Modified capitation and treatment incentives for end stage renal disease

This study developed a modified capitation payment method for the Medicare end stage renal disease (ESRD) program designed to support appropriate treatment choices and protect health plans from undue financial risk. The payment method consists of risk-adjusted monthly capitated payments for individuals on dialysis or with functioning kidney grafts, lump sum event payments for expected incremental costs of kidney transplantations or graft failures, and outlier payments for expensive patients. The methodology explained 25 percent of variation in annual payments per patient. Risk adjustment captured substantial variations across patient groups. Outlier payments reduced health plan risk by up to 15 percent.     

How payment systems affect physicians' provision behaviour--an experimental investigation

Understanding how physicians respond to incentives from payment schemes is a central concern in health economics research. We introduce a controlled laboratory experiment to analyse the influence of incentives from fee-for-service and capitation payments on physicians' supply of medical services. In our experiment, physicians choose quantities of medical services for patients with different states of health. We find that physicians provide significantly more services under fee-for-service than under capitation. Patients are overserved under fee-for-service and underserved under capitation. However, payment incentives are not the only motivation for physicians' quantity choices, as patients' health benefits are of considerable importance as well. We find that patients in need of a high (low) level of medical services receive larger health benefits under fee-for-service (capitation).     

Mode of payment, practice characteristics, and physician support for patient self care

PURPOSE: The purpose of this study was to assess the influence of payment mode and practice characteristics on physicians' attitudes toward and support of self-care among their patients. It is a common practice for health plans and health insurance companies to distribute and make available various self-care services and products to members. These self-care products are generally part of a larger demand-management strategy. The adoption and dissemination of self-care products by both fee-for-service and capitated systems of care suggest an implicit assumption that there is no connection between physician payment mode and the support of self-care products by physicians for their patients. This study empirically examines this assumption. METHODS: Physicians from three Northwest communities were sampled and face-to-face interviews were conducted (N=448). RESULTS: The findings show that younger, primary care, and female physicians are more supportive of self care for their patients. Physicians with more income from capitation or salary are also more supportive of self care for their patients. After controlling for other factors, physician mode of payment is the only statistically significant predictor of support for self care. Research and policy implications are discussed. CONCLUSION: The findings suggest that physicians who are paid on a capitation basis have more motivation to have patients be less reliant on the formal care structure. It is unclear whether the payment mode generates this support, or if physicians supportive of patient self care self-select themselves into capitated systems of care.     

How disclosing HMO physician incentives affects trust

Opinions are deeply divided over whether rewarding physicians for lowering costs decreases trust in physicians or insurers. To explore the effects of disclosing physician payment methods in HMOs, members of two similar HMO plans were randomized to intervention and control groups, and the experimental arm was told how the HMO paid their primary care physician. Separate disclosures were developed for each plan, one describing primarily capitation payment, and the other (mixed-incentive plan) describing fee-for-service payment with a bonus that rewards cost savings, satisfaction, and preventive services. The disclosures pointed out more of the positive than the negative features of these incentives. We found that the disclosures doubled the number of subjects with substantial knowledge of the physician incentives and halved the number with no knowledge. Nevertheless, the disclosures had no negative effects on trust of either physicians or insurers. The capitated plan disclosure had a small positive effect on trust of physicians. Disclosing the positive and negative features of incentives and increasing knowledge of these incentives does not, in the short term, reduce trust in physicians or insurers and may have a mild positive impact on physician trust, perhaps as a consequence of displaying candor and increasing understanding of positive features.     

Capitated payments for mental health patients: a comparison of potential approaches in a public sector population

BACKGROUND: Both private and public health care systems have embraced capitated reimbursement as a method of controlling costs. AIMS OF THE STUDY: This study explores the financial implications of using reimbursement models based on clinically based patient classification schemes to distribute funds for the treatment of mental health patients in the Department of Veterans Affairs (VA). METHODS: We identified 53700 veterans treated in VA specialty mental health outpatient clinics during the first 2 weeks of fiscal year (FY) 1991 for whom relevant clinical data were available. We calculated total utilization and costs for this sample during the remainder of FY 1991 using VA administrative databases and simulated hypothetical distributions of funds based on seven alternative capitation models. The resulting distributions of funds across service networks and facility types were compared to actual expenditures. RESULTS: Approximately 8% of overall VA budget was redistributed under a simple capitated scheme, and some individual networks and facility types experienced changes in funding of over 30%. Models based on clinical data resulted in only minor differences from average-cost reimbursement. Substantial variation in practice style was observed across Veterans Integrated Service Networks (VISNs), which was significantly associated with funding shifts under capitation. DISCUSSION: A simple capitated payment scheme would result in large changes in funding for some VISNs. Adjustments for case mix did not substantially affect patterns of redistribution. Patterns of redistribution appear to reflect large differences in practice style across VISNs. Although a capitated system will create incentives to reduce such variation, the effect of such shifts on patient well-being is unknown. IMPLICATIONS FOR HEALTH POLICIES: Any capitated system will create incentives to provide a uniform standard of care. In our analyses, the capitation rate was based on the average cost per treated patient in each category; however rates could be set higher or lower as policy makers deem necessary. The standard of care associated with the average cost is not necessarily the "correct" level of care. IMPLICATIONS FOR FURTHER RESEARCH: Our analyses explore the implications of capitated systems for mental health patients in the absence of behavioral change. Further research is needed to determine how providers actually respond to the different incentives created by capitation and what impact these changes have on patient well-being. lems.     

Scale and structure of capitated physician organizations in California.

Physician organizations in California broke new ground in the 1980s by accepting capitated contracts and taking on utilization management functions. In this paper we present new data that document the scale, structure, and vertical affiliations of physician organizations that accept capitation in California. We provide information on capitated enrollment, the share of revenue derived by physician organizations from capitation contracts, and the scope of risk sharing with health maintenance organizations (HMOs). Capitation contracts and risk sharing dominate payment arrangements with HMOs. Physician organizations appear to have responded to capitation by affiliating with hospitals and management companies, adopting hybrid organizational structures, and consolidating into larger entities.     

Managed Care Contracting and Medical Care for the Uninsured: Untangling Selection from Production

Capitated payment systems used by managed care plans potentially reduce the financial earnings that providers use to cross-subsidize care for the uninsured. Providers that value uninsured care highly, however, may improve production efficiency in response to capitation and thereby maintain or expand uninsured care. Measuring the effect of capitation is complicated by the endogenous selection and censoring processes that determine a provider's involvement in capitated payment systems. This study compares three alternative methods for modeling the effect of capitation—a single-equation generalized estimating equations (GEE) model, a two-stage tobit model, and a discrete factor model using full-information maximum likelihood estimation. Models are estimated using panel data on all U.S. federally-funded community health centers operating during 1992 through 1996 (3185 center-years). Single-equation estimates appear positively biased due to capitation selection and censoring. Estimates from two-stage and discrete factor models show no evidence that capitation adversely affects uninsured care after controlling for this bias. Discrete factor estimates are substantially more precise than two-stage estimates, and indicate that uninsured care actually increases modestly in response to capitation. Discrete factor models, though computationally intensive, offer the advantages of consistency and precision over other econometric models for studies involving censored endogenous variables and selection bias.     

Physician Payment Contracts in the Presence of Moral Hazard and Adverse Selection: The Theory and Its Application in Ontario

We develop a stylized principal–agent model with moral hazard and adverse selection to provide a unified framework for understanding some of the most salient features of the recent physician payment reform in Ontario and its impact on physician behavior. These features include the following: (i) physicians can choose a payment contract from a menu that includes an enhanced fee‐for‐service contract and a blended capitation contract; (ii) the capitation rate is higher, and the cost‐reimbursement rate is lower in the blended capitation contract; (iii) physicians sort selectively into the contracts based on their preferences; and (iv) physicians in the blended capitation model provide fewer services than physicians in the enhanced fee‐for‐service model. Copyright © 2015 John Wiley & Sons, Ltd.     

An unintended consequence of provider payment reform: The case of capitation grants in the National Health Insurance reform of Indonesia

One of the most important components of the ambitious 2014 National Health Insurance reform in Indonesia is the implementation of prospective payment system known as capitation grants, paid monthly to the primary health providers based on the enrolment rate. This has ushered in additional financial resources for the health managers in resource allocations, especially in the hiring of manpower. Drawing data from the Indonesia Family Life Survey (1993‐2015), this paper uses difference‐in‐differences method to evaluate the effects of the payment method reform on the allocation of human resources for health among the primary health providers. To our surprise, there was no statistically significant change in the total number of full‐time staff among the capitated facilities after the reform. However, capitation grants caused an increase in the number of full‐time equivalent and part‐time equivalent contract staff, but a significant decline in the number of full‐time permanent staff among the urban capitated facilities. It is likely that more contract health workers were hired at the expense of full‐time permanent staff among the capitated facilities in the urban regions. This unintended consequence shed light on the need to develop nuanced and contextual understanding of payment reforms in developing countries.     

On taking chances with the law of large numbers.

An increasing number of major purchasers of health services now consider capitation to be the preferred method of payment for individual physicians and small group practices. This paper is a primer on capitation payment plans for small risk pools. It describes some of the basic economic issues that purchasers and providers face when negotiating small-panel capitation contracts, including sources of risk, techniques of risk reduction and risk sharing. An empirical section analyses the experience of a plan that took a chance with the law (law of large numbers) and lost.     

Family physician remuneration schemes and specialist referrals: Quasi‐experimental evidence from Ontario,Canada

Understanding how family physicians respond to incentives from remuneration schemes is a central theme in the literature. One understudied aspect is referrals to specialists. Although the theoretical literature has suggested that capitation increases referrals to specialists, the empirical evidence is mixed. We push forward the empirical research on this question by studying family physicians who switched from blended fee‐for‐service to blended capitation in Ontario, Canada. Using several health administrative databases from 2005 to 2013, we rely on inverse probability weighting with fixed‐effects regression models to account for observed and unobserved differences between the switchers and nonswitchers. Switching from blended fee‐for‐service to blended capitation increases referrals to specialists by about 5% to 7% per annum. The cost of specialist referrals is about 7 to 9% higher in the blended capitation model relative to the blended fee‐for‐service. These results are generally robust to a variety of alternative model specifications and matching techniques, suggesting that they are driven partly by the incentive effect of remuneration. Policy makers need to consider the benefits of capitation payment scheme against the unintended consequences of higher referrals to specialists.     

Methods of reducing the financial risk of physicians under capitation

In today's rapidly changing medical marketplace, managed care plans are not the only entities assuming risk for the care of enrollees through capitation. Increasingly, managed care plans are transferring this risk to their primary care and specialty physicians by paying them on a fully or partially capitated basis. Although capitation provides a strong incentive for physicians to provide cost-effective care, there are concerns that capitation may place some physicians at considerable financial risk. Our purpose is to familiarize physicians with issues they will want to consider when they evaluate capitation options and methods that are available to reduce their financial risk. Specifically, we analyze 3 issues: the range of services that are capitated, who accepts the risk, and size of patient panel. We conclude with a discussion of 3 methods for reducing or limiting risk--reinsurance, "carve outs," and risk adjustment.     

Specialty contact capitation

Contact capitation is an emerging new payment method for risk contracts that aligns incentives among physicians, protects individual physicians from their colleagues' less efficient practice patterns, and allows physicians to share in the rewards of their own clinical effectiveness. Contact capitation is working in a variety of settings and developing a track record as a payment method to help ailing independent physician associations, physician-hospital organizations, health plans, and other risk-bearing entities.     

Mental health costs and access under alternative capitation systems in Colorado

OBJECTIVE: To examine service cost and access for persons with severe mental illness under Medicaid mental health capitation payment in Colorado. Capitation contracts were made with two organizational models: community mental health centers (CMHCs) that manage and deliver services (direct capitation [DC]) and joint ventures between CMHCs and a for-profit managed care firm (managed behavioral health organization, [MBHO]) and compared to fee for service (F.F.S.). DATA SOURCES/STUDY SETTING: Both primary and secondary data were collected for the year prior to the new financing policy and the following two years (1995-1998). STUDY DESIGN: A stratified random sample of 522 severely mentally ill subjects was selected from comparable geographic areas within the capitated and FFS regions of Colorado. Major variables include service cost, utilization, and access (probability of service use) derived from secondary claims data, subject reported access collected at six-month intervals, and baseline outcomes (symptoms, functioning, and quality of life). PRINCIPAL FINDINGS: In comparison to the FFS area, cost per person was reduced in the capitated areas in each of the two years following implementation. By the end of year two, cost per person was reduced by two-thirds in the MBHO areas and by one-fifth in the DC areas. Reductions in access were found for both capitated areas, although reductions in utilization for those receiving service were found only in the MBHO model. CONCLUSIONS: Medicaid mental health capitation in Colorado resulted in cost reducing service changes for persons with severe mental illness. Assessment of outcome change is necessary to identify cost effectiveness.     

Strengths and limitations of competitive versus non-competitive models of integrated capitated fundholding

Integrated budget-holding (fundholding) based on risk-adjusted capitation is commonly proposed as a central element of health system reform. Two contrasting models have been developed: the competitive model where fundholders or health plans compete for enrollees; and the non-competitive model, where plan membership is determined according to an objective attribute such as place of residence. Under the competitive model, efficiency is sought through consumer choice of plan. A range of regulatory elements may also be introduced to moderate undesirable elements of competition. Under the non-competitive model, efficiency is achieved through government regulation and the fact that the fundholder has continuing responsibility for the health of a defined population, supported by micro-management tools (such as quality assurance and selective payment arrangements). In theory, the non-competitive model encourages population-based health services planning. While both models assume risk-adjusted capitated funding, the requirements of any formula are more stringent under the competitive model. Economic theory, as well as documented health system experience, can help identify the relative strengths and limitations of each model. Concerns with the competitive model relate primarily to the capacity to develop robust risk adjusters for capitation sufficient to reduce the incentives for patient risk selection. Possible reductions in the quality of care are also a concern, compounded by difficulties for consumers in discriminating between plans. Efficiency under the non-competitive model requires a strong and appropriate regulatory/policy framework and effective use of micro-management tools. Funding equity objectives can be met through either model by the adoption of income-related contributions, but under the competitive model this may be compromised by incentives for the fundholders to select low-risk patients. Evidence drawn from regional fundholding in New South Wales (NSW, Australia), the US Veterans Health Agency and the literature on managed care in the USA illustrate these concerns. The problem of risk selection in the competitive model is a major theoretical concern, confirmed by the empirical evidence. This, together with concerns regarding other aspects of performance, suggests that the non-competitive model may be preferable, at least as an interim step in reform in public or mixed systems. Future research on this issue is clearly required.     

The Effects of Introducing Mixed Payment Systems for Physicians: Experimental Evidence

Mixed payment systems have become a prominent alternative to paying physicians through fee‐for‐service and capitation. While theory shows mixed payment systems to be superior, causal effects on physicians' behavior when introducing mixed systems are not well understood empirically. We systematically analyze the influence of fee‐for‐service, capitation, and mixed payment systems on physicians' service provision. In a controlled laboratory setting, we implement an exogenous variation of the payment method. Medical and non‐medical students in the role of physicians in the lab (N = 213) choose quantities of medical services affecting patients' health outside the lab. Behavioral data reveal significant overprovision of medical services under fee‐for‐service and significant underprovision under capitation, although less than predicted when assuming profit maximization. Introducing mixed payment systems significantly reduces deviations from patient‐optimal treatment. Although medical students tend to be more patient regarding, our results hold for both medical and non‐medical students. Responses to incentive systems can be explained by a behavioral model capturing individual altruism. In particular, we find support that altruism plays a role in service provision and can partially mitigate agency problems, but altruism is heterogeneous in the population. Copyright © 2015 John Wiley & Sons, Ltd.     

Preparing for managed care: family practice residents and capitated care in community health centers

This article examines the financial impact on patients of family practice residents when a community health center (CHC) serving as a residency training site is converted to a capitated payment system. The costs in this analysis included using and educating family practice residents at CHCs, the cost of patient encounters at CHCs, and the cost of contracted capitated services. These costs were measured against capitated per member per month (pmpm) payments received by the CHC. If capitated patients were cared for by residents, the CHC would lose $8.42 pmpm. The CHC faced a $5.98 pmpm loss if it used staff physicians rather than residents. This analysis suggests there are educational costs associated with training physicians in capitated health care delivery systems. Family practice residencies and CHCs must prepare for the conversion to capitated systems; academic centers with managed care contracts must control patient encounter costs and utilization to remain competitive.     

Risk adjustment for high utilizers of public mental health care

BACKGROUND: Publicly funded mental health systems are increasingly implementing managed care systems, such as capitation, to control costs. Capitated contracts may increase the risk for disenrollment or adverse outcomes among high cost clients with severe mental illness. Risk-adjusted payments to providers are likely to reduce providers' incentives to avoid or under-treat these people. However, most research has focused on Medicare and private populations, and risk adjustment for individuals who are publicly funded and severely mentally ill has received far less attention. AIMS OF THE STUDY: Risk adjustment models for this population can be used to improve contracting for mental health care. Our objective is to develop risk adjustment models for individuals with severe mental illness and assess their performance in predicting future costs. We apply the risk adjustment model to predict costs for the first year of a pilot capitation program for the severely mentally ill that was not risk adjusted. We assess whether risk adjustment could have reduced disenrollment from this program. METHODS: This analysis uses longitudinal administrative data from the County of Los Angeles Department of Mental Health for the fiscal years 1991 to 1994. The sample consists of 1956 clients who have high costs and are severely mentally ill. We estimate several modified two part models of 1993 cost that use 1992 client-based variables such as demographics, living conditions, diagnoses and mental health costs (for 1992 and 1991) to explain the variation in mental health and substance abuse costs. RESULTS: We find that the model that incorporates demographic characteristics, diagnostic information and cost data from two previous years explains about 16 percent of the in-sample variation and 10 percent of the out-of-sample variation in costs. A model that excludes prior cost covariates explains only 5 percent of the variation in costs. Despite the relatively low predictive power, we find some evidence that the disenrollment from the pilot capitation initiative input have been reduced if risk adjustment had been used to set capitation rates. DISCUSSION: The evidence suggests that even though risk adjustment techniques have room to improve, they are still likely to be useful for reducing risk selection in capitation programs. Blended payment schemes that combine risk adjustment with risk corridors or partial fee-for-service payments should be explored. IMPLICATIONS FOR HEALTH CARE PROVISION, USE, AND POLICY: Our results suggest that risk adjustment methods, as developed to data, do not have the requisite predictive power to be used as the sole approach to adjusting capitation rates. Risk adjustment is informative and useful; however, payments to providers should not be fully capitated, and may need to involve some degree of risk sharing between providers and public mental health agencies. A blended contract design may further reduce incentives for risk selection by incorporating a partly risk-adjusted capitation payment, without relying completely on the accuracy of risk adjustment models. IMPLICATIONS FOR FURTHER RESEARCH: Risk adjustment models estimated using data sets containing better predictors of rehospitalization and more precise clinical information are likely to have higher predictive power. Further research should also focus on the effect of combination contract designs.     

The effect of capitated financing on mental health services for children and youth: the Colorado experience

OBJECTIVES: This study tested 2 propositions concerning the effect of capitated financing on mental health services for Medicaid-eligible children and youth in Colorado. The first is that capitation reduces costs. The second is that shifting providers from fee-for-service to capitated financing will increase their efforts to prevent illness. METHODS: Interrupted time-series designs were applied to a naturally occurring quasi experiment occasioned by the state of Colorado's reorganization of mental health services financing. RESULTS: The cost of services was significantly lower in counties with capitated services compared with counties with fee-for-service financing. Findings also suggested that economic incentives may lead to greater efforts at secondary and tertiary prevention. CONCLUSIONS: Policymakers and the public can expect that capitation will reduce the costs of children's mental health services below those likely with fee-for-service financing. Capitation per se, however, may not increase prevention as surely or swiftly as it lowers costs.     

Defining the practice population in fee-for-service practice.

OBJECTIVE: To develop and validate a technique for defining a practice population of discrete individuals based on multiyear family practice fee-for-service billings data. DATA SOURCES/STUDY SETTING: Nineteen family physicians in Ontario, Canada who converted from fee-for-service to capitation payment. Data sources were fee-for-service billings data for the three-year period prior to the conversion from fee-for-service to capitation payment and the rosters of enrolled patients for the first and third years after the change to capitation payment. STUDY DESIGN: The billings-based definition of the physician's practice population was compared against the Year 1 roster. We also compared the billings-based practice population and the Year 1 roster to the physician's Year 3 roster to identify patients who might have been missed during the roster development process. Our principal analyses were an assessment of the sensitivity of the billings-based definition of the practice population (EPP), the positive predictive value of EPP, and the agreement between EPP and the rostered patient population (RPP). We also examined the ratio between EPP and RPP to determine EPP's accuracy in estimating the practice denominator. DATA COLLECTION/EXTRACTION METHODS: The practice population for each physician at the time of conversion from fee-for-service to capitation payment was defined as (a) all persons for whom the physician billed the provincial health insurance plan for at least one visit during the year immediately prior to joining the capitation-funded program; and (b) all additional patients for whom the physician billed the plan for at least one service in each of the two preceding years. Data extraction was carried out within the Ministry of Health in order to preserve the anonymity of patients and physicians. Data were provided to the investigators stripped of patient and physician identifiers. PRINCIPAL FINDINGS: The mean sensitivity and positive predictive value of EPP were 95.3 percent and 87.4 percent, respectively. The level of agreement between EPP and RPP averaged 84.4 percent. The mean ratio of EPP to RPP was 1.21 (95 percent C.I. 1.030-1.213). Correction for roster false-negatives increased the sensitivity, positive predictive value, and agreement between EPP and the practice population, and reduced the mean ratio of EPP to the practice population to 1.068 (95 percent C.I. 1.010-1.127). CONCLUSIONS: The practice population can usefully be defined in fee-for-service family practice on the basis of multiyear fee-for-service billings data. Further research examining alternative encounter-based practice population definitions would be valuable.