Abandonment of capitation may inflate MCOs' costs














Approximately 25 percent of physician organizations pay their doctors on a purely fee-for-service basis, 25 percent pay them on a purely prospective (capitation or some method completely unrelated to productivity) basis, and 50 percent pay the physicians by using blends of retrospective and prospective payment methods, according to a study by researchers in the School of Public Health at the University of California– Berkeley. Medical groups and IPAs in strong managed care markets are significantly less likely to use fee-for-service methods to pay their physician members than are organizations in markets with less managed care presence.

Medical groups and IPAs tend to blend elements of fee-for-service, salary, and subcapitation for their physician members, as each payment method offers advantages in terms of motivating productivity, cooperation, and practice efficiency.

"Physician organizations in markets with extensive HMO penetration have been most willing to shift away from fee-for-service and towards individual physician payment methods that reward efficiency rather than productivity," says the lead investigator, James C. Robinson, PhD. "By implication, the contemporary shift among insurers away from capitation for physician organizations will encourage these organizations to shift their individual physicians back to fee-for-service, thereby stimulating more billable claims, more revenues for the physician organizations, and higher expenses for the insurers."

SOURCE: THE ALIGNMENT AND BLENDING OF PAYMENT INCENTIVES WITHIN PHYSICIAN ORGANIZATIONS. HEALTH SERVICES RESEARCH: OCTOBER 2004

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