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Practice Management Alert

Choose Wisely:

Capitation Agreements Run the Gamut

Published on Thu May 01, 2003

Capitation payment plans could make your job easier, but to maximize profit, you should select a capitation agreement tailored to your specialty and practice.

There are many pros to a capitation agreement plan, so you should look into it even if your practice is small and has few problems with fee-for-service payment plans. Apayment system that pays physicians with capitations the amount of money a physician receives every month from an HMO for its members that have selected that physician may lower administrative costs. Managed-care plans include precertification and other billing and administration requirements. Capitation can lower or eliminate billing and collection costs, including bad-debt expenses, says Ira Rosenberg, president of Managed Care Resources Inc., a national consulting firm for managed-care issues, in response to the seventh article in the Managed Care Contracting "Signature Services," written by Michael Backus.

(To find out more about the general benefits of joining capitation agreements and what they do and don't cover, see "Capitated Agreements for Your PCP" in the April 2003 Medical Office Billing and Collections Alert.)

Capitation plans range from covering every service to covering only a few, with the rest payable according to a fee-for-service plan. Read through these overviews to get an idea of what kind of capitation plan you could choose:

  • Type #1: Full capitation: These capitation agreements cover virtually everything your physician would do. For the payer, the more services covered, the lower the costs associated with cap administration there are no claims to pay and only encounter data to process and automatically adjudicate, Backus says.

    Your physician and office likewise benefit from a capitation agreement that covers almost all services. The more items covered, the fewer "lower-dollar" claims you need to submit and the fewer payments you need to post, which greatly benefits a small office, Backus says. All your office needs to do is submit to the payer a simple report from the billing system to meet encounter-data requirements, and this benefit saves time, personnel, supplies and postage, he adds.
  • Type #2: Only E/M coverage: Some capitation agreements cover only E/M visits for many reasons, including cost efficiency and timeliness and accuracy of  claim submission, Backus says. Managed-care plans deal with most of the disadvantages that come with offering limited capitation service coverage.
  • The middle of the road: Capitation agreements generally cover some services under capitation and others under fee-for-service payments.

    A good illustration of this compromise compares immunization and x-ray coverage. Both the payer and your practice benefits from a fee-for-service and not a capitation payment for immunizations. For your practice, immunization and drug costs can total $30-$40 per visit, Backus says, an amount clearly worth billing for on a fee-for-service basis, instead of accepting a flat and perhaps lower-rate capitation fee.

    For x-rays, however, your physicians and the payer should have a capitation agreement because you both benefit from it. Reimbursing your physicians for an x-ray and paying a small over-read fee according to the capita-tion agreement is generally cheaper for the payer than sending the patient to an x-ray facility and paying another bill, Backus explains. Your practice recovers the variable costs associated with the imaging and covers some of the overhead of equipment, and your patients are thankful that they don't have to go to another place for the films to be taken, he adds.

    You should ask payers to select, articulate and adhere to a philosophy about choosing covered services instead of negotiating each deal separately. Payers will usually establish a capitation schedule for across the network meaning use the same schedule for all providers who see their members but the advanced ones may take into account office capabilities, Backus states.

    Be aware, however, of a potential problem in accepting a contract directly from an HMO. Your physicians may not have many members with individual HMOs. Progressive HMOs may have a way out of this dilemma by offering to pay fee-for-service until the physician's panel or number of commercial members reaches 100 members. Other plans have a form of stop-loss insurance. Your physicians submit encounter data, and if the capitation is less than 70-80 percent of what the fee-for-service payments would have been, the HMO pays the physicians a lump sum to bring payments up to that level.

    You could go through an independent practice association (IPA) to receive HMO payments, says Angela Allen, CPC, compliance officer and manager of Metropolitan Advanced Radiological Services LTD, in Berwyn, Ill. The HMO pays the capitation in a lump sum to the IPA, which then cuts checks to each individual physician according to the terms of their contract, she explains. The practice posts the money to the physician's account in one of two ways: Either offices make automatic adjustments to patient accounts once they verify that the patients are on capitated plans, or the offices wait until they receive a voucher. Some practices spread out capitated payments over the individual physician's account, while others create a dummy account to debit and credit the payment per month, Allen says.

    To read more on IPAs and reasons to work through them, visit this Web site: http://www.managedcaregroup.com/mcrmcc03.htm.

    Direct further general questions to the company's Web address: info@mcres.com.

     

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