Will the Economy Affect the Healthcare Industry?

By Dr. David Edward Marcinko; MBA CMP™

Publisher-in-Chief

The past decade has seen the healthcare industry move toward, away, and then back to capitation which is a system that provides a: “1) Method of payment for health services in which a physician or hospital is paid a fixed amount for each person served regardless of the actual number or nature of services provided, (2) A method of paying health care providers or insurers in which a fixed amount is paid per enrollee to cover a defined set of services over a specified period, regardless of actual services provided, and (3) A health insurance payment mechanism that pays a fixed amount per person to cover medical services,” according to the Dictionary of Health Insurance and Managed Care www.HealthDictionarySeries.com

Others simply called it “wholesale medicine.”

The Last Decade

Only a decade ago, astute physician executives and healthcare administrators found it hard to believe that they would ever accept pre-payment for unknown commitments to provide an unknown amount of medical care. They argued that it would mean fewer patients seen and less care rendered. More than a few medical providers and healthcare facilities had a natural aversion to capitated, fixed payment or contractual medicine. It had always been associated with the worst components of managed care — hurried office visits and soul-less physicians.

Today’s Marketing Force

Today, a modified form of capitation reimbursement is re-emerging as a market force, and not merely a temporary healthcare business trend. More than 40% of all physicians in the country are now employees of a managed care organization that uses, or is re-considering, actuarially equivalent medical capitation in a reincarnated form.

Legislative Example:

For example, in February 2008, the California legislature passed Welfare and Institutions Code section 14105.19. It required a 10% fee-for-service payment reduction to Medi-Cal physicians and mental healthcare providers. The new payment reform law took effect on July 1, 2008. The Centers for Medicare and Medicaid Services plan to launch similar demonstration projects in Colorado, New Mexico, Oklahoma and Texas in January 1, 2009. The rush to find capitated contracts may be on once again.

Is Capitation the Answer?

Has capitation finally fulfilled its promise as a quality-improving and revenue-enhancing model? Or is it just another cost reduction strategy that squeezes doctors and hospitals, and limits patient care and choice during this financial crisis? To answer this query, one needs to review the Stark Laws.

Stark Laws I, II and III

Curiously, Stark Laws I, II and III were created to eliminate concerns that self-referral could lead to excessive medical care and fee-for-service payments. Ironically, this system, with its potential for self-enrichment, had long been perfectly acceptable. Many also never understood how a commitment to treat an entire patient population could be made with little or no actuarial information. Hence, frustration was the initial reaction of many medical providers to capitated reimbursement.

Capitation Advantages

Contemporary medical cost accounting has demonstrated that capitation has some advantages over traditional fee-for-service care. For example, it can create and align incentives that help patients, providers, and payers by limiting their contingent fiscal liabilities. In the current credit-deprived economy, capitation is increasingly being viewed in a more positive way.

Where Are We Heading?

How should physician and nurse-executives, hospital administrators, CXOs, managers and financial advisors navigate these treacherous fixed-payment waters? What’s the trend?

Micro-capitation … Is the Word … Is the Word!

What is it — and how does it work? Most importantly, how can a healthcare organization profit by it?

For the financial cognoscenti, micro-capitation [termed by Scott Shreve; MD – personal communication] focuses on medical conditions, or subsets of clinical conditions rather than traditional CPT® codes or MS-DRG patient activities. Care is delivered in discrete “self-organized medical care packages,” not patient care packages, as before. This creates a true healthcare marketplace where price, quality, and medical outcomes can be compared side-by-side, or provider-by-provider, or facility-by-facility.

New Level of Expertise

For instance, services provided by vertically or virtually integrated medical teams would enable a new level of expertise. High-volume providers would develop additional experience, which would enable them to introduce innovations and efficiencies in a classic economies-of-scale cycle. With additional delivery and outcomes experience, providers would be much more willing to put out a set-fee for a standard grouping of clinical services, because they would have confidence in their ability to deliver care for that price.

Still Capitation, but Better

Philosophically, this is still capitation, but it is distinguished by a finer “micro-capitation” at the medical condition level (lowest common unit of care delivery that can be measured), not the patient level. So, the healthcare delivery marketplace is again attempting to control economic risk — not with toxic credit default swaps [CDSs] or other financial derivatives, but by moving to micro-capitated “units” that can be understood, measured, and marketed.

Assessment

As the domestic corporate credit crisis escalates, the pharmaceutical industry implodes, the population ages, and the media focuses on the increasing number of uninsured citizens, a growing number of hospitals are shuttered, re-sized, or struggling onward with trepidation. Nevertheless, by considering alternate reimbursement models, like microcapitation and others, healthcare organizations might again thrive going forward.

More info: www.HealthcareFinancials.com print-journal and November 2008 – February 2009 issue: http://healthcarefinancials.com/Nov08Jan2009.aspx

Conclusion

Your comments are appreciated.

Disclosure: Dr. David Edward Marcinko is the editor of Healthcare Organizations: [Financial Management Strategies].

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

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Filed under: Health Economics, Health Law & Policy, Healthcare Finance | Tagged: capitation, micro-capitation | Leave a comment »