Physician's Capitation Trend-Global capitation fails to save costs, study says

Financial and political expectations of capitation — and other aspects of managed care — are falling short, based on recent research of capitation's performance.

One big blow to capitation's armor comes from a recently released study that suggests that global capitation — a capitation contract in which patient responsibility and payments are shared between a hospital and a physician group — is not cutting back hospital expenditures.

A recent analysis of 655 hospitals with integrated physician groups, jointly funded by two foundations and two universities, says provider capitation has motivated tighter integration between physicians and hospitals, but it has not lowered costs.1

"Our empirical analysis suggests that provider capitation is promoting certain types of physician-hospital integration, including development of financial risk-sharing arrangements, administrative and management service integration, joint ventures to create new services and development of computer linkages," says Gloria J. Bazzoli, PhD, professor of health policy at Northwestern University in Evanston, IL, and lead author.

Interestingly, Bazzoli's survey refutes the theory that HMO penetration increases the likelihood of more physician-hospital global contracting. Instead, many localities are engaged in integration efforts, whether or not capitation is widespread in their market, the researchers found.

In either case, cost advantages are not surfacing. "Empirical analysis of hospital costs suggested that capitation is not significantly affecting hospital costs, with other factors held constant, and that integration has not led to hospital cost reductions," the researchers wrote. In fact, these arrangements — based on 1995 hospital data — have increased hospital costs.

And, in circles beyond those of statisticians and economists, the success of managed care in general and capitation in particular also is highly debated. Clearly, the political flames against managed care are still are raging.

"The managed care industry is at a crossroads," according to Alice Noble, PhD, and Troyen A. Brennan, PhD, professors of public health at Harvard University in Cambridge, MA. "Belief in the ability of market forces alone to create an environment fostering quality health care at lower cost is eroding,"2 they write in a recent article in the Journal of Health Politics, Policy and Law.

Many states have passed legislation as part of a national "managed care backlash," Noble and Brennan pointed out. Yet major political changes often traverse a series of predictable stages. Managed care regulation, they proposed, is somewhere between a third and a fourth stage. They describe the third stage as: State-based "legislative patterns." These laws started appearing on the books in the late 1990s and are continuing. Nearly all the states are adopting similar managed care laws but they still lack any integrative or overall direction.

The fourth stage they call "regulatory middle ground." This is a period only now beginning, the authors say. These regulations will be more "nuanced" and comprehensive in nature. The goal is to help make managed care's objectives more achievable without discouraging the influence of market forces. An example of this stage is growing regulation of risk-bearing provider groups, which look at organizations as a whole rather than specific practices within a managed care organization.

For managed care to have acceptance both politically and financially, some middle ground will have to be reached, Noble and Brennan suggest, between unfettered market dynamics and stricter regulatory oversight. That's the difficult compromise that both private sector and Medicare capitation opinion-leaders are searching for now.


1. Bazzoli GJ, Dynan L, Burns LR, Lindrooth R. "Is provider capitation working? Effects on physician-hospital integration and costs of care. Med Care 2000; 38:311-324.

2. Noble AA, Brennan TA. The stages of managed care regulation: Developing better rules. J Health Polit Policy Law 1999; 24:1,275-1,305.