By Lynn Carroll

Healthcare providers relying on the traditional fee-for-service (FFS) payment model struggled with a steep loss of revenue during the pandemic, highlighting the inherent risk in FFS reimbursement contracts. Since then, a growing number of provider organizations are implementing alternative payment models (APMs) that offer financial incentives for delivering high-quality care efficiently and cost-effectively.

Capitation is one of those APMs. Under capitation, payers give providers a risk-adjusted amount of money (a global fee) for each patient over a fixed period of time or episode of care, regardless of services rendered. This payment model is designed to improve patient and population outcomes while reducing costs of care, two of the main goals of value-based care (VBC).
There are several advantages to global capitation for both providers and payers. Capitation offers payers greater cost predictability and lower administrative expenses, while providers benefit from a stable revenue flow and greater administrative efficiency. However, since they are financially responsible for patient outcomes and costs of care, providers also incur risk under capitation.

Harmonizing primary, specialty care
The capitation reimbursement model has been around since the late 1970s, when Medicare began experimenting with these fixed payments. Newer capitation models are designed to better align incentives between primary care providers and specialists through contracts that reward coordination between primary care providers and specialists, including behavioral health professionals.

Many patients have multiple chronic conditions, such as heart disease, COPD, and hypertension. Over time, these polychronic patients likely will receive more care from their specialists than their primary provider. Under value-based or fixed-price reimbursement contracts, it is critical that specialty care is harmonized with primary care to make sure providers meet their cost containment or program goals and to avoid ordering unnecessary or duplicative services.

“Primary care physicians (PCPs) are less able to manage the health of polychronic members without very strong engagement from specialists,” writes HealthScape Advisors. “Without strong specialist engagement and coordination, up to 90% of U.S. healthcare spend attributed to those with chronic and mental health conditions is not being effectively managed.”

Though primary care remains foundational to and well-suited for capitation models, we are beginning to see a blend of primary care and specialty services being integrated into these contracts, particularly through Medicare. Under these hybrid arrangements, more clinically oriented care coordination activities are required to determine which entities participate in a network model and where referrals go from primary care to different specialists.

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