Managed Care

Providers turn to fee-for-service charges to make up revenue lost under capitation

If there's any doubt whether capitation has left a bit of a sour taste in the mouths of physicians and hospitals, a survey issued earlier this year would seem to confirm it. Physician-group involvement in capitation is down by one fifth over a two-year period, while 2 of every 5 hospitals have moved away from it.

Evergreen Re, a Florida-based reinsurance broker, surveyed physician groups and hospitals, finding that single-specialty groups and hospitals are dropping capitation in favor of fee-for-service contracts. Capitation rates — which had been locked in by the health plan renewal cycle — were often too low for the level of risk these providers were assuming, Evergreen says. Freed now from their risk contracts, providers are making up for lost revenue by increasing charges and the share of revenue derived from the fee-for-service side.

Use of capitation

The average number of lives under capitated agreements is falling, too. Evergreen Re attributes a drop in commercial lives (per capitated entity) to employers embracing self-funded PPOs. Falling membership in Medicare+Choice plans accounts for the biggest drop in the public sector.

Average number of lives under capitation, per group or hospital


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