Pros and cons of health payment reform: Capitation


Photo: Yann via Flickr
Photo: Yann via Flickr

The Urban Institute and the Catalyst for Payment Reform have collaborated on a series of briefs about various forms of health payment reform. Over the summer we’ll look at some that are receiving a lot of attention from policymakers and payers.

Let’s start with capitation. The recent Centers for Medicare & Medicaid Services (CMS) announcement about Comprehensive Primary Care Plus (CPC+) isn’t a switch to a fully capitated system. But this five-year model, scheduled to launch in January, does offer a degree of capitation, and moves further toward shifting more payments to a per-patient fee. Let’s look at what Urban/Catalyst says about the benefits and drawbacks of a capitated primary care payment system.

CPC+ will give the primary care provider – a physician practice, a clinic, or “medical home” – a set fee per month or year for each patient, which was the backbone of the controversial HMOs of the 1980s and 90s. To avoid a backlash from providers and consumers, this new model aims to provide a better balance of patient protection with incentives to restrain costs. Ideally this reformed version of capitation will give doctors, not the payers, more control over decisions about care, while also restraining unnecessary spending.

Some advantages:

  • It encourages clinicians to limit unnecessary medical services that raise costs without adding value.
  • It makes it easier for providers to use things like telemedicine that aren’t easily compensated under traditional fee-for-service models.
  • It makes costs much more predictable for payers, and gives the doctors and other providers a more predictable monthly cash flow.
  • It can be simpler administer – a fee per patient rather than complicated billing and elaborate coding for every visit and procedure.

Some of the risks or weaknesses:

  • It can restrict patients’ choice.
  • It can lead to stinting on care (though there have been efforts to learn from the experience of the early HMOs to build in some protections)
  • Practices or physicians may have incentives to only take healthier (i.e. more lucrative and less time-consuming) patients.
  • It can be hard to evaluate clinicians’ performance.
  • Capitation can encourage a doctor or practice to take on too many patients, more than they can ideally care for.

There also is concern that providers may end up referring patients to specialists too often. For example, instead of a primary care physician handling a mild coronary problem, he or she might send the patient to a cardiologist where they otherwise would not have. That specialty care wouldn’t come out of the monthly fee the primary care doc is getting. This can both raise costs, and create the type of care fragmentation that enhanced primary care is supposed to avoid.

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Joanne Kenen