How Health Plans Can Ensure Capitated Arrangements Succeed

By Raj Lakhanpal, MD, FACEP, CEO, SpectraMedix
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With more and more health plans, like Humana, announcing the development of value-based capitated payment programs, capitated payments have reentered industry discussion. Capitation is an alternative payment model (APM) in which providers receive a predetermined fixed amount per patient in a selected timeframe. The payment is the same for each patient during that period, regardless of whether they seek treatment. Capitated payments provide an opportunity to not only decrease cost, but also benefit providers and improve quality.

The pandemic emphasized the benefits of value-based payments and in particular alternative payment models. Capitated payments are more consistent and resilient. Experts have noted that in the midst of COVID-19, providers in capitated payment models fared better than their fee-for-service counterparts as they continued to receive an income when utilization dipped earlier this year.

Some physicians recognize the benefits. Tim Irvine, M.D., a physician at a Texas practice with around 6,000 patients under capitated or pay-for performance models stated, “The monthly capitation checks from these contracts are a dependable revenue stream that evens out the ups and downs of the revenue cycle.”

New to this paradigm, ACOs (including IPAs and other risk bearing provider networks) are understandably nervous about capitated arrangements. Providers should first start with shared savings contracts, and once they’re comfortable that they can succeed, advance to primary care capitation. Larger systems with resources and the expertise to succeed in capitated models can embark on global capitation where all services are capitated.

However, it is incumbent upon the payers and ACOs to collaborate and ensure mutual success. Both parties stand to gain if the arrangement succeeds. There should be transparency while designing a contract and on the contract terms. This will allow both parties to understand their obligations and a clear path to success. Investments in data integration and analytics will need to be made along with care management and care collaboration. Health plans and ACOs will need to analyze and understand the value levers that they can impact to reduce costs and increase revenues. Examples of value levers are reducing preventable ED and inpatient visits, brand to generic substitution, medication adherence, out of network leakage, optimizing RAF (Risk Adjustment Factor) scores, etc. Monthly monitoring and improvement of these value levers are key. Tracking against the budget on a monthly basis is also paramount.

In addition to managing physical health, behavioral health, and social determinants of health issues will also need to be addressed.

In a capitated model, both payers and providers can benefit. PCPs reimbursed via capitation have higher rates of completing quality metrics from the National Committee for Quality Assurance’s (NCQA) Healthcare Effectiveness Data and Information Set (HEDIS) compared to their fee for service peers.

Capitated payment models are a successful tool that help payers control high spending and unnecessary healthcare utilization. In partnership with payers, they can also be a tool for providers to succeed. When incorporated into a payer’s value-based programming arsenal, they can create opportunities for an improved provider experience, greater accountability, reduced costs, and improved healthcare quality.