As capitation becomes a more prevalent payor mode for radiology the language of the actuary and the risks and potential benefits involved in a capitation contract need to be understood. This article reviews the terms, risks and benefits involved in a capitated contract Introduction If you have negotiated a capitation contract for radiology services, you probably have been challenged by a general lack of information to support that effort. You may also have found it difficult to know what information you are missing. To lay some groundwork for your discussions, this article provides a look through the eyes of an actuary into the development of a capitation strategy. Basic Definitions First, I suggest starting with the following basic definitions: Capitation Rate: a prepaid amount per member per month (pmpm) for an agreed-upon range of services. This payment transfers financial risk from the health play (payor) to the provider. Capitation Risk: the risk that the capitation rate payment is less than the “cost” of providing the services under the capitation contract. The Nature of Capitation A fundamental objective of physician capitation is the transfer of financial risk to the provider, who can best affect how efficiently resources are used to obtain appropriate care and financial outcomes. To put this efficiency in perspective, we use a measure called “Degree of Healthcare Management” (DoHM). At one extreme, DoHM=0% represents a virtually unmanaged population. At the other extreme, DoHM=100% represents a well managed delivery system with best current practices of medicine.With improvements in medical management (increases in the DoHM), we anticipate a lower use of healthcare resources (lower cost). The effect of improved medical management differs by type of service. Presented in Graph?1 below is an illustrative view of the DoHM impact on costs and revenue pmpm for professional radiology services for a commercial population.
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