By Lynn Carroll

Healthcare providers relying on the traditional fee-for-service (FFS) payment model struggled with a steep loss of revenue during the pandemic, highlighting the inherent risk in FFS reimbursement contracts. Since then, a growing number of provider organizations are implementing alternative payment models (APMs) that offer financial incentives for delivering high-quality care efficiently and cost-effectively.

Capitation is one of those APMs. Under capitation, payers give providers a risk-adjusted amount of money (a global fee) for each patient over a fixed period of time or episode of care, regardless of services rendered. This payment model is designed to improve patient and population outcomes while reducing costs of care, two of the main goals of value-based care (VBC).

There are several advantages to global capitation for both providers and payers. Capitation offers payers greater cost predictability and lower administrative expenses, while providers benefit from a stable revenue flow and greater administrative efficiency. However, since they are financially responsible for patient outcomes and costs of care, providers also incur risk under capitation.

Harmonizing primary, specialty care
The capitation reimbursement model has been around since the late 1970s, when Medicare began experimenting with these fixed payments. Newer capitation models are designed to better align incentives between primary care providers and specialists through contracts that reward coordination between primary care providers and specialists, including behavioral health professionals.

Many patients have multiple chronic conditions, such as heart disease, COPD, and hypertension. Over time, these polychronic patients likely will receive more care from their specialists than their primary provider. Under value-based or fixed-price reimbursement contracts, it is critical that specialty care is harmonized with primary care to make sure providers meet their cost containment or program goals and to avoid ordering unnecessary or duplicative services.

“Primary care physicians (PCPs) are less able to manage the health of polychronic members without very strong engagement from specialists,” writes HealthScape Advisors. “Without strong specialist engagement and coordination, up to 90% of U.S. healthcare spend attributed to those with chronic and mental health conditions is not being effectively managed.”

Though primary care remains foundational to and well-suited for capitation models, we are beginning to see a blend of primary care and specialty services being integrated into these contracts, particularly through Medicare. Under these hybrid arrangements, more clinically oriented care coordination activities are required to determine which entities participate in a network model and where referrals go from primary care to different specialists.

Capitation advantages, concerns
For patients, a major concern regarding capitation models is whether their contracts allow them to see the specialists of their choice. While the care provided under capitation is more aligned and consequently more effective, patient choice (as with any narrow network) is restricted.

This makes the quality of the patient/member experience even more essential to provider/payer customer retention. Providers/payers must compensate for the loss of patient/member choice through superior engagement and efficient care coordination. Improving both should help to ensure better outcomes and satisfy patients/members.

One clear advantage offered by global capitation programs is consistency of contracts. Nonetheless, providers with contracts across different lines of business – Medicare, Medicaid, commercial, employer-direct components – need the ability to manage the nuances of each program. An administrative strategy for a successful capitation program is to develop a more consistent view of the included services and guidelines. Using this approach can streamline management of multiple programs across payer contracts.

By creating incentives for collaboration and better care coordination between primary and specialty care providers, capitation contracts are strongly supportive of VBC goals. As the Centers for Medicare and Medicaid Services (CMS) writes, “When incentives for primary care clinicians are aligned to reward the provision of high-value care, the quality and cost effectiveness of patient care improve.”

Preparing your organization for capitation
Healthcare organizations that have no experience with global capitation must take several steps to ensure their ability to fully support capitation reimbursement models. Thus, it is imperative that:

• Primary care and specialty care are aligned
• Patients/members are provided a positive experience that includes successful delivery of care documented through quality measures associated with outcomes
• Healthcare organizations deploy a digital infrastructure that supports a network of multiple stakeholders, which may include hospitals, health systems, physician practices, payers, social service networks, and community-based organizations

Conclusion
Global capitation can benefit providers, payers, and patients. But these contracts require thoughtful planning, careful alignment between PCPs and specialists, a commitment to optimizing the patient/member experience, and a robust and scalable digital infrastructure. As healthcare organizations continue to migrate to more narrow networks and assume risk for a particular population under a fixed payment model, they have a greater stake in understanding referral patterns and consumption of services and are motivated to be judicious about how they deploy resources.

About the author: Lynn Carroll is the COO of HSBlox, an Atlanta-based technology company empowering healthcare organizations with the tools and support to deliver value-based care (VBC) successfully and sustainably.