Capitation, salary, fee‐for‐service and mixed systems of payment: effects on the behaviour of primary care physicians

The payment, often referred to as capitation payment, is usually calculated on a per-member-per-month (PMPM) basis. When the fiscal year comes to a conclusion, the physician has access to the funds in this risk pool. The money is retained to pay deficit costs in the event of a financial failure. Each type of payment system may result in different patterns and types of care as well as quantity. Under capitation payments there is the incentive to provide preventive care that reduces future costs, such as health promotion advice (Shimmura 1988).

1. At the same time, it’s been shown that capitation systems encourage doctors to reduce services.
2. If the health plan performs well financially, the withheld funds are paid to the physician.
3. In summary, capitation contracts have a profound impact on the healthcare industry.
4. First, they consider the local costs with the average usage of certain healthcare services.
5. On the other hand, if someone uses only $10 worth of healthcare services, the practice would stand to make a profit of $490.
6. The financial risks providers accept in capitation are traditional insurance risks.

Example of a Capitation Payment

The goal of reinsurance is to offload risk and reward to the reinsurer in return for more stable operating results, but the provider’s additional costs make that impractical. Reinsurance assumes that the insurance-risk-transferring entities do not create inefficiencies when they shift insurance risks to providers. Capitation payments are defined, periodic, per-patient payments (usually monthly) for each individual enrolled in a capitated insurance plan. For example, a provider could be paid per month, per patient, despite how many times the patient comes in for treatment or how many services are needed. Health maintenance organizations (HMOs) and independent practice associations (IPAs) often use capitation programs.

Now that they had to concentrate on patient care and get paid appropriately, this sent healthcare professionals into a frenzy. Another form of payment that establishes a predetermined sum that must be given to providers is capitation. Two of the studies were before and after studies controlled by separate sites (Krasnik 1990; Hutchison 1996). The quality of these studies was assessed using different criteria to that for RCTs.

Enhancing Clinical Efficiency: Reducing Administrative Burden to Elevate Patient Care

While capitation contracts offer several benefits, they can also face challenges. For instance, patients may fear receiving lower-quality care due to providers receiving a fixed amount of payment regardless of the amount of care given. The risk-sharing element also creates a financial burden and can lead to a situation where providers lose revenue if their patients get sick more often than predicted. Another significant concern is that patients may encounter limitations on the types of care they can receive, which they could have received under fee-for-service policies. The predetermined fee is calculated based on how much cost each member is expected to incur for care delivery over a year’s span. Therefore, it’s up to the healthcare provider and insurer to predict the resources and utilization that will be used under this capitation payment model to better manage spend.

Stepping into the Healthcare of 2019: Stories that can Turn into Reality

Salaried PCPs carried out fewer scheduled and well child visits per enrolled patient per PCP on average compared with FFS PCPs and these differences were statistically significant. Study results were grouped according to type of intervention and the outcomes measured. Where possible, the absolute changes and relative percent changes in outcomes attributable to the intervention were calculated. Study results were not statistically pooled as there was heterogeneity in the content, design and outcomes of the included studies what is capitation in medical billing and there were only four studies.

Capitation by Risk Pool

The new FFS group did not differ from the comparison group in the number of specialist visits. Capitation payments are calculated based on the local costs and average utilization of services in that area. Because of this, the remuneration (payment for services) can vary from one state or city to the next. With capitation, the physician—otherwise known as the primary care physician (PCP)— is paid a set amount for each enrolled patient whether a patient seeks care or not. The PCP is usually contracted with a health maintenance organization (HMO) whose role it is to recruit patients. Leverage CareCloud’s cloud-based revenue cycle management solution today to take the complexity out of medical billing and maximize revenue.

1. Conceptually, larger risk pools have lower utilization costs because the risk is spread between many members.
2. In a capitation model, providers don’t lose revenue if they do not provide additional services, so patients receive only the care they need.
3. There was evidence that the overall satisfaction of patients of salaried PCPs did not differ from those of FFS PCPs (Hickson 1987) but without evidence of the effect on patient health status no conclusions can be made.
4. It does so by discouraging PCPs from providing more care than is necessary or using costly procedures that may be no more effective than less costly ones.
5. The drop in referrals was unexpected because fees were not introduced to pay for them so their payment did not change from capitation.

There was protection against contamination, since the intervention and control PCPs in the Krasnik study were in separate geographical areas, and in the Hutchison study were in separate organisations. Under the capitation model, providers are more focused on providing preventative care, which reduces the need for redundant treatments or services. This helps save hospital resources and ensures proper utilization of healthcare services.

If the annual capitation fee comes up to $500 per person, then the insurer would pay out $1.5 million to the healthcare provider to cover all treatment expenses for the 3,000 members. Generally, not each of the members would fully utilize this allocation while others may even exceed this amount. There is a dearth of robust studies evaluating the effects of PCP payment systems. It is in the interests of governments and patients alike to evaluate these changes, preferably using randomised control trial study designs.

Payment systems have been manipulated in an attempt to achieve policy objectives such as improving quality of care, cost containment and recruitment to under‐served areas. Little is known about the effects of the different types of payment system within primary care on these objectives (Scott 1995). Capitation payments are payments agreed upon in a capitated contract by a health insurance company and a medical provider.

This put providers in a frenzy, as they now had to focus on patient care and receive reimbursement accordingly. Capitation is another payment model that sets a fixed amount to be paid to providers. In this article, we will discuss capitation in healthcare and its advantages and disadvantages. At the same time, in order to ensure that patients do not receive suboptimal care through the under-utilization of health care services, insurance companies measure rates of resource utilization in physician practices. These reports are publicly available and can be linked to financial rewards, such as bonuses.

This is called “healthcare rationing,” a practice in which access to essential health services is restricted due to budgetary constraints or policies. In this model, the PCP may offer more preventive health screenings and services to avoid more expensive medical procedures. If the capitation is based on a high-risk pool, the HMO or IPA may offer incentives to physicians or hospitals to keep their members healthy. In this capitation model, a secondary healthcare provider (like a specialist or lab specialist) is paid out of the provider’s funds. These agreements outline financial terms, covered services, and responsibilities of both payers and providers.