Texas Practice Finds Success with Capitation

After 25 years of capitation, one Texas physician practice has found that it can be the key to financial success, but only when structured just right.

The Kelsey-Seybold physician practice was started in 1985 as a subspecialty-oriented, multispecialty group practice in Houston. It was oriented toward the higher-end socioeconomic strata, with many patients coming from Mexico and South America, says Patrick Carter, MD, MBA, FAAFP, medical ­director of care coordination and quality improvement and chief of family medicine at the Kelsey-Seybold Clinic.

In the mid-1980s, the oil industry in Texas hit hard times, and the economic downturn greatly affected the physician practice. One health plan was pushing the idea of capitation, and Kelsey-Seybold decided to try the idea of a guaranteed fee per patient. Unfortunately, the practice learned the hard way how important it is to do your homework before signing the agreement.

"We got a capitation rate, but we didn't really know how much we needed to make it work," Carter says. "We kind of let the health plan tell us what would be fair. We took it, and it turned out not to be an economically feasible capitation rate. We didn't have enough revenue to cover expenses, which of course is death to a medical group."

The practice went back to the health plan and, through a tough negotiation that included taking the plan to court, ­succeeded in getting a higher capitation rate. "During that time, we also had to work on our physicians to change from a fee-for-service [FFS] culture that emphasized doing more because you made more money to a culture of practicing in a ­cost-effective, evidence-based manner," Carter says. "Part of that was investing heavily in primary care. Up to that point, primary care was not a big part of our practice, but now 50%-60% of our doctors are primary care."