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Fam Pract Manag. 2000;7(4):8

Capitation has such a bad odor about it these days that I hesitate to say anything good about it. But there are good things to be said, and it's better to say them now than to save them for the graveside — if the grave is indeed where capitation is headed.

First, to make it clear that I'm not a complete wacko, let me acknowledge that capitation has had a few problems over the years. Some physicians have lost their shirts on capitation contracts. In some cases, capitation seems to encourage physicians to take better care of their dollars than their patients. It may well serve some managed care organizations (MCOs) as wool to pull over the eyes of unsuspecting physician groups. It's complicated, and managing it requires better information systems than most organizations on either side of the contract have. It has been seen in company with shady practices such as eligibility-verification roulette (you know: the game that has left doctors holding the bag for care delivered to people who —surprise! — were members last month). In short, it has not been a highly successful way of paying for health care.

But capitation had such potential when it was young! Where did it go wrong? Actually, the potential is still there, and some groups actually seem to manage to realize that potential. I know of one physician organization so eager for risk that its unofficial motto is, “If it moves, capitate it.” For most physicians, hospitals and managed care organizations, though, I suspect that capitation is not so much a bad idea as a good idea whose time has not yet come.

When will that time come? OK, maybe never; I'll admit it. And I would guess that capitation will never be right for all physicians, all their patients or even all their insurers. But capitation may come into its own if we can ever put together the following pieces:

  • Community rating or some other mechanism for preventing MCOs from cherry-picking the healthiest members of the community.

  • Outcome and process measurement tools good enough to determine on a more-or-less real-time basis the quality of care a group of patients receives. If we know what good care is, MCOs will know what they need to pay for and physicians will know what they need to deliver. This should at least limit price competition between MCOs to reasonable levels and, who knows, might even lead to competition on the basis of quality.

  • Information systems good enough to allow all parties to track what they need to track, getting access to the information — formulary changes, member eligibility, actual costs of care, preventive services needed, and so on — pretty much in real time.

  • A cooperative working relationship between MCOs and physicians. (I didn't say they'd all be easy!) The cooperation would need to extend at least to an openness about sharing certain administrative information. It might be too much ever to expect the fabled alignment of incentives, but if the ability to measure quality takes some focus off price, MCOs might be better able to remember that the goal is health care, not underbidding competitors and putting the squeeze on provider payments.

  • Physicians with more managed care savvy. When physician groups understand the contracts they sign inside and out, they'll have fewer unpleasant surprises.

With all this in place, capitation may work well. So what, you ask? Why would we want it anyway? Most of the reasons have been talked about for years. The first is that capitation can serve as a mechanism for keeping the health plan off your back. What you are at risk for, you are responsible for; you don't need outside approval for referrals or admissions. Within a good capitation contract, the well-managed group can make patient care decisions on clinical grounds and still do well. This fact is somewhat obscured today by the paucity of good capitation contracts and well-managed groups. Other reasons include the way capitation frees physicians from visit-based reimbursement and opens the door for techniques of population-based care. The potential really is still there. It may be optimistic to think that we'll ever fully realize it, but when you consider what physicians are stuck with today, it may be foolish not to try.

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