I received a surprising letter in the mail recently. Health America, a Coventry HealthPlan with a prominent subscriber base here in Western Pennsylvania notified us that they are abandoning capitation, as a form of payment, for Primary Care Physicians.

Capitation is a payment mechanism where a physician is not paid fee for service or even a discounted fee for service but they are paid a per member fee per month. For example, if I have an insurance plan for my family that has a capitation feature, my family and I would need to choose a primary care physician that we must always go to or contact (get authorization) for medical care.

When I chose this physician he would receive 4 monthly payments as follows:

* Male Age 45 $ 9.08 per month
* Female Age 45 $10.25 per month
* Daughter Age 19 $ 7.72 per month
* Son Age 15 $ 7.02 per month

Therefore on an annual basis the doctor would receive $408.84 to treat the Jakielo family. If we don't get sick the doctor is ahead. However, you can see that the breakeven point isn't far away. One bout with the flu and we could blow all the capitation payments just on office visits for the flu.

I know many of us haven't had to deal with capitation because our clients tend to be specialists rather than primary care physicians. However, we may not be out of the woods yet. When I inquired as to why they were abandoning capitation their response was "We don't want to be perceived as a company that hinders our patients from receiving medical care."

They also stated, "Over the next year, we will be assessing our specialty utilization and capitate specialists where it is cost effective and medically appropriate."

Since capitation has entered the market place many people have the perception that the primary care doctors were limiting patients medical care. This perception has come about due to some of the following factors.
* Some plans offer doctors' a bonus if they kept referrals to specialists at or below predetermined levels. For their actions they would share in the savings.
* A physician may be more willing to prescribe medicine over the phone hoping that the condition improves thereby saving time of an office visit.

At first glance you would think the doctors are ecstatic about going back to fee for service. However, upon reading their letter further it contains a surprise. They state, "...Will create a global average payment structure consistent with (GET THIS) 97% of the 1998 RBRVS for all providers." They want to pay less than Medicare. Now I know for some of you, your clients have agreements worse than 97% of Medicare but this will be our first if we stay in their plan.

In some of the practices that I have reviewed, the physicians have learned how to suppress utilization thereby enjoying monthly payments without having to deliver services.

If any of your practices have capitation arrangements it is imperative that you tract utilization. I have seen capitation dealt with in three ways:
1. Do not post the service at all.
2. Post the service but enter a zero charge.
3. Post the service at regular fee then write it off.

Which ever of the above methods you use you always should calculate the value as if it was fee for service. This is the only way you will know if you're in a positive position with your capitation agreement.

There isn't any common thread running through today's practices. I've worked with practices that were making substantial profits from a capitation agreement but I have also seen physicians who were almost working for minimum wage based upon their patient's utilization.

I don't know if the "abandon capitation" trend will continue with other insurers. However, the insurance industry sometimes has the "me too" mentality. Hope your having a prosperous New Year.

Remember this monthly feature will address topics of interest to you. I really appreciate your input and suggestions. Please send your questions or ideas on topics that you would like addressed, to: Dave Jakielo, Seminars, Training and Consulting, 86 Hall Avenue, Pittsburgh PA 15205-3214. Phone and Fax number 412-921-0976. Email = dave@davidjakielo.com - http://www.davidjakielo.com - HAPPY VALENTINES DAY!