What is Capitation?

Healthcare is an expensive service and over the past several decades prices seem to just keep going higher all over the globe. Payers, whether they are private insurance companies or government entities, are continually looking for ways to better manage healthcare costs. As part of this management there is a continued focus on the ability to accurately forecast expenses and to manage the risk associated with high-cost care events. Capitation models are leveraged by a number of healthcare systems in an attempt to address the concerns. Including those in the U.S., Canada, and the European Union.

Capitation - The payment of a fee or grant to a doctor, school, or other person or body providing services to a number of people, such that the amount paid is determined by the number of patients, students, or customers.  ~Oxford Dictionary

Capitation-based reimbursement is a population-based model that involves paying a predetermined per-patient amount to cover all services over a period of time. The patients/persons that are covered under a capitated model are sometimes referred to as 'covered lives'. While base capitation rates are consistent for particular service types, there are adjustments made on a per patient basis to account for any comorbidities that may increase the cost of care. With capitation any expenses that exceed the determined payment become the sole responsibility of the care provider/system/group. Meaning that they accept all the risk and they payer risk is reduced. Payment systems that leverage capitation can be incredibly complex but overall there are four general types to be aware of.

Global Capitation

A global capitation model is also commonly known as full capitation. With this approach, the health care provider is reimbursed a fee for each member in the network which will cover all expenses that related to the individual. Full capitation models are typically associated with entities or care that is being provided by an organization. Payments are made monthly or quarterly depending on the payer agreement.

Partial Capitation

Partial capitation, also referred to as blended capitation, provides reimbursement payment for some care-related services but not everything that the patient may need. For example, partial capitation may cover preventative and urgent care, including lab tests and diagnostic imaging without coverage for pharmaceuticals or hospital-based care.

Primary Capitation

Primary capitation models are focused specifically on primary care services for the population in question. They involve having the payer reimburse on a regular frequency for all patients in the providers group of covered lives, regardless of whether or not they receive care during that time. This model requires that a patient have a primary care physician identified and there is an assumption made that they will utilize this provider for primary care needs. (I.e., they will not frequent urgent or emergency care centers for primary care events.) HMOs leverage this type of capitation model.

Secondary Capitation

Secondary capitation is somewhat of a hybrid between the primary and partial models. This approach reimburses the primary care physician/group for each of the covered lives and requires that they act as a coordinator for additional care within the model. This secondary care incorporates a collection of negotiated services that are to be included in the overall care provided to the patient.For example, it is fairly common to have a secondary capitation model include lab tests, diagnostic imaging, and other care services such as mental health, social work, etc.

In theory, capitated reimbursement models should allow both the patient and provider(s) a level of freedom when making care decisions that is not possible with a fee-for-service (FFS) approach. The provider payment is not directly tied to the services performed and the patient is not put in a position where cost becomes a determining factor in the provisions of their care. Providers and health systems are encouraged within this model to reduce waste wherever they can and to keep their population as healthy as possible so they can maximize their profits. (Remember if they provide services that exceed the capitation value they are responsible for the difference.)

Challenges with Capitation-Based Models

Unfortunately, capitation-based reimbursement is not the rosy perfect solution everyone was looking for. There are quite a few challenges that still need to be ironed out.

Healthcare systems and providers focus on population-level issues to reduce their expenses. As part of this effort, it is often high-cost services that are 'leaned' down first. With a strategic focus on all covered lives within the network, there can be patients who slip through the cracks and a perceived reduction in individualized care.

A number of capitation models do not have sufficient accountability metrics built in. With payments set per patient, over time there can be challenges with ensuring that long-term goals are achieved. On top of this, things like patient satisfaction levels and process compliance receive less focus that they should. (Note: over the past several years there has been a conscious effort in a number of countries to directly address this particular challenge with captained reimbursement.)

Capitation models inherently incentivize providers and health systems to up code for higher payment. With reimbursement adjusted for risk, the more comorbidities that are documented for a patient, the higher the payment for that individual. While it may seem beneficial to have all comorbidities accurately documented, there have been numerous instances where fraudulent claims are made in this area. There is also concern that up coding impacts a patient's ability to secure reasonably priced supplemental insurance or life insurance coverage.

With full capitation models healthcare systems will focus their attention on ensuring that a patient receives all their care at the organizations facilities using their providers. This leads to a care model that moves towards a monopoly within the area and has been one of the most significant drivers in the merger and acquisition activity for the U.S. in recent years.

In my last blog post on the FFS payment model, it became clear that reimbursement was directly tied to volume. With capitation, even though the approach encourages a reduction in waste, we still have a focus on volume over value.