Physician's Capitation Trend-Pharmacy cost groups offer option for capitation changes
Feds seek innovation in capitation formulas
Most everyone agrees that capitation payment methods need to be improved, but how to do that leaves plenty of room for disagreement.
A new proposal attempts to simplify the process by focusing more on pharmacy costs of a patient than on more specific clinical indicators such as ICD-9-CM codes, CPT codes, prior hospital stays, or other items.
The system, referred to as pharmacy cost groups (PCGs), would apply only to patients with chronic conditions. Patients in that broad category would be assigned to one of six PCGs, based on increasing levels of severity measured by projected pharmacy costs.
"If the intent of PCGs is to [increase] capitated payment to primary care providers, the idea might have some merit," says Laurie Foote, MBA, medical practice engineering consultant for Healthcare Management Inc. in West Springfield, MA. "Often, pharmacy use is one of the most telling of indicators of chronic and acute medical problems."
Medical history can be difficult to trace in some cases, she points out, but monitoring outpatient medication can offer good links to patient clinical conditions when there are transitions between inpatient and outpatient care.
Currently, capitation payments are basically computed by determining 95% of a locality's past year's fee-for-service payment amount. But, across the country, cap payment levels vary hugely according to locality, making capitation lucrative in some areas and a virtual financial disaster in others.
Most physicians and other experts agree that adequate risk-adjustment is essential to make capitation fair and effective. (See related story on physician attitudes about capitation, p. 153.) Congress is pushing hard for adoption of a new method by Jan. 1, 2000, although whether or not that deadline will be met is now in question.
The newest pharmacy-driven proposal was developed by Leida M. Lamers, PhD, a professor of health policy and management at Erasmus University in Rotterdam, the Netherlands. The study is based on a sample of 55,907 patients and is featured in Medical Care, an American medical journal.1
Because of the broad U.S. interest in having pharmacy costs folded into capitation — especially among Medicare HMOs — some experts say the PCG plan has strong potential. (See story on pharmacy benefits as they affect capitation payments and federal proposals, Physician's Managed Care Report, July 1999, pp. 103-105.)
Essentially, the PCG approach categorizes patients according to their level of chronic condition. The chronic disease condition is defined by the cost of drugs to care for that condition.
"The use of information on chronic conditions derived from claims for prescribed drugs is a promising option for improving the system of risk-adjusted capitation payments," says Lamers.
Until the PCG idea, the most popular proposals for improving capitation formulas were captured in a plan dubbed "primary inpatient diagnostic cost groups" or PIP-DCGs. (For highlights, see PMCR, February 1999, p. 23.) In effect, the PIP-DCG system will pay varying amounts based on different projected needs for a patient's clinical care.
For the most recent PIP-DCG proposal, see the Feb. 17, 1999, Federal Register2 and the Jan. 15, 1999, "Advance Notice of Methodological Changes for CY 2000 Medicare+Choice Payment Rates," presented on HCFA's Web site at www.hcfa.gov/ stats/hmorates/45d1999/45day.htm. You can also find commentary in the "Report to Congress: Medicare Payment Policy," released in March by the Medicare Payment Advisory Commission.3
The chart on this page shows the prevalences of chronic conditions for three levels of prescriptions per condition. (See chart, above.) The table shows that as prescriptions increase, prevalence of chronic conditions tend to increase.
When looking at the top 20 highest-volume chronic conditions, highest-cost patients make up 16.3% of the sample. The remaining 83.7% are free of reported chronic conditions.
Some of the Health Care Financing Adminis tra tion's newest data support the idea of focusing on smaller, high-cost groups. "The average out-of-pocket expense (not including premium payments) for covered beneficiaries is $233," reported John A. Poisal and colleagues, analysts with HCFA's Office of Strategic Planning. "However, persons with very high total and out-of-pocket prescription drug spending tend to raise the average spending disproportionately."4
Here are highlights of HCFA's findings on drug cost trends among Medicare beneficiaries:
• 25% of all covered beneficiaries spent $16 or less out of pocket for their prescription drugs (based on HCFA's data, which are from 1995). The median out-of-pocket expense was $99.
• Median out-of-pocket expenses were less than 50% of average out-of-pocket expenses ($233).
• 64% of the Medicare population paid less than the average out-of-pocket expense.
• 25% of beneficiaries with coverage paid more than $284.
• For total drug spending, out-of-pocket expenses were most affected by health status, functional limitations, and type of insurance coverage.
• Despite their likelihood to have Medicaid coverage, disabled Medicare beneficiaries aged 45-64 years had such high drug expenditures that they still paid an average of $350 out of their own pockets. Of this group, 25% paid more than $400.
• Beneficiaries of all ages reporting poor health status also experienced large drug expenditures and large out-of-pocket costs — $376 on average.
If PCGs were adopted, precautions would be necessary to guard against gaming this kind of system, Lamers says, including a generally accepted classification system for drugs and monitoring to prevent upcoding and inappropriate prescribing.
Overall, these barriers may be worth it, Lamers suggests. "Risk adjustment of capitation payments is a dynamic process of continuously improving and updating the system."
A problem may lie in the concept's manageability and application, suggests Foote. Ambulatory care groups and diagnostic cost groups have been great concepts, but they entail burdensome application and administration, "so much so that they are costly to implement and difficult to manage," says Foote. "PCGs could fall into this category. However, the information is much more transparent when looking at drug profiles."
Another advantage of looking at capitation payments from a pharmacy perspective may lie in physician workload. "The increased work efforts of physicians in this picture have often been overlooked," Foote says. "Perhaps PCGs would compensate for some of the hidden work created in maintaining good health through increased outpatient intervention."
References
1. Lamers LM. Pharmacy cost groups: A risk-adjuster for capitation payments based on the use of prescribed drugs. Medical Care 1999; 37:824-830.
2. 64 Fed Reg 7,967-7,982 (Feb. 17, 1999).
3. "Report to Congress: Medicare Payment Policy." Washington, DC: Medicare Payment Advisory Commission; March 1999, pp. 21-22.
4. Poisal JA, Murray LA, Chulis GS, Cooper BS. Prescription drug coverage and spending for Medicare beneficiaries. Health Care Financing Review 1999; 3:15-27.
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