Prepayment or capitation plans make lots of sense for payers, and they can be good for conventional medical groups, too. But there are risks inherent in these programs, and most of them you can't insure against. Here are five things you should know before you sign that capitation contract:
1. Know what capitation requires.
If you're new to capitation contracting, you probably don't have your own utilization data — or access to much, either. So it will be hard for you to tell just how many services your group will be required to provide for the enrolled membership. If you have a big consulting budget, you can buy an actuary's advice. But if you're starting small, you won't want to pay out your whole first year's premium income in consulting fees. Expect an adjustment period while you learn the clinical and administrative tricks of the capitation trade.
You won't have much administrative experience with these plans, either. Your office manager will need to set up ways of accounting for capitation transactions on your computer so you can determine how you're doing. Unless you have someone helping you, you're likely to make some false starts here, too.
The antidote to lack of experience is lots of research and education. Keep up with your reading and attend courses by reputable industry sources to fill in some of the blanks. Good relationships with colleagues in the community who are experienced with capitation help, too. But don't expect your competitors to share their best secrets with you. For that, you'll need to contact members of your specialty in other areas of the country.
2. Know who will be coming through the door.
Each plan controls its own subscriber base. Age, lifestyle risks and occupational dangers obviously figure into a given population's level of medical risk. But subtler factors can also enter in. For example, should you expect higher utilization of primary care services from a union truck driver or a public school teacher?
The answer is the teacher. It turns out that public employees usually have higher utilization than other groups. And some public employees are higher utilizers than others. Firefighters and their families are pretty healthy. Teachers, healthy or not, go to the doctor a lot. And all public employees have plenty of paid time off for sick leave and doctor visits. Union workers may be less likely to be your healthiest patients, but they're also less likely to seek out care.
Of course, it doesn't matter how much service the group needs if the premium is adequate to cover the service. So you should be cautious about a managed care organization that wants you to take on different groups for the same premium rate. It's naive to think every group has the same age and sex mix, educational background and health habits.
3. Know what you'll be asked to do.
Some contracts are vague as to exactly what services are included in the capitation premium, which of them will be separately reimbursed and which will be someone else's responsibility. For example, you will need to pin down whether any supplies, drugs or immunizations are included.
Internal medicine practices signing primary care contracts often have problems with children under 1 year old. And some urology groups are lacking pediatric or transplant services. It's best to carve those services out of the contract.
But there can be problems with other services that primary care practices refer to specialists. Does the fact that a patient has lupus make her the primary care ward of the rheumatologist? In the fee-for-service days, probably so. But in the capitation world, consulting rheumatology means giving the family physician an opinion on how to handle her, not taking over the patient.
Generally, if you can do the service, it's best to keep the premium for it. If it's something that happens infrequently or will cost you a lot to pay someone else to do, you will want to carve it out and let the plan treat it as a fee-for-service item.
4. Know how the plan is faring.
Many plans have cash flow problems. Most independent practice associations are operating in a pre-bankruptcy state most of the time, for example. Payments may slow down, be reduced or stop altogether. But your contract obligation to provide care for the patients will not end. So it's a good idea to know the organization with which you are, in effect, going into business.
Find out what you can about a plan's financial stability from colleagues who have dealt with the plan before. If taking on the contract would require an investment in new facilities or personnel, it also may be worthwhile to have an accountant check with the state regulatory authority (often a commissioner of corporations or a department of insurance) to see if there is anything on file that might indicate problems. If the plan is a publicly traded corporation, you could ask its public information officer for a copy of its most recent quarterly audited financial statement.
Later, if the plan is slow with a check, get on the phone immediately and find out what the problem is. Two delayed checks in a row and you may want to serve notice of intention to cancel the contract. That's because, if the company is going sour, you want to be out before some bankruptcy judge orders you to keep seeing patients — without payment — until further notice.
5. Know how to limit your risk.
Of course, if you have no stomach for risk, you can pay someone else to take it for you. Stop-loss reinsurance protects the contracting provider against extraordinarily costly cases. The managed care organization usually will offer to protect you against high utilization by holding back a portion of the capitation rate.
Whether you should bite for this coverage depends on what services you are contracted to provide. If the obligation is just for physician services the group is prepared to furnish, and not for costly supplies or drugs, many practices prefer to keep all of the premium and take the risk that they may have to work extra long or hard for the money. But if you are expected to supply costly chemotherapy concentrates, or pay for subspecialty services you have to refer out, you may need the insurance.
For example, you can buy $3,000 per-member, per-year deductible stop-loss coverage for about 5 percent of the monthly cap rate. The amount decreases as the deductible rises. The cost of a $10,000-deductible policy will be closer to 0.5 percent of the monthly premium. And if you need the coverage, be sure to shop around; don't just take the offer from the managed care organization. It's likely your malpractice underwriter or other large casualty brokerage firm may be able to provide the coverage for much less.
If you're comfortable with the proposed contract after exploring these five key areas — and your attorney has approved it — signing may make sense. But if there's a problem in one of these areas and you let yourself be buffaloed into signing anyway, you're courting trouble.