Fee for service gains, with modified capitation
Rising popularity of PPOs is a factor
In recent months, major health plans like Aetna Inc., UnitedHealthcare, Cigna HealthCare, PacifiCare Health Systems, and Coventry Health Care have announced they are converting some of their capitation agreements to fee-for-service (FFS) contracts. Also giving FFS a boost is the boom in popularity being enjoyed by preferred provider organizations (PPOs).
The percentage of multispecialty practices with capitated contracts has dropped from 68% in 1996 to 58% in 2000, reports the Medical Group Management Association (MGMA) of Englewood, CO. Based on this trend, MGMA’s survey guru, Dave Gans, predicts the overall cap rate among multispecialty groups could fall to 40% within the next two years.
Rather than going straight to FFS, some plans are modifying their cap arrangements. In Denver, for instance, Anthem Blue Cross and Blue Shield has changed its money-losing capitated global risk contracts — covering physician, hospital, and pharmacy services —to less risky payment pools for hospital and pharmacy charges. Physicians in the pools share savings with Anthem but are not responsible for losses.
Experts note that California doctors are also dropping their pharmacy and hospital risk provisions, but not professional risk. At PacificCare, for instance, the proportion of members under a global risk contract dropped from 91% in 1998 to 66% in 2001. Meanwhile, members under professional risk only fell from 99% to 98% during the same period.
Because the costs of one sick patient can exceed the capitation income from several healthy patients, a primary care physician needs at least 100 to 150 capitated patients to make the payments worthwhile. This is a major reason larger groups have traditionally done better under capitation. However, this also is changing.
According to the MGMA, groups generating from half to all their income from capitation had a median revenue of $533,211 per physician in 1999 — less than the median revenue of $562,673 per physician earned by groups that accepted no capitation. Groups earning 11% to 50% of their income from capitation only generated a median of $507,043 per physician.
Rate raises
Flush from double-digit premium rate hikes, many insurers say they plan to raise both their capitation and FFS rates more than usual. Because of the fundamental differences in the two payment systems, however, it is difficult to determine how any increase in reimbursement compares.
Because PPOs cannot cannot guarantee patient volume, they have to pay primary care physicians FFS fees 10% to 15% higher than an HMO pays for the same capitated services, estimates the Chicago-based consulting firm of Milliman USA.
But don’t get your hopes up too much. With the economy cooling, many predict that employers will start to tighten their purse strings by restricting their more generous PPO and FFS arrangements.
In fact, "if employers continue to see the kind of premium increases they’ve seen this year, capitation may make a very big comeback as cost control becomes top priority again," predicts the Managed Care Information Center of Manasquan, NJ.
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