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Capitation reimbursement models for primary care practice work — with one big caveat

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A leading question in primary care is whether practices can shift towards delivering better preventive and proactive health services. A key barrier to that shift is the current payment system, which pays providers for visits with sick patients rather than for preventing illness.

So Stanford Health Policy's Sanjay Basu and colleagues set out to figure out whether, and to what degree, a capitation payment model could help a primary care practice shift from the traditional fee-for-service (FFS) system to one based on population health management.

Basu and his co-authors wrote in this study published in September edition of the online medical journal Health Affairs, that the capitation model does work, but only if there is significant buy-in.

There is little data to show how much a capitation payment model — in which medical providers are reimbursed per patient, rather than per visit — could help sustain primary care practices that shift toward population health strategies.

“The resulting financial uncertainty has limited practices’ participation in non-visit-based care initiatives,” they wrote.

In theory, the more primary care providers turn toward team and non-visit-based care — such as visits to a nurse practitioner or seeking telephone or online advice — the more overhead costs would go down and the number of patients would go up. This is good for physicians seeking to expand their practices, and good for patients with low-complex chronic conditions who aren’t hit with co-pays for every routine visit or just to pick up meds or check their test results.

But the researchers — using a validated microsimulation model incorporating data from 969 primary care practices — found that at least 63 percent of primary care patients would have to come under a capitation model in order for the practices to not only survive, but to thrive.

Conversely, 95 percent of simulated practices would lose revenue if fewer than 23 percent of patients were under capitation, when private insurance companies, Medicaid or Medicare reimburse primary care practices for their numbers of patients they have, and not the number of times those patients see their physicians.

“There’s been a long-term controversy about this issue and about what level of capitation is right, as well as financial sustainability during a period of transition,” Basu told me. He said a federal government pilot, Comprehensive Primary Care Plus — which involves Medicare and private payers — is in the process of determining what their capitation levels should be.

“Up until now, they’ve had to guess,” Basu said. “So this is providing an empirical estimate to guide the decision-making of policymakers.”

Under traditional FFS payment, costs from replaced in-person visits were not fully offset by new revenue earned from filling the freed-up encounter slots because of the additional expense required for nursing and support staff, the researchers found. So annual net income surplus declined by $42,398 per physician.

In contrast, shifting to capitated payments under a team- and non-visit based care in their model increased net surplus income as the proportion of patients reimbursed under capitation increased. The annual net surplus per physician increased from $35,890 under traditional FFS to $120,654 at 50 percent capitation and $205,418 at 100 percent capitation.

“As new payment models encourage primary care practices to shift to team- and non-visit-based care, our study suggests that relatively high levels of capitation might be required for such changes to be financially sustainable for those practices,” the researchers wrote.

The federal government is testing out a multi-payer alternative payment model run by the Centers for Medicare and Medicaid Services, which aims to support 5,000 primary care practices as they implement this patient-centered, population-based delivery method. The practices can either receive 40 percent or 65 percent capitation and earn a shared savings bonus.

“Our results highlight the need to understand at what point providers will receive sufficient incentives through capitated payments to switch from a visit-based to a team- and non-visit based approach,” the authors wrote.