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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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Return of Microcapitation: Condition Specific Capitation Payments

Microcapitation (mī‘kro kăp’ĭ-tā‘sh en) n.

  1. A health care delivery mechanism 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 provider assumes financial risk, is compensated at a fixed per capita rate for predetermined services, and is evaluated based on service performance .

I am having some flashbacks this week to some ideas I introduced long ago that are just beginning to take hold (note to self – even if they don’t catch on immediately there is still satisfaction in coming up with the idea first). I read with interest the recent publication by the Network for Regional Health Improvement describing their suggestions for payment reform entitled, “From Volume to Value” (kudos to Bob Coffield for surfacing!).

It is a great read, complete with some compelling graphics which clearly explain the notion of value. Redefining Health Care helped get me there originally, and this document just confirms the notion that value based competition on results WILL transform the payment mechanism of health care by realigning incentives in such a way that people get rewarded for producing outcomes not procedures. In the new model, the excess capacity that exists (as described by supply sensitive care) will be reoriented around paying only for the outcomes we seek not the procedures or processes required to get us there. But we can’t get there all at once, because as demonstrated in the Innovators Prescription, we can’t pay for outcomes for everything because our clinical science is not far enough along (only 10% of care is Evidence Based).

The paper also shows two examples of a “Capitation 2.0” – one described as “Episode of Care” and the other a “Condition Specific” payment model.  These are examples of what I had previously described as “Microcapitation” previously (including the exact example that NRHI used). In theory, Capitation or other forms of pre-payment, can create alignment between the patient, the physician, and the payer (ie, see Kaiser, Geisinger, VA, etc). But this only works within an integrated system wherein everyone is motivated to help keep the patient healthy and can enjoy the gain sharing achieved through higher performance. “Capitation 1.0” failed previously because it was just a per head model, without any consideration for the disease condition, the health status, or the perverse incentives in a fragmented system.

Doctors foolishly assumed nearly all the risk, having no tools nor technology to understand let alone manage the population they just assumed all the risk for. Patients felt the conflict, and it eventually drove a knife right through the trusted relationship from which most primary care “gatekeepers” have never fully recovered.

Microcapitation holds the promise of more accurately delivering a defined outcome for a defined population in an area of medicine that is fairly well described, understood, and their is sufficient experience / capacity to deliver. Given our understanding of the disease process, it is reasonable to create a microcapitated rate for a specific disease condition – say, diabetes for example – wherein the physician agrees to provide a bundle of services for a defined price over a defined period of time. Within the payment structure for the bundle of services, the physician can innovate in anyway she wants – including adding all kinds of features, benefits, and add-ons that increase value to the patient but that still allow the physician to be profitable.

This aligns incentives, eliminates paperwork, incents communication, and ultimately drives better performance by increasing value [outcome/price].  Simple. Elegant. Beautiful.

Here is are the two case studies referenced in the report:

CASE I: How “Episode-of-Care” Payment Would Work

Ms. Brown falls and breaks her hip and goes into the hospital for surgery to implant a prosthetic hip. Each of the hospitals in the community has defined a price that it will charge Ms. Brown’s insurance company for performing the surgery and providing all of the postoperative care for a woman of Ms. Brown’s age and health status. That price will cover Ms. Brown’s hospital care, her surgeon’s fees, the cost of her prosthetic hip, her care by any other physicians who are involved (e.g., anesthesiologists, intensivists, etc.), her post-hospital rehabilitation and any home care she may need to make sure she can return home safely. The hospital will be responsible for dividing up the payment among all of those providers. If Ms. Brown develops an infection in the hospital following surgery, the hospital and its physicians will be responsible for treating that infection at no additional charge.

The insurance company measures the outcomes (e.g., mortality rate, complication rate, infection rate, range of motion following rehab, etc.) that the hospital achieves for hip replacements on patients similar to Ms. Brown. It then adjusts the payment to the hospital up or down by a certain percentage based on whether its outcomes for Ms. Brown are above or below the standard it has established.

Ms. Brown will be responsible for paying for a portion of her care. The amount she pays will be lower if she selects a hospital that charges a price lower than the average of other hospitals in the area and/or with quality ratings above the average for the region for patients similar to her.

Ms. Brown receives a small rebate on her share of the costs of her care if she achieves the rehabilitation goals and complies with the post-discharge plan that she develops jointly with her physicians.

CASE II: How “Condition-Specific Capitation” Would Work in a Hypothetical Case

Mr. Jones has diabetes. His insurance company pays his primary care provider a monthly comprehensive care payment to help him manage his diabetes and address some of the complications that might arise from his condition. Mr. Jones’ primary care provider has physicians, nurse practitioners and other staff working as a team to help with Mr. Jones. In addition, they have relationships with other health care providers that will need to provide some aspects of Mr. Jones’ care, such as laboratories and ophthalmologists.

Mr. Jones’ primary care provider works with him to develop a plan of care that defines the actions that he can and will take (e.g., exercising, managing his diet, taking medications, etc.) as well as the actions that the provider will take (e.g., contacting him regularly by phone to see how he is doing, seeing him periodically to check his blood glucose and hemoglobin levels, checking his feet at every visit, etc.) in order to successfully manage his diabetes. Mr. Jones understands that he does not need to see a doctor each time he comes to the office for checkups, since a nurse practitioner can perform all of the necessary checks and call in a physician when needed.

The costs of blood tests and any visits to specialists that Mr. Jones needs, such as periodic eye examinations by an ophthalmologist, are all paid by his primary care provider from the monthly comprehensive care payment.

Mr. Jones pays no co-payments for his regular checkups or routine testing. He receives a small cash payment from his insurance company if he meets the goals established in his care plan as measured by objective test results, such as hemoglobin A1c levels. His primary care provider also receives a financial bonus from the insurance company if Mr. Jones meets the goals in the care plan.

The insurance company measures the number of hospitalizations that occur related to diabetes for Mr. Jones and other patients like him who are under the care of the primary care provider. If the rate of hospitalizations is below a predetermined target level, the primary care provider receives a financial bonus, since they have saved the insurer money.

Mr. Jones is free to switch to another primary care provider at any time if he isn’t happy with the care he is receiving. However, if he switches to a provider that has significantly poorer outcomes, rates of hospitalizations and/or higher prices for care, his insurance company  will require him to pay more in order to use that provider.

2 comments on “Return of Microcapitation: Condition Specific Capitation Payments

  1. Yup, couldn’t agree more. And I’d like to add that you’ve got a great colour scheme on your site, I suffer with colour blindness and many webmasters don’t give us a second thought!

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