Getting specialists on the PMPM bandwagon
Two different approaches to make it work
Once your market leaves the entry-level stage of managed care and enters stage two, expect the subject of specialty capitation to come up. But although the subject strikes fear in the hearts of just about every physician, interviews with two organizations that are making the concept work show that the rewards of accepting capitation can exceed the risks.
"As an overarching principle, for a medical group to succeed in a risk environment, you have to capitate both primary care physicians and specialists," says James Selevan, MD, senior vice president and chief information officer for Monarch Health Care, an independent practice association (IPA) in Mission Viejo, CA. "You can’t succeed if you have fixed revenue in your group and variable costs outside [in specialty fees]."
Summarized below are approaches two organizations took to specialty capitation: Monarch’s experience using a hybrid model called contact capitation, and Kansas City, KS-based Health Midwest Comprehensive Care’s method of reimbursing primary care physicians on a fee-for- service basis and capping specialists.
Monarch Health Care’s 1986 implementation of specialty capitation didn’t happen on a whim. The IPA gathered data from three sources that Selevan says should be readily accessible to most practices:
1. Look at data based on fee-for-service charges from specialists. Selevan suggests looking at total dollars paid out over a 12-month period and dividing this by the total number of member months represented in your patient base, and possibly decreasing this figure by a small amount to account for potential utilization improvements. For example (note that numbers used are purely theoretical):
Total $ paid to cardiologists last 12 months: $240,000
Total member months: 10,000 enrollees X 12 months = 120,000
Total $ paid divided by member months: $240,000 ÷ 120,000 = $2 PMPM
Discount for potential utilization improvements: 10%
Potential PMPM rate: $1.80
2. Look at the national norms for the specialists in question through sources such as the Journal of the American Medical Association or Milliman & Robertson. You need such information as average income by specialty and the average ratio of cardiologists needed per primary care member. So if the average cardiologist’s income is $300,000 and statistics show you need four cardiologists for every 100,000 members, you need to budget $1.2 million to cover cardiology fees.
3. Call colleagues around the country to ask about their reimbursement methods. Most practice leaders are happy to talk to you about their own experiences, and this can be valuable information, Selevan says.
Once Monarch determined if these figures fit within the PMPM budget they had, the IPA used figures compiled from the three sources listed above as starting points for discussions with specialists, Selevan says. Monarch softened the blow to specialists by implementing contact capitation. This hybrid formula combines a pure PMPM rate methodology with referral points that reward specialists based on the number of referrals they receive from primary care physicians. It also gives points in areas such as patient satisfaction, quality assurance, and utilization review. (For more information on contact capitation methodology, see Physician’s Managed Care Report, June 1997, pp. 67-68.) Money left over from the hospital risk pool at the end of the year is distributed to specialists; the amount is based on where the physician falls on the bell curve when ranked on total number of points accrued.
Aim to reduce hospital bed days
Selevan advises practices entering the specialty cap arena to start with specialties that are historically hospital-intensive, such as orthopedics, cardiology, ophthalmology, urology, and podiatry (the three latter specialties are particularly hospital-intensive in markets with a large senior population). "The purpose of specialty capitation is not to punish the specialist. It is to reduce hospital bed days," he explains.
The referral point system inevitably weeds out the poorer performers, Selevan adds. For example, if an IPA has 15 orthopedists in its HMO network and one of those orthopedists is averaging only one referral a month, that physician will probably end up dropping out due to the lack of income. "There’s a built-in self-attrition. It’s the marketplace of primary care physicians that are selecting out weaker players vs. stronger ones," he says.
Like Monarch, Health Midwest Comprehensive Care, a physician-hospital organization (PHO) based in Kansas City, looked to specialist capitation as a way to reduce the number of hospital procedures among its specialists. On Sept. 1, Health Midwest will implement a variation of contact capitation that a Health Midwest executive calls physician DRGs.
Here’s how the system works: Health Midwest, which gets about 50% of its physician revenue from health plans via capitation, sets up a medical fund account for each participating specialist physician group. Health Midwest will credit each account a prospective payment DRG for each new referral the practice receives from a Health Midwest primary care physician. Every six months, Health Midwest will return the unused balance to the group. This represents the difference between the actual costs for services rendered (less a withhold) and the prospective payment credits issued to each physician group’s account.
Health Midwest will first implement its physician DRG system with orthopedists. The PHO used historical data to determine the DRG payment amount for 14 types of cases typically seen by orthopedists, says John Luke, Health Midwest’s director of finance and analysis. "These 14 broad conditions account for 85% of what they do cases like low back pain or degenerative joint disease," he says. Health Midwest decided to keep trauma cases on a fee-for-service basis, as well as anything physicians on its orthopedic committee felt were outlier cases, such as a particularly high-risk case.
The participating orthopedic practices played a key role in the program’s implementation, Luke says. Health Midwest set up a committee of physician representatives from each practice to work out the reimbursement method, as well as a referral guidelines committee with equal representation of primary care physicians and orthopedists. (See p. 97 for samples of the guidelines the group developed, which are based on national guidelines from the American Academy of Orthopedic Surgeons in Rosemont, IL.)
Luke says he believe this system makes sense in his stage-three managed care market, which has recently seen an emergence of single-specialty groups signing contracts with HMOs. "Specialists are still trying to fit in somewhere in the market and maintain some autonomy," he says.
The PHO will extend the payment method to other specialties in early 1998.
Health Midwest decided to pay its primary care physicians a fee-for-service rate (approximately 115% of Medicare’s Resource Based Relative Value System payment). Luke says this improves primary care-specialist interaction by defusing the issue of so-called "patient dumping," which occurs when capitated primary care physicians aggressively pass on cases to specialists in order to avoid high-cost care or high-risk patients.
Although the program has yet to be implemented, Luke says so far it has proved to be a win-win situation: a win for participating orthopedic practices, which want to get managed care contracts outside Health Midwest’s PHO and can use their participation to demonstrate an ability to manage costs; and for Health Midwest, which can operate the physician DRG payment without changing billing systems and which hopes to reduce its specialist costs.
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