Health Insurers Can Learn From Capitation

Les Masterson, for HealthLeaders Media, January 21, 2009

Capitation remains popular in California and other pockets of the country, but the rest of U.S. healthcare providers associate the phrase with not getting paid enough. Though many practices blame poor financial performance of risk contracts for not trying capitation, a recent survey found poor results are not as common as has become generally accepted.

As healthcare leaders look for ways to improve upon the fee-for-service system, capitation-type programs have been eyed as a possibility. Three such options are the medical home payment model that provides care management fees for physicians who coordinate care, quality contracts that include both a baseline payment and quality incentives, and PROMETHEUS (provider payment reform for outcomes, margins, evidence transparency, hassle-reduction, excellence, understandability, and sustainability), which pays each provider according to his/her contribution to a patient's care.

Given this greater interest in capitation-type programs, health insurers should take a look at the recent survey released by the American Medical Group Association and ECG Management Consultants. The 2008 Capitation Survey found that most respondents with capitation describe their organizations' financial performance in risk contracts as above average or excellent over the past two years. Less than 10% cited poor financial performance. As these numbers show, capitation is working for some practices.

Here are three takeaways from the study that are revealing even for health insurers not in capitation:

  • Physician buy-in is the first step (isn't it always?). Respondents to the survey ranked physicians not willing to accept risk as the second largest barrier for practices interested in risk contracts (behind only unfavorable contract terms). This goes to the importance of setting the groundwork by educating physicians about how your capitation program benefits them. The study also found that pay-for-performance (P4P) programs are not popular. Though many health plans are looking to P4P as a way to improve quality and patient outcomes, a mere 10% of respondents said they were participating in a P4P program. Josh Halverson, senior manager at ECG Management Consultants, says successful capitation programs reward physicians for managing health. "To successfully manage risk, there must be an underlying culture and commitment to capitation," says Halvorson.
  • Doctors like payment models in which they control the outcomes. Professional and primary care capitation are the most attractive to providers, while global risk is the least attractive. By opening up to global risks, physicians feel a lesser amount of control and exposes "the group to greater levels of risk to issues beyond their contract," says Halverson.
  • Health plans need to work collaboratively with physicians to share pertinent claims data. Respondents said health insurers are providing eligibility data, but not claims information. Practices are not able to perform the necessary audits to "ensure adherence to contracted rates for services rendered and proper premium payments for the covered population," according to the survey. Instead, health plans need to create open communications between the insurer and the practice. This can happen through networks in which the two sides share claims data and patient information. More than half of respondents said their financial performance was good or excellent with specific health plans and they appreciated when health plans provided more data and utilization support. Sharing utilization and medical expense information between health plans and physician organizations is a "significant opportunity for improvement," says Halverson. In fact, physician organizations surveyed said that valid and consistent utilization data are even more important than providing utilization management staff.

If these kinds of payment models are to work, greater collaboration between physicians and health plans is needed. This greater integration is evident not only in capitation, but in areas such as the medical home, population health, consumer-directed healthcare, and quality contracts.

The only way these programs can work, experts now realize, is having health insurers, physicians, pharmacists, nurses, and myriad other healthcare professionals sharing information and working collaboratively for the patient.

Les Masterson is senior editor of Health Plan Insider. He can be reached at
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