Our country's experience with capitation was the HMO craze of the 1990's. At first it was hailed as the answer to cost control; but it grew big, strong, and eventually uncontrollable. Physicians hated it for telling them what they couldn't do, patients hated it for telling them what they couldn't do, and, in general, businessmen congratulated themselves for their brilliance. However, it became so unpopular and politically unsavory among the general population that the attempt was abandoned by most and the system reverted back to fee-for-service (FFS).
"HMO" has, to many, become a dirty word. Why? What was the promise, why did it turn out so badly, and why should we care now? Capitation, I assure you, is reemerging. It persists because it is a potential solution for two critical problems: controlling the cost of care and coordinating care between providers. Understanding the concept and the lessons learned with HMO's will not only make you seem smart - and thus gain the respect of your peers - but also better understand experiences with your own physicians.
Capitation, in the broadest sense, is the process of paying a fixed rate for an agreed upon set of services. There are many iterations of capitation, each with their own consequences. We will work from simple to complex using asthma care as an example.
In the first example, an imaginary patient with asthma, Jenny, gets all care from a single physician. You get the role of the insurer. You have a FFS relationship set up with the doctor; he is seeing Jenny often and also has a tendency to use a lot of expensive tests and technology. The bills from this doctor are killing you so one day you call up and make a deal. You will pay the M.D. $60 per month to take care of all of Jenny's needs. If the cost of Jenny's care is less than your payment, the doctor keeps the difference; if the cost of care is over the amount, he has to pay out of his own pocket and take a loss.
How does this change things for the physician? Now he thinks twice before getting an expensive test or telling Jenny to come in for a checkup. Now the provider, the stakeholder that has the greatest ability to control the cost of care, has an incentive to reduce costs. The risk is that the incentive may be too strong and perhaps the physician will give inadequate care, trying to keep Jenny out of the office and not doing the necessary tests to keep her well. Remember, every test and act of care is now money out of his pocket!
What is the answer? Will little Jenny make it? Will the vision of an endless shower of money corrode our good doctor's moral fortitude? Will the author of this blog ever overcome his social awkwardness?
Maybe.
Next post we get into the nitty gritty...
"HMO" has, to many, become a dirty word. Why? What was the promise, why did it turn out so badly, and why should we care now? Capitation, I assure you, is reemerging. It persists because it is a potential solution for two critical problems: controlling the cost of care and coordinating care between providers. Understanding the concept and the lessons learned with HMO's will not only make you seem smart - and thus gain the respect of your peers - but also better understand experiences with your own physicians.
Capitation, in the broadest sense, is the process of paying a fixed rate for an agreed upon set of services. There are many iterations of capitation, each with their own consequences. We will work from simple to complex using asthma care as an example.
In the first example, an imaginary patient with asthma, Jenny, gets all care from a single physician. You get the role of the insurer. You have a FFS relationship set up with the doctor; he is seeing Jenny often and also has a tendency to use a lot of expensive tests and technology. The bills from this doctor are killing you so one day you call up and make a deal. You will pay the M.D. $60 per month to take care of all of Jenny's needs. If the cost of Jenny's care is less than your payment, the doctor keeps the difference; if the cost of care is over the amount, he has to pay out of his own pocket and take a loss.
How does this change things for the physician? Now he thinks twice before getting an expensive test or telling Jenny to come in for a checkup. Now the provider, the stakeholder that has the greatest ability to control the cost of care, has an incentive to reduce costs. The risk is that the incentive may be too strong and perhaps the physician will give inadequate care, trying to keep Jenny out of the office and not doing the necessary tests to keep her well. Remember, every test and act of care is now money out of his pocket!
What is the answer? Will little Jenny make it? Will the vision of an endless shower of money corrode our good doctor's moral fortitude? Will the author of this blog ever overcome his social awkwardness?
Maybe.
Next post we get into the nitty gritty...
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