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Family MDs weigh in on new capitation model
Medicare’s proposed risk-adjustment system offers one credible way to protect physicians in capitated contracts, but be sure to use other protections that already exist if you enter capitation.
That’s the advice from researchers at Johns Hopkins University in Baltimore who recently published a study on capitation. Targeted at family physicians, the study focuses on safeguards available to doctors in highly capitated environments.
In part, the researchers are responding to proposals already under consideration. Earlier this year, Medicare officials introduced a major restructuring of how Medicare risk rates are set. They proposed a system called ambulatory diagnostic groups (ADGs) that relies on clinical indicators — ICD-9-CM codes, to start with — to predict resource use. In general, the model looks at a patient’s prior year’s complications (especially if hospital admission was involved) and other medical expenses to statistically predict the coming year’s costs.
As it turns out, the range of payments under the ADG method can be significant, and it can make a beneficial difference to physicians dealing with the high-cost risks of capitation, according to the study’s two authors, Gerard F. Anderson, PhD and Wendy E. Weller, MSH.1 Both are professors of health care finance at Johns Hopkins.
Payment rates could vary significantly, according to their calculations. (See chart on p. 126.) For example, one series of calculations shows that the payment range could vary from $1,212 to $15,715 under the new risk-adjusted formula, while the current system would pay a standard $2,625 for all Medicare patients regardless of clinical history.
The researchers ran comparisons for three different scenarios. For instance, a patient with no prior hospitalization would carry a capitation payment amount of $2,625 under the current model and $1,212 under the proposed ACG model.
If a patient’s record indicated ambulatory care treatment for depression, ulcers, and coronary atherosclerosis in the prior year, the proposed capitation amount would be adjusted upward to $3,480, compared to the $2,625 payment under the current system, which doesn’t make adjustments.
If a patient’s record reflected all the conditions above, plus corneal edema, diabetes, heart palpitations, two hospital admissions for circulatory problems, and two hospital admissions for respiratory problems, the new formula would pay $15,715, compared to the current $2,625 payment.
The proposed risk-adjusted formula can offer some measure of predictability at the beginning of a contract year, the authors state. Also, it can limit the losses physicians might incur if they have a sicker-than-average patient load.
Capitation risk adjustment is not a panacea, the authors warn. Physicians should update their reinsurance or stop-loss coverage to guard against liability for high-cost outliers. Also, they should consider carve-outs and partial capitation contracts, which identify exactly which services the practice will and be responsible for.
1. Anderson GF, Weller WE. Methods of reducing the financial risk of physicians under captation. Arch Fam Med 1999; 8:149-155.