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	James L. Holly, M.D.

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Facebook - Will Capitation Last This Time Around?

Untitled Document

Will Capitation Last This Time Around?
By James L. Holly, MD

(Capitation is a healthcare payment model where physicians are paid a fixed monthly fee for patient care, such as $45. The patient may pay a small co-pay for office visits but pays nothing more. If the physician does an excellent job as demonstrated by quality metrics performance and/or decreases the over-all cost of care, a bonus can be paid. This discuss is the result of my being asked to argue the premise that capitation will last this time -- it failed before -- another physician will argue the case that capitation will not last.)

Capitation will last “this time around,” but only if it is joined with a value-based payment system with quality-outcomes bonuses, with analytics-based demonstration of continuous performance improvement.

SETMA, founded in August 7, 1995, began working in a capitated, global-risk care model in March, 1996 through a physician-owned, Independent Physician Alliance (IPA). By 2000, 20% of our payment came from captiation, which grew to a present day 40%.

When we began in 1995, we measured performance by volume, i.e., charges, collections, patients seen, x-rays and laboratory tests performed, etc. By October, 1997, we had 18 months of experience with capitation and global risk. We were not being successful, as we had not changed the cost curve and our IPA was losing money every month.

Our IPA Medical Director was not committed to the new model of care so we changed Medical Directors and SETMA partners decided to capitate laboratory services for the IPA members. That one decision cost SETMA $50,000 profit a month. It was hard but it was critical to the success of our IPA and of our changing to a value-based model of care. Without question, the method of making the transition to value-based model of care is capitation with additional pay for performance. With this changed in 90-days, the IPA was solvent and growing.

The foundation of successful capitation is analytics. One of the deficiencies with the precious experience with capitation was that primary care providers often simply referred patients to specialist without seeing them. In May, 1999, SETMA defined ten-principles of practice growth and medical record development (see http://www.jameslhollymd.com/Your-Life-Your-Health/pdfs/may-1999-four-seminal-events-in-setmas-history.pdf). In 2000, SETMA expanded our statistical analytics to populations of patients.

Combining capitation with population management and performance improvement creates a perfect platform for payment by quality rather than quantity, or payment for value rather than volume. This will eliminate the historical abuse of captiation. In 2009, SETMA began public reporting of provider performance by provider name which will be an important part of the future of healthcare transformation (see http://www.jameslhollymd.com/Public-Reporting/pdfs/public-reporting.pdf).

The ultimate model of care for the future was defined by SETMA in 2000 (see
http://jameslhollymd.com/the-setma-way/setma-model-of-care-pc-mh-healthcare-innovation-the-future-of-healthcare

SETMA believes that the key to the future of healthcare is an internalized ideal and a personal passion for excellence rather than reform which comes from external pressure. Transformation is self-sustaining, generative and creative. Even in this context, SETMA believes that efforts to transform healthcare may fail unless four strategies are employed, upon which strategies SETMA depends in its transformative efforts:

1. The methodology of healthcare must be electronic patient management.

2. The content and standards of healthcare delivery must be evidenced-based medicine.

3. The structure and organization of healthcare delivery must be patient-centered medical home.

4. The payment methodology of healthcare delivery must be that of capitation with additional reimbursement for proved quality performance and cost savings.

Limitations Based on Volume of Patients Not on Volume of Services

There is nothing unique about one market or another which would make the above irrelevant except in the case of rural areas where the numbers of patients are so small that it may make payment by performance and/or be cost savings difficult to compute or verify.

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