Physician's Capitation Trend-Calculate utilization rates before you sign contract
Don't assume insurer has better numbers
Just because you don't know the latest utilization numbers for your specialty's primary procedures, don't assume the insurer has any better knowledge than you do.
That's the advice from Al Ferry, PhD, administrator of Fresno, CA-based Health Care Systems and capitation editor for the Peoria, IL-based American Society for Dermatology's (ASD) newest capitation guide. The ASD's guide includes excellent contracting tips that are useful not only for skin specialists but for other specialist physicians as well.
Having some idea of what utilization will be is the key to establishing a realistic capitation rate, notes Ferry.
In Fresno, most insurers still are compiling utilization figures for dermatology in discounted fee-for-service arrangements, he says, so don't consider yourself necessarily behind the pack with capitation data. That may well be the case for other high-level specialists, too.
Based on Health Care Systems' track record, Ferry projects dermatologic services to range between 16% and 18% of all services. In tighter systems, utilization can be as low as 14%, he says. But don't expect to ever hit the mark exactly, he warns.
Here's a series of calculations Ferry recommends to assist you in projecting (though not nailing down) a realistic capitation rate:
Start by asking the carrier for utilization data, i.e., number of office visits per 1,000. If the insurer cannot supply that, you can find generic industry standards from your specialty organization. For dermatology, the generic number of 190 is often used for utilization, says Ferry. Example: Start with the assumption that the plan's utilization rate for dermatology is 19%, which is equivalent to 190 visits per 1,000 patients per year.
Compute the per-visit revenue in your practice by dividing the total annual income by the total expected number of patient visits. Example: Say patient revenue in your practice is $500,000 per year. Divide that by 6,500 patient visits, and the result is $77 annual revenue per visit.
Next, figure a tentative capitation rate for your practice by multiplying your per-visit revenue by the number of visits per 1,000 enrollees. Then divide by 12 months to determine the per member per month (PMPM) capitation rate. Example: $77 per-visit revenue X 190/1,000 utilization rate divided by 12 months = $1.22 PMPM.
Now look at the general distribution of services you provide relative to the income generated from them. If you have an automated billing system, this information is available from your frequency reports. Example: Say you perform 160 Mohs skin cancer reconstructive surgeries per year at $700 per patient. That amounts to $112,000 per year in revenue. Thus, if your total annual revenue is $500,000, Mohs surgeries amount to about 22% of your revenues. Make these calculations for each of your major types or groups of procedures.
If you don't have a computerized billing system, don't panic, Ferry says. Simply select by hand 100-150 patient ledgers for analysis. Tally the times each procedure is performed in that batch and the revenue collected. Then add them up and determine revenue per procedure, just as described above.
With these basic figures at hand, you are on solid ground to negotiate with any HMO, Ferry says. If the insurer wants to capitate all but one type of procedure, you'll know what level of income — and comparable PMPM level — you'll need to derive for all capitated procedures. Then you negotiate fee-for-service amounts for excluded services.
Ferry offers two more important but sometimes neglected tips:
• Never accept the same capitation rate for Medicare enrollees as you would for non-Medicare enrollees. An insurer may ask you to fold in the seniors, but by doing that, Ferry estimates, you'd be at risk for two to four times the cost of commercial enrollees' care.
• When establishing referral guidelines in the contract, get as specific as stating by ICD-9-CM code which services you will perform and which ones you will refer to other physicians. In addition, Ferry recommends negotiating for increased compensation when referral rates to you — as a specialist — increase. If your referral rates increase by 10%, that should be matched by a 10% increase or decrease in your capitation rate.
[Editor's note: For more information on the ASD's Capitation Guide, contact the organization at 411 Hamilton Blvd., #1006, Peoria, IL 61602. Telephone: (309) 676-4074.]
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