Capitation Payments – What You Need to Know

Capitation Payments. What You Need to Know.

The Affordable Care Act (ACA) in 2010 prompted an ongoing effort to reduce healthcare costs while striving to improve quality patient care. A push toward paying for value with a focus on clinical outcomes, incentives, and mandatory reporting, has led to increased cost control efforts. The intent is to improve the quality and overall population health while reducing waste by changing how payment is received, and how healthcare is delivered.

Capitated care shifts the role of managing the amount, form, and cost of care to the providers. This is a departure from the traditional fee-for-service model which utilizes a set fee for each service. This can allow providers to invest in quality improvements to increase their efficiency, and give them the opportunity for financial rewards while sharing in the risk of potential losses.

What is Capitation?

Capitation payment is a model of reimbursement in which the providers receive a fixed amount of money per patient. This is paid in advance, for a defined time, whether the member seeks care or not. Ideally, patients who have little utilization will naturally balance out with the patients who have higher utilization. Capitation payments are developed based on the number of patients, the expected average amount of healthcare utilization for each patient during a specific time frame, and can vary based on the geographic area.

As a value-based reimbursement strategy, capitation payments include quality measures and standards to deter withholding treatment for financial gain. The physician, a network of hospitals and physicians, or a primary care network, agree to provide specific preventive services that can be completed in the office and usually include a focus on:

  • Prevention and treatment
  • Administration of prescribed injections and immunizations
  • Performing outpatient laboratory tests
  • Health education and counseling
  • Routine vision and hearing screening

A Few Benefits of Capitation

It can be challenging for physicians to collect and analyze the varied data for measuring clinical and financial elements required for value-based payments. The availability of current healthcare data through the utilization of electronic healthcare records (EHR) can provide the physician with a better ability to manage capitated risk. This can increase their chances for success with capitation reimbursement by offering the ability to identify cost and utilization patterns quicker and easier and connect patient data with other providers. This can offer a better view of the patient’s overall healthcare experience and treatment.

Other potential benefits of capitation payments include:

  • The ability to explore cost-effective care processes that yield the best outcomes, rather than relying on face-to-face services to generate a bill for services
  • A more predictable cash flow, less need for a large internal billing staff, and a reduced wait time for reimbursement
  • A greater incentive for encouraging and providing preventative care
  • Greater physician accountability, which can limit the provision of unnecessary care or costly procedures, and may reduce patient out-of-pocket expenses

Potential Drawbacks of Capitation

Patient visits have become more complicated due to different rules with varied health plans as far as what services the physician can provide, which medications are approved, and what authorizations are required. Attempting to adhere to these requirements, and manage quality measures by manually collecting and analyzing necessary data elements could be difficult. The use of EHR can be beneficial to assist in identifying services, patient populations, and a better understanding of the costs and approved reimbursements.

Obtaining capitation payments requires maintaining a balance with providing quality healthcare services. Although some still have concerns about physicians withholding or rationing, care for financial gains or the potential to receive bonuses for conservative measures. Other potential drawbacks, or concerns regarding capitation, include that it can:

  • Incentivize enrolling a large number of patients which can result in longer waits, and shorter time, for individual patient visits
  • Restrict patient choice by requiring patients to stay within the network
  • Put increased financial risk on the physician for patients with significant medical issues
  • Potentially burnout physicians who are overwhelmed with attempting to keep up with regulatory changes, reporting requirements, and increased patient needs

Promotion of Quality Care

Capitated care strives to control healthcare costs and the use of healthcare resources while creating incentives for preventative healthcare and the provision of quality care. This effort to improve the patient and physician experience, which places the responsibility of the patient’s care in the hands of the physician, can come with financial risks and gains during the quest for better overall healthcare outcomes.