Buzzword of the Week: Capitation

Just like fashion trend recycle themselves over the decades, trends in healthcare do the same (though most would say in a less exciting manner).  Right now, we are seeing a reemergence of an interesting medical trend called capitation.  As a nurse practitioner, it's important you understand capitation.  If you work with insurance companies subscribing to this model, making sure you know how it works is key to maximizing your paycheck. 

What is capitation?

Capitation is a payment system in which the insurance company pays the medical provider a flat, monthly rate per patient in advance rather than reimbursing them for each service they provide.

Many capitation agreements withhold a portion of the patient's monthly rate using it as an incentive for the provider to save the insurance company money.  This encourages providers to reduce healthcare costs by doing things like ordering fewer tests and making fewer referrals to specialists.  Then, at the end of the year, if the health plan as a whole has done wel financially, the provider will be paid the money that has been withheld.

What is the point of capitation?

The goal of capitation is to save on healthcare costs.  Rather than being reimbursed for each individual service they provide such as office visits, procedures and tests, healthcare providers under this model are encouraged to focus more on preventative care.  They are incentivized to keep their patients healthy on the front end.  The healthier these providers keep their patients, the lower the cost of care and therefore the more likely the provider is to receive their annual financial incentive.  Capitation encourages providers to go back to the basics of healthcare rather than relying on newer, expensive treatment options. 

We've tried this before in the 1990's, why is this trend reemerging?

Capitation agreements came about in the 1990's and were unpopular with both patients and medical providers.  Supporters argue that the healthcare system wasn't quite ready for such a payment structure in the 90's but this time will be different.  Now, with improved technology, ability to capture data and adjusting risk appropriately to protect provider interests will make these arrangements more successful.

Engaging in capitation agreements with an insurance company gets a bit sticky.  These agreements include many small details and must be carefully crafted to protect you as the healthcare provider.  While they may involve extra negotiation n the font end, some medical practices have ben very successful in operating under capitation agreements. 

Have you ever worked for a practice operating under capitation agreements?  What changes did you notice?  Do you think this is an effective model for healthcare?