A capitation payment arrangement can be an effective means to control healthcare costs because it allows both the insurer and the employer to predict costs for healthcare services more accurately. When a capitation payment method is used, the financial risk of caring for the patient is transferred to the medical delivery system. If the healthcare delivery system does not have a cost accounting system or the ability to develop cost information on each payer and service line, then it will become necessary to find a way to develop such information prior to entering into a capitation contract. A six step method is recommended for developing a capitation payment rate. Cost accounting information is used as well as data from a market study. The steps are: 1. Determine the delivery system cost base
2. Develop use rates
3. Calculate capitation rates
4. Adjust rates for impact of incremental volume
5. Negotiate the contract
6. Monitor contract performance
Using the capitation payment method, the health care provider assumes that for a given insured population, the provider will cover all health care services for a fixed payment per member per month (PMPM). This capitation payment could cover the full continuum of services, including acute hospital stays, non-acute hospital stays, outpatient visits, home health visits, primary care physician visits, specialty physician visits, and tertiary physician visits. An acceptable payment must be fair both from the insurer's point of view and from that of the delivery system or provider. The insurer will be limited by what the consumer can afford to pay for health insurance. Managers of the health care delivery system must know the per capita cost of providing care to the insured population and compare that cost to what the insurer is being paid per capita per month. DEVELOPMENT OF A CAPITATION PAYMENT RATE
Determine Delivery System Cost Base for Targeted Population oThe first step in...