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Scott Shreeve, MD

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I'm the CEO of Crossover Health, a patient-centered, membership-based medical group that is redesigning the practice, delivery, and experience of health care. We offer urgent, primary, and online care to our members who can access our technology platform, practice model, and provider network from anywhere and anytime to optimize their health. Email Me



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Microcapitation: A Closer Look and New Perspective on Capitation

Microcapitation (mīkrə kăp’ĭ-tāshən) n

1. A healthcare delivery mechanisms wherein a service provider contracts with an administrator to provide health care services on a per capita basis.
2. A financing mechanism wherein a service providers assumes financial risk, is compensated at a fixed per capita rate, usually for predetermined services as appropriate for subscribers to the service.

I have taken my sons on occasion to the Science Discovery Center located in Santa Ana, California. It is a wonderful play land of hands on scientific exhibits designed to entertain while they inform young minds about the physical world around us. My boys love going to explore and roughly handle the well worn exhibits. One of my favorite exhibits is the one that starts way, way . . .way out – “in a galaxy far, far away” and through successive frames brings you back into our galaxy, into our solar system, into our atmosphere, into our continent, into our country, into a state, into a city, into a neighborhood, into a backyard, into the pool area, into a person, into their hand, into their skin, into their tissue, into their cell, into their nucleus, into their genes, into . . .” You get the idea.

I guess the point is one of perspective, and your perspective can change dramatically depending on where you sit relative to the thing being “perspected(Hoodwinked is one of my favorite studies in perspective!). I have always had a natural aversion to capitation, as it has always been associated with the worst of managed care, hurried office visits, and soul-less physicians who in my mind had sold out. I am not sure where I picked up on this attitude, it was probably along my apprenticeship trail wherein I spoke to, interacted with, and was mentored by jaded physician after jaded physician coping with the difficult adaption to “modern” medicine.

I have always thought it incredulous that physicians would accept a set pre-payment for an unknown commitment to provide an unknown amount of services. It seemed to create an unnatural and difficult set of incentives where the less you see your patients and the less you do for them the more money you make. Funny that the Stark laws were created to eliminate the concern about self-referrals leading to excessive provision of care, but that these types of physician enriching paradigms by providing less care are perfectly acceptable. I also never understood how physicians could make these commitments with absolutely no information like:

  • How much health care services do your current patients actually consume each year?
  • How much do these services “cost” you as the physician to provide?
  • What patients can you provide preventative (healthcare) services in order to avoid treatment (disease care) services?
  • What other activities can you engage in that would appropriately lower the consumption of services or shift services to most appropriate care activities?

This information has never been available to physicians in the past, and therefore all the capitation schemes that I have seen have appeared to me to be just an absolute crapshoot. Sign on the dotted line and start crossing the fingers. Well, this just does not cut it, man. No wondered the capitated doc’s would be busting their chops at the end of each year as they got financially decapitated. There is nothing worse than a beaten doctor who succumbs to the incessant financial pummeling. You can see it in their eyes and hear the weariness in their voice when they give in and the dream to provide world-class care, to help their patients attain their healthcare goals, and provide comfortably for their families is broken down in 12-15 minute sound bite sessions with their “subscribers”. Hence the anger and bitterness that were part of my training experience and initial exposure to capitation. It was not a pretty site or a positive training experience.

It doesn’t have to be this way.

Capitation definitely has some advantages as I have since learned. It can create and align some incentives that help both the patients, providers and of course the payors. But lets look at capitation in a new way. How about we set up the capitation around discrete medical conditions, or subsets of clinical activities, that would be amenable to deliver in “care packages”. As mentioned in my previous post, these care packages have a lot of intelligence built into them in terms of their specifications, their ability to self-organize care, and their ability to create a true health care marketplace wherein price, quality, and outcomes can be compared side by side, provider by provider.

The discrete services provided by vertically or virtually integrated teams would enable a new level and degree of expertise. High volume providers would develop additional experience, which would enable them to introduce innovations and efficiencies in a classic virtuous cycle. With the additional delivery and outcomes experience, providers would be much more willing to put out a set fee for a set grouping of clinical services, because for the first time, they could have some confidence in their ability to deliver for that price. This is capitation, but it is “microcapitation” at the medical condition level (which should be the lowest common unit of care delivery that we should measure).

To emphasize the point, Microcapitation (which I have never seen used and a google search on 12/21 produced ZERO results) makes a lot more sense to me because it is for a definable, controllable, and limited set of clinical activities in which providers can, with confidence, provide services for a set fee. Microcapitation, as delivered in discrete “Care Packages”, will be a critical new product feature as we transition to a true marketplace. Microcapitation around specific medical conditions also provides a manageable unit of health care delivery in which we can develop the appropriate care linkages across all the providers who form the team to deliver the full episode of care. It is also an appropriately sized clinical bite in which the appropriate healthcare infrastructure that allows for appropriate outcomes measurement, monitoring, and healthcare outcomes to be reported, compared, and ultimately consumed in a healthcare marketplace (more on this later).

So, to my physician brothers (and sisters!) slogging it out in the capitated trenches, you need to go micro! Take a fresh look at your exposure, and control it by moving to discrete microcapitated “care package” bundles, that you can control, measure, and market.

The fresh perspective should help things look a lot more rosie . . .

13 comments on “Microcapitation: A Closer Look and New Perspective on Capitation

  1. Scott,
    In order for microcapitation to work, you need to be able to do two things:
    1) understand what the appropriate treatment path is for that condition and what the high and low case scenarios would be (in terms if intensity of care) and relative probability of each. You’d likely have to exclude hospitalization/ER, and possibly pharmaceuticals, as they create too many screwy deviations from the norm
    2) Understand who is likely to be a high flier vs. low intensity user of your services. (e.g., some type of a health risk score in that disease component)

    Then, the management goes one of two ways– fair payment for coordinated services, with incentives for consumer engagement (they see themselves as getting more) OR cherry picking by physicians at the condition level to get the lower risk patients (arbitrage).

    Until you get real engagement from the patients (and figure out how to get them excited about your value prop) all of this could just be doing the underwriting at a different level.

  2. Editors says:

    Hi Vijay,

    From a healthcare economics P.O.V on medical office capitation reimbursement, you also need to know two additional important financial accounting components:

    1. Office fixed overhead costs, and;
    2. Office variable costs, per patient, since you “live or die” by them.

    Of course, with more global capitation for drugs, referrals, OP, ER, OR, hospital, ancillaries, etc., it becomes even more difficult to assess.

    This is where medical-activity-based-cost accounting is needed.

    And, why insurance companies want to shift the economic “risk” to someone else.

    Dr. David E. Marcinko; MBA, CMP
    Atlanta, Georgia USA

  3. Editors says:

    Adoption of “Full-Risk” Capitation,

    For some physician’s, the future might include “full risk” medical care contacts. This is because of market pressure and the expansion of partial risk PPO contracts

    In the full risk payment system, the participant agrees to provide “all” of the care for a given patient population or contract.

    In other words, the MD would have to include services such as diabetic management, trauma, radiology, emergency care, pediatric immunizations, geriatrics, home IV antibiotics, DME and all specialty care in the consideration of this “full risk” contract. Of course, increased benefits accompany the increased risk.

    The risks: all medical and surgical care necessary for the contracted population.

    Since there is the potential for more reward but with much more risks, we believe the physician must carefully consider these contract types and maintain the following relative contingencies:

    * Stop-loss re-insurance
    * 15-50 mile coverage radius
    * Sub-capitated specialists with discounts
    * 25-100 providers in the network
    * 100-250,000 patient population or more (more patients mean less risk)
    * Sub-capitated hospitals, surgical centers, pharmacy and DME vendors with discounts
    Encompass a small (<20-25%) portion of the practice.

    Certainty, this system does not bode well for the solo practitioner, or even for small medical group practices.


    Dr. David E. Marcinko; MBA, CMP
    Health Economist and CEO – iMBA, Inc.
    Atlanta GA, U.S.A.

  4. Scott, et. al.,

    I re-read with interest your philosophy on “micro-capitation”, and am pleased that there are-foreword thinking folks like you, out there.

    Currently, we are crafting a paper on capitation economics for a journal and wondered if you have fleshed out your ideas a bit more? We would be delighted to reference you, and your new term, if you might more pragmatically assist us to understand concept with samples, illustrations, use, potential use, etc.

    The bit/byte concept is intriguing, but there are all sorts of stochastic gaps left in your theory, which I can not find on the net; not withstanding the financial.

    For example; liability, pricing, continuity of care, leadership, etc.

    Most importantly, your small unit condition package concept sounds like a FSS idea, but with more drill-down.

    Or, could it just be a “sub-capitation” system, as described in the scenario, below.

    Sub-capitated Contract:

    The often-contentious dilemma of “carve-outs” from capitated managed care contracts is abating in some parts of the country, just as it is accelerating in others.

    Under this scenario, medical services or products such as surgery, trauma, physical therapy, immunizations, certain tests, wound care, or prosthetic devices may be excluded from a managed care contract in favor of another, often “sub-capitated”, provider.

    However, if your medical organization is contemplating a sub-capitated contract, consider the following scenarios.

    For example, an orthopedic group notes that hand surgery is listed in a new capitation contract that it is considering.

    The group is not comfortable with such surgery and they ask that these services be excluded. Since the contract provider will not exclude the surgery, the orthopedist group either has to accept it and perform unfamiliar surgery, or reject it.

    SCOTT: Is your idea here a third option in this case? If so, please explain in detail. If not, please explain how it is new?

    Thus, the following are conditions considered important for carved or sub-capitated risk contracts:

    • equivalent risk for the provider and sub-capitated specialist;
    • fixed expenses for the sub-capitated specialist;
    • predictable and low cost of care, per specialty episode;
    • high episodes of specialty care (not unusual or unpredictable events);
    • definable and understood responsibilities of the specialist;
    • profit and cost savings potential for both the referring and specialty provider; and
    • existence of re-insurance, etc.

    IOW: What I am trying to determine here – is if your micro-capitation concept is a real emerging philosophy, or merely the disorganized rantings of another frustrated doc?

    For the life of me, I still can’t understand exactly what you are trying to say. Sorry.

    Maybe it is me, after all.
    My Bad!

    Please advise if you wish to promote and expand your theory in a more credible print or e-venue; after more thought.

    Dave Marcinko
    Atlanta, GA USA

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