One Price Fits All

HealthLeaders Media Staff, January 23, 2008

After largely abandoning the capitation model nearly a decade ago in favor of paying providers on a fee-for-service basis, Massachusetts' largest insurer is coming back to the market with an updated plan for paying hospitals and doctors a flat fee for caring for its members...and providers seem receptive to the change.

Blue Cross and Blue Shield of Massachusetts says the plan offers a way to rein in runaway costs while rewarding providers for giving more efficient and higher quality care. And providers say they are open to the idea a new payment system, as long as they get the information the need to effectively manage the care and control costs.

The concept of capitation has been around for years and is still widely used in several markets across the nation. But capitation was also the payment system behind much of the managed care backlash that dominated the healthcare debates of the late 1990s.

Blue Cross of Massachusetts, however, says the program it is rolling out is eliminates the disincentives that were prevalent in previous versions of capitation--disincentives that encouraged rationing of care and/or cherry picking of members. Additionally, it is offering the program as a voluntary option for groups that are interested in participating.

"We actually want to pay for outcomes," says Chris Murphy, a Blue Cross and Blue Shield of Massachusetts spokesman. "So instead of a model that rewards only for volume and complexity, our system will give them a set amount to keep the patients healthy and when they do then we'll give them bonuses of up to 10 percent."

To ensure fairness from one group to the next, Murphy says the insurer will adjust payments according to the relative health of their assigned patients. This risk adjustment will be performed annually to account for patient transfers and changes in health status.

The move could be a good one for rehabilitating the image of capitation, which has been maligned in the past for blindly transferring the financial risk to providers without also giving them the controls to effectively manage care.

While providers concede that the system is ripe for a change in the way they are paid for rendering care, they are cautious about the program in light of past problems with capitation.

"One concern is that there is surprising little information for physicians regarding the cost-effectiveness of various elements in healthcare. So in order to deal with this situation you have to be able to shop, you have to be able to consider substitutions or what tests can be safely dropped without compromising care," says B. Dale Magee, M.D., M.S., president of the Massachusetts Medical Society. He maintains that simply moving the financial risks to the doctors without recognizing their need for this data and their ability to manage it is a recipe for disaster.

"Just as you don't treat every patient the same, you don't necessarily treat every physician group the same," says Magee. "You have to do a needs assessment and make sure that you're providing them with the appropriate resources to do the job that they're being asked to do."

While Blue Cross' action is sure to create waves in Massachusetts where capitation was largely excised from the market, it's not alone in ramping up the use of the fixed pricing scheme to control costs. Physicians and hospitals responding to HCPro's most recent capitation survey reported that risk contracting was coming back in vogue in their markets.

Overall, 30 percent of the respondents said that capitation was rebounding in 2007, compared to the 15 percent who said it was declining. In 2006, however, only 7 percent said capitation was on the upswing compared to 53 percent who said it was on the way out.

So what's happening in your market? Will capitation play a bigger role in your operations in 2008 or has that ship sailed?

Brad Cain is editor of California Healthfax and executive editor for managed care with HealthLeaders Media. He may be reached at
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