Capitation. Theory, practice, and evaluating rates for gastroenterology.

Managed care growth has affected physicians most dramatically in the way they are paid for the services provided to patients. The phases of managed care penetration into a region are characterized to a great degree by the change in payment methods. Markets see their traditional fee-for-service payment replaced by discounted fee schedules and eventually are dominated by per member fixed dollar prepayments to contracted physicians. In exchange for a guaranteed monthly capitation payment, physicians or physician groups are required to provide all contracted services to the extent needed by any patient of the member population. Capitation payments can take different forms depending on the agreement with the managed care organization (MCO). Most physicians are familiar with MCO direct capitation to individual providers for primary care services. In most plans, other services remain the responsibility of the MCO to be paid on a fee-for-service basis. Alternatively the MCO can arrange a specialty capitation contract for specific services with specialty physician groups. The MCO can effectively offload almost all of its risk, keeping a significant percentage of the premium dollar for the marketing of the plan and coordinating the various capitated contracts. Although the number of at-risk specialty contracts is currently small, they are increasing in frequency and have had significant influence on other health care payment strategies. Capitation can align the incentives of patient, provider, carrier, and purchaser to keep covered members as healthy as possible at the least cost possible. The responsibility of cost-effectively managing resource utilization can rest in the hands of the providers. It is the providers who have the scientific training, clinical knowledge, and history of being patient advocates. A multiphysician group may be paid by an MCO on a global or whole-life capitated basis and divide the pool of funds internally on a fee-for-service basis. The fee schedule is typically set using a relative value system. The payments for services are usually adjusted on a monthly basis depending on the total amount of relative value units provided by the entire physician group. Any needed service not provided by a physician within the group must be paid out of the pool to a subcontracted provider. Many physicians misunderstand the theory of capitation and argue that patients will be denied needed services because the incentive once the capitation payment is received is to withhold medical services. In contrast, MCOs have complained that even under discounted fee-for-service arrangements the cost of health care has not decreased. Physicians and specialists in particular may even increase the volume of services to make up for the decrease in their per service reimbursement. In an attempt to control the volume of services, many insurance carriers have used preauthorization or second opinion programs for procedures. Paying for specialty services with monthly per member compensation allows the MCO to offload the risk for changes in the volume and associated cost. Those who believe that capitation is anti-patient are only thinking about the short-term incentives to withhold care. All capitation contracts are renegotiated after 1 or 2 years based on the actual utilization of services by a member population. If the volume of services is smaller than that used to calculate the initial capitation rate, the MCO is justified in asking for a lower capitation rate in the subsequent contract. Capitation arrangements allow physician groups to share the savings that high-quality, cost-effective medical care produces. Groups that can quantify the costs of specific services and manage the utilization of those services through patient intervention and disease management techniques are most likely to be successful in risk contracts. 2 Gastroenterologists across the United States are being asked to participate in health plans that put their practices at financial risk for the cost of services needed by their patients. Specialists can participate in capitation payment systems as part of a whole-life capitation contract to a multispecialty health system or as a separate specialty capitation. In either case, the specialist must be committed to providing health care under a system that endeavors to measure quality, manage disease, and provide all appropriate services on a fixed budget. A specialty capitation contract tends to cover a large number of member lives spread out over a region. To satisfy the MCO's needs, this usually requires a network of specialists to ensure reasonable access for all eligible members. If the provider group plans to do nothing but turn the capitation pool into a discounted fee-for-service arrangement, the MCO is successful only in limiting their cost for specialty professional services. In addition to regional coverage and controlled costs for professional services, MCOs want the group to control the expenditures for ambulatory facilities, which in gastroenterology can typically approach the same cost as professional reimbursement. The prospective physician group should consist of board-certified specialists prepared to consider alternative payment incentives and ready to institute utilization and quality review. Capitation can affect the delivery of health care services by influencing individual provider decisions, by fostering innovation in disease management, and by encouraging integration of various components of the health delivery system. Physicians vary widely in their use of diagnostic tests, choice of medication, and therapeutic procedures. The variation in practice style does not necessarily mean that one provider is appropriate and the other is inappropriate. Mirvis 3 suggests that the differences between providers more likely is due to the uncertainty of outcomes and disagreement about the preferred course of action. On the continuum of resource utilization, there is a range of uncertainty that allows for differences in practice style. Outside this range lies practice patterns more clearly agreed by all as underutilization and overutilization. One of the obvious influences that affects physician decision and resource utilization is financial incentive. Specialty capitation places the responsibility of determining the acceptable range of practice in the hands of the physicians rather than the managed care insurance company. Financial incentives can be aligned to avoid both underutilization and overutilization. Narrowing the range of uncertainty and acceptable practice pattern is better left to basic research in clinical science and outcomes. The magnitude of risk under capitation should not be so great as to influence an individual physician to make clinically imprudent choices for an individual patient. The primary aim of a capitated contract directly involving physicians should be to encourage peers to exchange information about their own patterns of care, to support group learning about clinically prudent options, and to increase the likelihood of cooperation among physicians and between physicians and managers to develop better programs of care. The services covered under capitation contracts should be those about which the risk-bearing entity can make relevant, clinically prudent choices, not those over which the entity has little or no influence. Capitation can encourage better decisions and facilitate the productive redesign of systems for the delivery of care. 1