PAYMENT MECHANISMS – Class 7
Physicians may get different capitation rates or year end bonuses based on selected quality parameters or economic parameters based on their peer adjusted profiles.
Some Factors that may Effect Capitation Rates or Year End Bonuses that physicians may receive:
Physicians may get different capitation rates or year end bonuses based on selected quality parameters or economic parameters based on their peer adjusted profiles
Deborah S. Kolb, Ph.D. and Judith L. Horowitz’s article about “Managing the Transition to Capitation,” starts with a quote from Adlai Stevenson that “Man is a strange animal. He doesn’t like to read the handwriting on the wall until his back is up against it”. This article says that almost everyone agrees that the handwriting on the healthcare wall says “capitation”. In addition, this article claims that actions that will help an organization prepare for capitation include acquiring managed care contracting expertise, upgrading information systems, measuring and reporting performance, enhancing preventive services, integrating services, creating management incentives that reward efficiency, and allocating capital to strengthen the primary care base and expand off-campus services.
Traditional fee for service – is a reimbursement system where physicians are paid a fee for the service they render. This fee can be set by the physician or based on a usual and customary fee taking into account the geographical area and specialty in which such services are rendered. In this situation, the more the physician bills the more the physician earns.
Fee-for-service % discount – takes the fee for service and reduces the amount by a designated percentage resulting in a discounted fee for service. In this situation, the physician might start to think about his or her actual costs of rendering service, but maybe not because there is not really any risk involved because the physician is still in control of saying what is the starting amount to discount from.
Per case/DRG – in this scenario, the physician is paid a flat rate for a specified medical case or diagnosis related group. Now, the physician is starting to take risk in knowing the costs of rendering medical care because if the flat rate per case or the DRG rate does not cover the physicians actual cost for rendering care then the physician would suffer a financial loss.
Per diem – is a flat fee paid per day for all services rendered as defined in the per diem. This is a form of payment HMO’s often use with hospitals and HMO’s tend to broadly define the per diem so that it is all inclusive. Hospitals are taking risk by using per diems because if the per diem amount does not cover the hospital’s actual costs then the hospital suffers a financial burden.
Capitation – is a flat rate prepaid by HMO’s based on a dollar amount assigned per member per month. Basically, the amount is prepaid meaning it is paid before services are rendered by the physician. The capitated amount that the HMO is going to pay per member can be a different amount depending on such factors as the member’s age and gender. In this kind of payment mechanism, physicians are at risk because they must know the cost of services they are providing for the capitated rate. If the capitated rate does not cover the actual costs of the physician rendering medical care then the physician would suffer a financial loss.
Capitation with withholding pools- in this form of payment mechanism, physicians are paid a capitated amount which is the flat rate per member per month prepaid to physicians and as the rate is paid to the physician typically a designated amount is paid by the HMO into a pool of funds. This pool of funds might be called a “withholding pool” or a “reserve fund” or “bonus pools” and the money in this pool is to be used for specified payments as designated in the medical service agreement between physicians and HMO’s. For example, certain specialist’s payments, and hospital payments might come from this reserve fund and then any monies left over after a designated time as spelled out in the agreement would be distributed according to the agreement. It might not be the full amount distributed to the physicians and hospitals, because the HMO might keep a certain percentage for itself. The agreement might have the reserve funds shared by all of the physicians and hospitals in the HMO’s network or however it is set out in the contract. These pools can be very substantial.
According to Alan H. Rosenstein’S article, “Cost – Effective Health Care: Tools for Improvement,”: Best way to incentivize performance is to use financial incentives such as use of withholding pools or bonus payments for efficient utilization. Hospitals and physicians share in monies left over from reserve withholding pools if it is not consumed from over-utilization. In IPA (Individual (or Independent) Practice Association) sector, physicians may get different capitation rates or year end bonuses based on selected quality parameters or economic parameters based on their peer adjusted profiles.
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