A Cost-effectiveness Analysis of Reimbursement by Capitation vs. Fee-for-service for Severely Ill Medicaid Patients

Economic evaluations of managed care versus fee-for-service reimbursement have generally found that managed care is associated with lower costs and similar outcomes. Many of these studies are based on observational data. A key challenge facing such studies is how to allow for baseline differences in case mix, costs and outcomes between the alternatives under evaluation.

In this special seminar, Richard Grieve of the London School of Hygiene & Tropical Medicine will present the use of non-parametric and parametric methods to adjust for baseline difference between groups. The methods are illustrated in a cost-effectiveness analysis of fee-for-service reimbursement versus capitation for Medicaid patients with severe mental illness. The results show that once an appropriate method is used to adjust for baseline differences, for-profit capitation is more cost-effective than not-for-profit capitation or fee-for-service for patients with severe mental illness. The researchers also find, contrary to some previous work, that the form of capitation has a large impact on cost-effectiveness. The methods presented apply to cost-effectiveness analyses across a range of contexts.