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If men are from Mars and women are from Venus, perhaps fee for service and capitation are from separate and distant planets as well.
But the truth is, according to a West Coast professor, that the best of both physician payment worlds lies in learning how both capitation and fee for service can live peaceably together and contribute to each other's well-being.
Here are four serious questions about managed care payment you've wrestled with for some time:
• Does capitation push physicians too far to reduce services?
• Does fee-for-service influence physicians to "over" provide?
• Should primary care physicians be capitated, but not specialists?
• Or, should the reverse be the case, so that primary care physicians receive fee for service, while specialists are capitated?
Experts can tell you why each of the above questions should be answered yes and when given situations are good or bad for your practice. But while practitioners do battle with the ills of capitation or the dire consequences of fee for service for both specialists and primary care providers, California IPA officials are finding that the best approach lies in a smart combination of the two.
"While there exists no problem-free method of reimbursing physicians, it appears that blended approaches can offer meaningful improvements over pure fee for service or pure capitation," writes James C. Robinson, PhD, MPH, a public health professor at University of California-Berkeley. (See specifics on how blended methods are working, pp. 184-186.)
Robinson recently conducted a survey of payment methodologies at seven of California's largest independent practice associations (IPAs), which collectively treat 826,000 HMO patients.1 He also spoke with Physician's Managed Care Report about his findings.
These current capitation changes may contain a silver lining, suggests Robinson, although physicians are bound to be unconvinced at first. "The unfortunate part of [any] changes in payment method is that they are often accompanied by a reduction in overall payment level, as purchasers hold down their premiums to the plans and then plans hold down their capitation payments to the IPAs," Robinson says. "So doctors are understandably skeptical about payment method changes, even if the changes actually make sense."
But the toughest of times may be changing. "If we are now on the upswing of premiums and hence capitation rates, perhaps further changes in payment methods will be accompanied by overall payment increases rather than decreases, which will help the transition," Robinson says.
IPAs are a good place to study capitation, notes Robinson, because they often apply a wide range of payment strategies for physician groups. In fact, they can act as a buffer to soften of the harshness of capitation financing by dealing with payment issues more holistically rather than on a contract-by-contract basis, Robinson says. For example, IPAs at their best level of performance can function as an intermediary between physicians and health plans and bring these key advantages:
• Receive and manage all payments from all the health plans in which member physicians participate — capitated or otherwise — and then disburse payments to members in systematic and well-thought-out ways. For example, an IPA may receive the bulk of its payments on a per-member per-month basis, but it need not pass the risk and responsibility to its individual IPA members. Instead, the IPA can pay its members by using any of a number of methods, including fee for service, primary care capitation, specialty department capitation, and various blended forms.
• Focus on paying IPA members more on an actual cost basis. Costs are predicted based on a variety of possible measures, such as actuarial prediction, patient history, epidemiological data, or professional and/or specialty-driven cost surveys and analyses.
• Seek a middle ground between capitation and fee for service by blending payment meth o dologies for best results. Blended methods allow capitation payment streams to do what they do best: reduce costs. They also open up room for fee-for-service payment streams to motivate phy sicians not to underserve their patient populations, thus guaranteeing high quality of care.
• Offer practice management leadership to physician members by constantly integrating revised payment methodologies with other practice disciplines. These disciplines include arriving at more ideal practice patterns and incorporating preventive and early disease detection services.
Leading California IPAs are discovering that the best of all worlds is not to abandon either capitation or fee for service, but rather to use them both at the right time and in the right combinations, Robinson's research suggests. In fact, this approach already is time- and theory-tested in what now are seen as solid business practices, he says, but they are applied using different terms.
IPA financial directors who use this "blended payment" approach think of it this way, drawing upon tried-and-true business and economics principles: Capitation is to fee for service as "fixed costs" are to "varied costs", as a salary is to a commission, or as a manager is to a salesperson. For example, an IPA may use incoming capitation payments to cover fixed costs and use doctors' fee-for-service payments for less predictable, variable costs. Business practice has leaned this way for years, Robinson says.
In the same way, sales people are paid on a commission or a fee-for-service basis. Managers, who must rely on the successful interaction of a number of people, are paid an overall salary and expected to carry projects from beginning to completion, much like capitation, which is expected to cover all of a patient's needs from the beginning to the end of the contract year. In the real world of medicine, Robinson notes, neither salary nor commission works adequately by itself. Combining the two produces the best results. In addition, he sees the combination working in certain ways for primary care doctors and in different ways for specialists.
"In the health care sector, elements of capitation encourage physicians to develop a cost-conscious style of practice, while elements of fee-for-service encourage them to accept especially sick patients and to maintain a broad scope of practice," Robinson says.
1. Robinson JC. Blended payment methods in physician organizations under managed care. JAMA 1999; 282:1,258-1,263.