Physician's Captitation Trends-Capitation slips, slides on Colorado's peaks and valleys
Business pushes for more cap amid controversies
Like beginning skiers who are too eager to race down the intermediate hill, health care players in Colorado are finding capitation a dangerous and more slippery slope than they had anticipated.
"One of the big problems we've had is independent practice associations [IPAs] going out of business under capitation," says Nancy Ryan, spokeswoman for the Colorado Division of Insurance in Denver.
Despite these failures, Ryan points out, many physician groups want to continue to offer direct contracting via capitation without an insurance license. That leaves consumer advocates fearing financial collapse will leave patients — and providers — uncompensated, while insurers fear over-reaction and overregulation.
In the short-run, CIGNA HealthCare of Colorado, based in Denver, has dropped all its capitation contracts.
That's not to say everybody hates capitation, but there are clear capitation crashes and bangs that need to be worked out before all the players can be assured it will work smoothly and equitably for everyone. Colorado's trailblazing is expected to inform similar capitation-related disputes across the country.
From the business perspective, many Colorado employers and benefits management experts still heartily support capitation, notes Chris Watts, a principal in the Denver office of William M. Mercer Inc., a benefits management company used by many Fortune 500 companies. Employers believe in the ability of capitation to lower costs and maintain quality of care. (That's understandable, given the pressure of costs going up for businesses providing insurance, as described in related story, p. 88.) Several recent trends are creating some challenging market inconsistencies in Colorado — many of which are surfacing in similar patterns in other states as well. Consider these recent events in the Rocky Mountain state:
• In February, CIGNA HealthCare dropped all capitation contracts and began paying primary care physicians on a fee-for-service basis.
• Within the past two years, 13 IPAs have folded in Denver. The Paramount Physician Network, representing 865 physicians, and the Millennial Colorado Physician Alliance, with 755 physicians, are examples of two IPAs that dissolved. Both groups cited capitation as the key reason for calling it quits.
• At the same time many employers continue to want capitation — particularly self-funded employers, who argue they are exempt from state insurance restrictions. These powerful business entities often show a particular preference for direct contracting (on a capitation basis) with physician groups.
On one hand, robust employers prefer capitation's cost advantages for them, so they are pushing for it. On the other hand, if the risk agreement gets too aggressive, and cap rates fall too low, then the plan cannot meet its costs. When collapse occurs, no one relishes the thought of having to make the back payments if the whole contract falls through.
Protections collide with market ambitions
To protect against having no one accountable for a failed capitation contract, these backup measures are in place in the state:
• Own up to debts if you go broke. The state's "double-pay" statute says that HMOs (and any other carriers) are liable to pay physicians whose contracting organization has gone bankrupt.
This is the case even in capitation agreements, in which cap payments are made to IPAs in advance.
• IPAs cannot capitate without an insurance license. Health care providers or provider networks such as IPAs are not allowed to enter into capitation contracts with health plans — including self-insured health plans — unless a licensed insurer accepts the ultimate responsibility for the risk. This is also the case in many other states.
This statute exists, says William J. Kirven, Colorado insurance commissioner, to prohibit employers and health plans from shifting all their health care risks to physician groups, which may not be equipped to manage the utilization or bear the risk.
• There are no loopholes, i.e., no funneling a capitation contract through an IPA without an insurance license. The Colorado Insurance Commission ruled in 1999 that when an IPA or other provider, which does not hold an insurance license, directly accepts a capitation contract from another unlicensed entity, it is breaking the law. The commission says that by accepting capitation from an IPA or other non-insurance (typically physician practice) provider, then such acceptance actually is the same thing as practicing in the business of insurance without an insurance license.
Do ASOs make things different?
A division of CIGNA recently challenged that "loophole" ruling, citing the use of an ASO, or "administrative-service-only" entity. CIGNA's ASO was providing administrative services to several self-funded employers. Through that ASO, CIGNA opened up its provider networks to those employers. This ASO agreement works on a capitated basis. CIGNA's ASO officials argue the ASO's offering of provider networks limited health care services on a prepaid, capitated basis is not an insurance role.
Kirven responded in a declaratory order that he disagreed. He ruled that within the ASO agreement, self-funded plans are pooling risks and then transferring them to the provider network. That structure, Kirven says, "possesses the hallmarks of a classic insurance arrangement."
Businesses pushing for capitation are counting on their self-funded status (government by the federal government's ERISA laws) to pre-empt any intrusion from states regarding who can hold a capitation contract. In the meantime, Kirven is appointing a task force to explore these and a host of other capitation disputes. He says he hopes the task force can work out the issues itself rather than turn to more state regulatory pressure, and ensure that physicians get both the protection and the business flexibility they need.
The state task force is now meeting to attempt to reconcile these and other capitation issues — and not just related to self-insured populations, notes Ryan. "The question becomes how much risk can a group assume, and at what level do they have appropriate solvency to make payments if their plan fails. We're hoping to find some common ground."
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