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GLOSSARY: PROVIDER PAYMENTS

Partial Capitation

As lawmakers consider ways to pay for health reform, use our glossary of potential offsets to get caught up fast.

Updated at 3:30 p.m. on Nov. 24 to reflect continuing legislation.

Definition

Physician payments from Medicare would be made partially on a fee-for-service basis and partly as a fixed amount per patient, dependent on diagnostic and demographic factors.

 

Executive Summary

How doctors are paid can influence the quality and efficiency of the care they provide. And proponents of partial capitation say the right mix might be its compromise between two extremes.

With traditional Medicare reimbursing providers for each service, the health care system is awash with stories of people getting surgery or diagnostic tests when a simple treatment would do. Doctors have little incentive to reduce their volume of services, even when they may be unnecessary. Additionally, the fee-for-service system doesn't compensate physicians for following up with patients, or coordinating care, outside of their offices. The American Medical Association has long favored an alternative to the fee-for-service system.

By contrast, a capitation system would pay the primary care physician a fixed amount for each patient. How much they're paid would be determined by the Centers for Medicare and Medicaid Services based on patients' demographic factors, such as age and geographic location, and diagnostic factors, such as type and severity of disease. For example, a physician treating a 25-year-old with Type 2 diabetes would receive different pay than one treating a 65-year-old with heart disease. Since the payment would not increase with the number of services provided, it's expected to motivate doctors to give the most efficient care possible.

 

Dr. Mandy Krauthamer, policy director of the advocacy group Doctors For America, said neither extreme helps doctors or patients. That's where partial capitation comes in.

"There's a lot of uncompensated work going on, so there has to be a component that goes beyond just fee-for service," said Krauthamer, who is also a practicing primary care physician. "But you don't want a situation where doctors have to be the one to take on all the risk of taking care of a patient. Asking someone to take on financial risk in a small practice is very concerning."

When managed care capitated systems gained popularity in the 1980s and '90s, it fell apart. Small practices had to shoulder the financial risk of especially sick patients and consumers feared their doctors would deny them services to cut costs. Meanwhile, customers found themselves without the ability to choose their doctors and specialists.

As a compromise, some have proposed a partial capitation system. Under the hybrid plan, Medicare would award 75 percent of a physician's pay on a FFS basis and the rest as a monthly capitation. Patients would be assigned to one care provider who would manage all of their services and receive the full payment. A similar partial capitation system is being considered in Massachusetts, where attention has turned to changing the fee-for-service system to cut costs.

 

Krauthamer sees partial capitation as a good compromise that provides enough compensation to not put physicians at risk as it encourages efficiency. Additionally, the plan helps physicians oversee more of their patients' care coordination.

"This is really moving toward a medical home," she said. "It's showing that if you can be more efficient, it's going to save money in the overall system and provide better care."

Max Savings

In its December 2008 report, the Congressional Budget Office estimated that a partial capitation system would save $1.2 billion by 2014 and $5.2 billion by 2019. Most of the savings would come by reducing the number of payments to other providers, since the primary physician would have most of the responsibility for patient care and referrals would be reduced. Other savings would come through prescribing generic medications and reducing unnecessary procedures.

Most Compatible With

To add incentive for hospitals, a partial capitation system would work well with proposals that reduce payments for high readmission rates. The system would also fit with medical homes. Some see this as a first step toward a medical home model because it places the responsibilities of managing the entire treatment in the hands of a primary care physician.

Plans

Both the House and Senate plan set up pilot programs to explore capitated payments, and the House bill encourages the secretary of Health and Human Services to further examine alternative payment methods, including capitation.

Links

"Understanding Capitation" from the American College of Physicians

"Integrated Health Care, Capitated Payment, and Quality: The Role of Regulation," from the Annals of Internal Medicine

An evaluation of capitated pay from the Canadian Medical Association Journal

Boston Globe article on possible new payment methods in Massachusetts, including partial capitation

A 2002 AMA analysis of capitated care

The December 2008 CBO report on health care budget options (partial capitation is option 38)

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