Striking a better deal: Does contact cap pay?
Specialists everywhere face the dilemma of taking a contract that will pay them under either contact capitation or per member per month (PMPM) capitation. The big question is which is the better contract in terms of payment and risk.
First, let's establish a basic understanding of the terms involved. PMPM capitation is where the physician receives a set fee on a per member per month basis for each patient that is a member of the MCO in question. The payment amount is fixed and is unaffected by how often the patient is seen or what type of services, if any, the physician renders to the patient or what kind of ailments the patient may have.
One of the benefits of PMPM capitation is that the physician is assured of a fixed revenue amount per patient per month. Another benefit is that PMPM capitation relieves the physician from having to send out monthly bills.
Small numbers pose big risk
The biggest risk of PMPM capitation is the risk of small numbers. The smaller the number of patients involved, the less the physician receives in terms of overall payment. One patient with a catastrophic illness or injury can wipe out a the entire amount a physician receives for all his or her enrolled patients from an HMO. The larger the number of patients enrolled, the less likely it is that one claim will jeopardize the physician's income.
For protection, a physician or group ought not to accept a capitated rate of payment unless the volume of patients is relatively high. How high the volume of patients needs to be is determined by specialty. The most common specialties that are capitated early and can be successfully managed with a relatively small volume of patients are cardiology, gastroenterology, gynecology, orthopedics, and urology. Some specialty areas are almost never capitated on a PMPM basis, typically neurosurgery and transplant surgery.
Contact capitation, on the other hand, is used to reimburse a specialist when a member is referred for a condition-specific episode of care. Two particulars to note are: (1) The capitation payment does not occur until a referral is made and the specialist actually begins to treat the patient. (2) Payment is adjusted based on the condition a patient has.
The most common specialties involved in contact capitation are cardiology, gastroenterology, gynecology, orthopedics, and urology, the same specialties involved in PMPM capitation. Under contact capitation, the diagnosis dictates the payment, rather than just the enrollment of a patient. The physician is capitated for an amount equal to the estimated costs of caring for a patient with a specific diagnosis.
The benefit of contact capitation is that a specialty can undergo capitation with less risk for a smaller patient volume. In addition, it provides specialists with a financial incentive to enhance efficiency and control utilization in much the same manner as PMPM capitation.
There are two major risks of contact capitation. The first is that it is not adjusted for severity among patients with the same diagnosis. For example, a patient who reports to the orthopedist with the diagnosis of a torn meniscus and who is an athlete probably will represent a much less costly treatment program than a patient with the same diagnosis who is elderly and has as a comorbidity diagnosis of osteoarthritis. Yet the orthopedist will receive the same amount of money, on a contact capitation basis, for both patients.
Another potential downside to contact capitation is what is known as prevalence creep, or increasing the number of patients with a coded diagnosis for a particular medical condition. Can your practice handle this additional volume?
Investing in infrastructure
Both PMPM capitation and contact capitation have one risk in common: the need to invest in infrastructure. Infrastructure is needed to determine how much it costs to treat certain conditions and patients and how to convert these costs into a capitated payment, whether that payment is in the form of PMPM capitation or contact capitation. Infrastructure also is needed to ascertain that the physician is indeed receiving the capitated amount to which he or she is entitled. Under PMPM capitation, the physician should receive capitated amounts for all enrollees, regardless of whether the patient has been seen or not, and regardless of whether the patient has even signed up at the physician's office. The physician is entitled to the capitated rate the moment the enrollees become his or her risk.
Contact capitation requires even more infrastructure because of the myriad of diagnoses that a contact capitation schedule represents.
In conclusion, which capitation payment method is better depends on the volume of patients enrolled and the sophistication of the infrastructure in place to manage the capitation. Either type should be entered into cautiously.
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