Looking for next contracting trend? Reverse capitation has its day

PCPs look to move more risk to specialists

Lately, have your community-based physicians become more wary of capitated contracting? If so, you’re not alone. For a while, the prevailing thought about managed care contracting seemed to be that physicians who took on more risk would reap big rewards. But instead of accepting that challenge, physicians are becoming more risk-averse, says Leonard Lichtenfeld, MD, a consultant in Baltimore and former chief medical officer at the Irvine, CA-based practice management company Cornerstone Physicians Corp.

Instead, hospitals and practices are looking for contracts from managed care organizations (MCOs) that put less onus on them to manage the patient.

"Among physician groups I talk to, more are saying they want no part of global capitation," says Lichtenfeld. "To do a global cap effectively, everyone in a group has to be committed to it, and aside from a few long-standing groups in California that were built on the premise of global capitation, most just find that they aren’t interested in the responsibility it takes to make it work."

Lichtenfeld says he has talked to physicians who know they could make, personally, another $50,000 to $100,000 per year if they took on that risk. "But they don’t want to. They don’t like the feeling of becoming them’ — arguing with their peers about spending money on patient care."

As a result, more practices are signing reverse capitation contracts, which give primary care practices (PCP) a fee-for-service payment, while putting the capitation onto the specialists to whom the PCP refers.

Reverse capitation comes from a desire to get PCPs to do appropriate work-ups before shunting patients off to specialists, says Elizabeth Gallup, MD, JD, MBA, former director of a multispecialty independent practice association (IPA) and president of the Overland Park, KS, consulting firm STRATICS.

"It used to be that the orthopedist would do X-rays because the primary care physician was capped and didn’t want to spend the money," she says. "They would dump all this work on the specialist. This is a way to prevent dumping."

Specialists are seeing other new payment methods, too. Among them is contact capitation, says Ken Leinbach, FSA, an actuary at the Brookfield, WI, consulting firm Milliman & Robertson. Under these arrangements, a fixed amount is paid per referral to cover a particular period of time — usually six months, although it is sometimes a year. For instance, a cardiologist is given $500 to treat a person referred for chest pain. That payment would apply if the patient had indigestion, or if it was a serious ailment, he says.

While he wouldn’t call contact capitation a trend, Leinbach says there are a few HMOs doing it — Keystone in Pennsylvania is one — and others are looking at it. "Whether it becomes a trend depends on how it works out for these groups, as well as the willingness of the providers to accept it." For the most part, it started with cardiologists, but it is now moving to other specialties, he adds.

The goal? Less pay

The reason for all of these changes is to pay physicians less, says Michael Sachs, chairman of the Evanston, IL, consulting firm the Sachs Group. "They are just using different approaches to disguise it."

This doesn’t mean that these new types of contracts can’t work out for a practice, but it makes them more challenging. "The best is a simple fee-for-service arrangement. Anything less than that means you have to have a level of management expertise," says Sachs. "You have to be able to figure out the intended incentive and goal of the payment approach."

Lichtenfeld says he is surprised at the number of practices that jump at any contract that is some form of fee-for-service. "I’m stunned they are doing it, and I’m stunned they can make it. But then you look more closely, and you see they aren’t doing that well."

The problem is that while some think that the reversion to fee-for-service is great, they don’t look at the fee schedule, says Gallup. "It can be steeply discounted," she notes. In Kansas City, it’s as low as 75% of Medicare. In other places, Gallup says she has heard of it going as low as 60%.

"A lot of people are looking at capitation now and realizing they can make more under that than under the fee-for-service arrangements being proposed," she says.

It angers Gallup that Medicare/Medicaid rates were based on a lot of research and input from experts on what a particular procedure costs in various markets. "They are asking us to work for less than cost," she says.

Know what you’re getting

Understanding what you are getting into is key to making sure you can survive these arrangements. But, says Sachs, that can be hard for practices that not only have multiple contracts, but may even have three or four different agreements with a given payer. For smaller practices, he says, finding out the impact of contract particulars may be too time-consuming. It may make sense to consider joining an IPA just for the contract negotiating expertise they can offer in these confusing times.

Of course, you can also ask the payer to explain the peculiarities of each contract, but understand that it is not in their interests for you to be too clear on what they are offering. "They don’t want you to negotiate too much because they don’t want to have inconsistent contracts," says Sachs.

"And even if you ask, they may or may not tell you the truth," Gallup adds.

For specialists signing on to contact capitation, another issue to consider is the need to market more aggressively. Many payers use contact capitation to meet requirements of "Any Willing Provider" laws, says Leinbach. They are paying based on services rendered, not on a patient’s membership in a particular HMO. That means that you are no longer competing with a small panel of peers in an HMO, but with all of your fellow specialists in a given market. "It’s good for patients in that it expands choice," he says. "But it is a marketing issue for specialists."

Lichtenfeld says the squeezing tactics of MCOs will continue "until people start to squeal. They will keep chopping and chopping. Docs in general — particularly in smaller groups — don’t know their costs. They don’t approach contracts knowing that. They just wonder why, at the end of the year, there is no money."

The best way to counter proposals that aren’t good for your practice, says Gallup, is to speak from a position of strength. That means having some sort of link with others in your community — either through an IPA or something more structured, such as an affiliation with a hospital or a merger with other practices. "Payers have been able to do this because physicians are not organized," says Gallup. "Getting them to speak with one voice is like trying to herd cats, only cats are more cooperative."

Size does matter

Size certainly brings negotiating leverage, she adds. "If you have the testosterone to stand up against a bad deal, the payer may cave. They may threaten to move all their patients first, but they rarely carry out that threat."

Sachs notes that the plethora of contracting types may seem like a scheme to make things more confusing, but he says he isn’t that cynical.

"I don’t think there is a conscious game among payers out there, but the dynamic is there for more and different payment arrangements, and they will be different in every market," he states. "You won’t see them march from west to east, but they will be dependent on the strengths of payers in each market. In Chicago, where there isn’t a lot of capitation, it will be different than in Seattle, where there is a lot."

The trend for the future, Lichtenfeld agrees, is a continuation of no trends. "We are facing a very unsettled time in the next year or two," he says. "Already, you have problems at United Health-care, FPA, and Oxford. There is a lot of dislocation in the market; and at the same time, there is heat on managed care from physicians, the public, and politicians. The only rational predication you can make is that there won’t be anything rational happening for a while. If you look back two years at the predictions people were making then, people thought there would be a light at the end of the tunnel. But it’s still dark. People are just going to try different things until something works. I am uncertain — more uncertain than in the past."