-based care and move away from fee-for-service payment.

There are basically two kinds of capitation models: “Global Capitation” and “Partial" or "Blended Capitation”. Each can be applied in various scenarios. Under global capitation, whole networks of hospitals and physicians band together to receive single fixed monthly payments for enrolled health plan members. Payment is made on a per member basis. Generally, providers sign a single contract with a health plan to cover the care of groups of members, and then must determine a method of dividing up the capitated check among the provider group. Under a partial or blended capitation model, a single payment is made for a defined set of services, while other services involved in a patient’s care are paid for on a fee-for-service basis. Under each model of capitation, risk adjustment is essential to adequately compensate providers for the risk they take-on. Payments are differentiated based on the characteristics of the enrollees in each provider patient group. Common risk adjustment factors include age, sex, health status, and prior health care utilization, as well as socio-demographic factors such as residence, income, etc.

Global Capitation: A global capitation model is applicable in a health maintenance organization (HMO) structure. The HMO is paid a specified amount per patient to deliver services over a set period of time. Usually the payment is determined on a per member/per month (PMPM) basis. The rates are generally calculated form projections of the services and costs of the provider’s patient population, based on historic costs. The payments vary to reflect the total number of patient for a provider and the demographic and acuity factors of the patient population. In some cases, co-payments may also be collected from embers for certain services. Under global capitation all care is covered under the fee including primary care, hospitalizations, specialist care and ancillary services.

Partial or Blended Capitation: Under partial or blended capitation models, only certain types or categories of services are paid on a capitated basis. Typical scenarios under which partial capitation applies include primary care capitation where a capitation amount is paid to primary care practices for primary care services and in some cases, ancillary services provided under the direction of the primary care practice. Alternatively, specialists may be paid on a capitated basis for services they provide while the primary care services are paid fee-for-service. Other “carve-out” capitation arrangements may involve paying for certain care such as mental health on a capitation basis. This differs from episode-based payment in that all the services included to care for a patient by the mental health provider are covered.

Partial capitation models are also being considered under accountable care organizations (ACOs) whereby the ACO would be at financial risk for some but not all of the items and services it provides. Section 3022 of the Patient Protection and Affordable Care Act created a new Medicare payment program to support Accountable Care Organizations. Section 10307 of the Act allows HHS and CMS to use payment models such as partial capitation to support ACOs.

 

 

Top of Page