This article is the second in a series that explores different care and reimbursement models. In this series, William Rusnak, MD, provides some quick insight into several models and discusses the pros and cons of each. William's last article focused on Accountable Care Organizations.
One of the biggest problems with the current healthcare system is the fee-for-service model. Not many would argue against that point. Doctors are paid by insurance companies and Medicare for each service they perform, so naturally they try to maximize their volume. In turn this leads to many unnecessary treatments and decreased quality of services. What if physicians instead were paid a set amount per a period of time per each patient? This model, known as capitation, may initially make more sense, but it’s been tried… and it’s far from perfect. The problem with capitation stemmed from the fact that the less providers did, the more of the monthly payment they could keep as profit. Eventually, many providers ended up on the opposite side of the care spectrum – they began to actually withhold care! Despite these set-backs, capitation has a lot of potential. Let us explore the benefits and the pitfalls of this payment model.
Healthcare PRN (As Needed)
The most evident advantage to capitation is the fact that patients can see their provider whenever they are in need of care. That could be once per year or several times per month. No one can predict his or her health needs, so this model works well in that regard.
Fiscally Responsible Medicine
Next, physicians are incentivized to become cost-conscious of the services they perform. Ideally, in capitation, the temptation of persuading patients to undergo unnecessary or minimally beneficial treatments will be eliminated. Providers then have the ability to focus on the giving the best care possible, as opposed to selling the most lucrative procedures. After all, many times no intervention is the best option.
Unfortunately, without a focus on outcomes, this model can lead physicians to the conclusion mentioned above: that it is best to provide the least care possible. In essence, the model relies upon the ethical standards of each individual physician, which in most cases should not be an issue. However, it only takes a few greedy providers to make this model faulty.
The Risk of Selling Insurance
Additionally, when providers use a capitation model, they are taking on the risks of being an insurance entity. Companies who provide insurance have complex financial calculations to determine the proper pricing of services in order to ensure future stability and profitability. This problem is especially amplified in traditional capitation where every patient pays the same amount per period of time. In that situation, a few resource-consuming patients could bankrupt the entire organization. Fortunately, many have solved this problem by implementing what is known as comprehensive care payment, or "condition-adjusted capitation."  This style of payment is traditional capitation with the added adjustment in price depending on the patients past medical history. Simply put, patients with complicated histories will pay more per period of time than an exceptionally healthy person.
Future of Capitation
Moving forward, we will likely see more of this model, especially since many Accountable Care Organizations (ACOs) use a form of capitation. The “spin” they put on their payment system is that providers are financially rewarded for positive outcomes of their patients. Essentially this solves the temptation to withhold care for more profit. Additionally, many direct primary care providers, who receive payment directly from patients, are using capitation as their pricing structure. As long as providers are cognizant of the potential risks of capitation and can avoid them, the model is very promising.
William Rusnak, M.D. (@RusnakMD) is a resident physician in family medicine, financial investor, and entrepreneur. He's passionate about empowering patients, the business behind medicine, and innovation in healthcare.
1. Miller, Harold. “From Volume To Value: Better Ways To Pay For Health Care”Health Affairs, Vol 33, No. 3. http://content.healthaffairs.org/content/28/5/1418.long March 2014.