Physician's Capitation Trends
The skinny on costs: Plans predict rising rates
Pace of costs reaches 10-year high
As you factor in costs for your 2001 financial planning, expect several key areas to point northward — and probably more northward than you would have guessed six months ago.
"Runaway" prescription costs are leading the pack of costly items, according to The Segal Co., a New York City-based employee benefits consulting firm. In fact, drug costs are quickly eroding away any of the financial gains once made in managed care settings, says Segal.
Segal officials recently released a report with this finding and scores of key cost projections based on a survey of 45 major insurance carriers, pharmacy benefit managers, third-party administrators, and managed care organizations.1
Costs are a critical component of capitation contracting. In practical terms, adequate per-member-per-month payments are based on the physician group’s ability to anticipate their costs accurately, along with their ability to spread those costs strategically across the practice.
Here are the highlights of trends that may be helpful in your practice-based capitation cost planning, as documented by the Segal report, starting with the category of drug costs:
For employers, the cost of providing prescription drug benefits in 2001 will jump 20%.
Overall, prescription drugs remain the priciest part of an insurance plan, and they are expected to add 2%-3% more to total medical plan expenditures in 2001.
Average prescription drug claim costs are currently growing at a rate of 16.3%.
One out of five providers of prescription drug benefits experienced costs increases of 30% or more in 2000.
Retirees’ drug costs are expected to rise 20.9% next year, compared to 19.7% for active plan participants, mainly because of higher utilization rates. (Another way to help with managing drug costs may lie in demystifying the actual costs of drugs and posting their prices for physicians to easily access during their patient visits.)
Looking at insurance costs as a whole, costs are expected to soar for all types of insurance plans — non-network fee-for-service, preferred provider organizations, point-of-service, and HMOs. All of these are projected to rise at or near double-digit rates. (See the table for the overall cost trends that the Segal group anticipates.)
HMO cost increases will be at the lowest end of the spectrum — 9.9%. But even in the cost-conscious settings of HMOs, a 9.9% hike is double what it was in 1998.
Non-network fee-for-service plans are expected to go up by 15.1%, PPOs by 12.5%, and point of service plans by 11.4%.
All projected costs for 2001 are higher than what had been expected by mid-year 2000. "In fact, all medical trend rates for actives and retirees under age 65 are at their highest level in almost 10 years," the report states.
Employers may swallow majority of increase
Such projections raise a key question: Who will pay for the cost hikes? It’s possible that current economic prosperity will ease the pain of cost increases. Segal officials point out that employers often pass on these costs to their employees. But in today’s tight labor market, that may not happen. Many plan sponsors are reluctant to require extensive cost-sharing by employees or to institute more aggressive cost management strategies.
These cost projections are realistic, and perhaps a bit conservative, Segal officials contend, because their survey method focuses on per-capita cost increases only. "Eliminating extraneous factors such as plan design changes and cost shifting to participants presents a more accurate forecast of health plan cost trends nationwide," the report states.
Reference
1. The Segal Co. 2001 Segal Health Plan Cost Survey. New York, NY, November 2000.
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