Physicians

Physicians are adapting to managed care. Tomorrow's doctors will be encouraged to enter primary care and will be exposed to more practice settings.

Incentives and cost containment in primary care physician reimbursement

The goal of capitation is to place gatekeepers at financial risk for the services the deliver. However, third party payers should provide gatekeepers with some type of protection against random and systematic risk transfer. Gatekeeper physicians' other alternative is to reduce this risk on their own by actively marketing services to healthier individuals and creating barriers to care for their sicker patients. Thus, the proper balance of risk transfer will result in the most cost-efficient, quality gatekeeper networks. However, even with the right balance of risk transfer, capitation may provide incentive for some physicians to withhold necessary services to further increase their profit margins-making quality of care a key concern. Thus, practice guidelines should be developed to ensure quality is not affected. These guidelines afford explicit criteria on how gatekeepers should respond in specific clinical situations.

Service utilization patterns as determinants of capitation rates

OBJECTIVE

In a capitation payment system, the ability to project service requirements and cost is critical. The types and levels of services needed by persons with serious mental illness vary. The purpose of this study was to identify different patterns of service utilization and patient characteristics and costs associated with them.

METHODS

Service use by 55 clients participating in a psychosocial-habilitation outpatient program at a hospital-based community mental health center was tracked for one year. Treatment cost for all services was calculated for each patient.

RESULTS

Cluster analysis indicated that for persons with serious mental illness who enter community treatment, there appear to be four distinct patterns of service use: low, moderate, moderately high, and high. The groups were differentiated only by the presence of a disability (among the moderately high users) and a history of frequent inpatient treatment (among the high users). The two highest-use groups represented about one-third of the total sample but consumed more than three-fourths of the total resources.

CONCLUSIONS

The lack of significant group differences on most clinical variables may make it difficult to develop capitation rates for subgroups of persons with serious mental illness. Service use may be determined by factors other than clinical need.

Using chronic disease risk factors to adjust Medicare capitation payments

This study evaluates the use of risk factors for chronic disease as health status adjusters for Medicare's capitation formula, the average adjusted per capita costs (AAPCC). Risk factor data for the surviving members of the Framingham Study cohort who were examined in 1982-83 were merged with 100 percent Medicare payment data for 1984 and 1985, matching on Social Security number and sex. Seven different AAPCC models were estimated to assess the independent contributions of risk factors and measures of prior utilization and disability in increasing the explanatory power of AAPCC. The findings suggest that inclusion of risk factors for chronic disease as health status adjusters can improve substantially the predictive accuracy of AAPCC.

Strategies for integrating public mental health services

Practical solutions to the issues troubling public mental health systems must be developed within the constraints of existing political structures. A key enabling factor is the inclusion of a broad range of reimbursable mental health benefits within health insurance. However, services cannot be improved without the development of viable frameworks for organizing effective service delivery; such strategies include assertive community treatment, capitation approaches, strong local mental health authorities, and reimbursement structures that achieve key objectives. The author discusses examples of the four strategies and argues for their better integration.

Prospective cost allocations for the chronic schizophrenic patient

Schizophrenia affects from 0.5 percent to 1.0 percent of the population and is often a chronic relapsing illness with high morbidity. Because it strikes young adults, the lifetime direct and indirect costs are considerable. One method of budgeting the costs of treatment is through a prospective method with the development of "risk-adjusted" capitation rates that take into account a patient's past use of services, perceived health status, and level of disability. Such a system may provide opportunities to improve the quality of mental health services by increasing service flexibility, particularly in the development and differentiation of outpatient services. The essence of the approach is to encourage early intervention by reducing financial barriers for patients, especially barriers to alternatives to expensive inpatient services. One method currently employed in Rochester, New York, which creates a capitation payment system for the chronically mentally ill, will be described. The implications of this system for public policy will be discussed as we struggle to treat and care for chronic schizophrenic patients in humane and compassionate ways.

Capitated payments for mental health care: the Rhode Island programs

Capitation financing for the delivery of mental health care under public programs is receiving increasing attention from policymakers. Most initiatives in this respect are in the planning or early implementation stages. This paper describes five years of experience with capitated financing for mental health care in the state of Rhode Island. It discusses the motivation for the programs, their design, and the issues that have arisen with respect to their operation. The Rhode Island experience demonstrates that capitated financing for mental health care is feasible and that Community Mental Health Centers can operate effectively as providers of care under these arrangements. It also suggests that capitated programs can have unanticipated impacts on the operation of community-based mental health service delivery programs.

Opportunities and risks in Philadelphia's capitation financing of public psychiatric services

The city of Philadelphia was one of nine sites selected by the Robert Wood Johnson (RWJ) Foundation and the U.S. Department of Housing and Urban Development (HUD) to receive five-year funding to improve the delivery, quality and cost efficiency of public mental health services to its chronically mentally ill population. As part of the RWJ project, the city plans to restructure its delivery and reimbursement system, creating a not-for-profit central authority which will function as a health insurance organization (HIO) responsible for coordinating and managing psychiatric care to Medicaid clients. Operating under a model of capitation, the central authority will employ diverse funding mechanisms to finance and manage service delivery. This paper examines the benefits and risks inherent in the reorganization of Philadelphia's mental health service system under a capitation financing model. Issues considered include cost and utilization patterns, treatment outcomes, providers and their staffing patterns, service mix and the overall impact of capitation on clients.

Capitation and fee-for-service dental benefit plans: economic incentives, utilization, and service-mix

Insurance carriers, corporations, and labor groups are actively developing and marketing dental capitation benefit plans. Incentives to both dentists and patients in these plans differ from those in the traditional fee-for-service system used with conventional benefit plans. This paper describes the likely effects of these incentive differences on utilization and service-mix patterns in both systems. Data for a large (approximately 10,000), homogenous group of subscribers are presented and discussed. Faced with a dual option, at no cost to the employee, 60% of the subscribers chose the fee-for-service plan, and 40% chose the capitation plan. Observed differences in the utilization and mix of services between the two plans cannot be explained solely in terms of dentists' responses. Employee response to altered economic incentives appears to be strong.

Capitation financing for the chronic mentally ill: a case management approach

The method chosen for financing mental health care has profound implications for how that care will be delivered. Fee-for-service methods of reimbursement impede the implementation of certain essential program components. Capitation financing, in contrast, holds the promise of promoting an integrated system of care for chronic mental patients. The authors present data from a case management program that incorporates capitation financing. Discussion focuses on factors that planners need to consider when instituting a capitated financing system.

Are fee-for-service costs increasing faster than HMO costs?

It is well known that the costs of care at health maintenance organizations (HMOs) at any point in time have been lower than in the fee-for-service sector, but how costs have changed in each of these sectors has been less well-documented. The only previous study, which examined the HMO experience during the 1960s and early 1970s, found that HMO and fee-for-service costs rose at approximately the same rate. The present study, which extends this analysis to the period 1976-1981, also demonstrates that HMO costs increased at a rate not detectably different from that in the fee-for-service sector. These results are consistent with the earlier conclusions that HMOs cause a once-and-for-all reduction in cost. They also indicate that the public has been willing to pay for much of the increased costs of modern medical technology. Key words: fee-for-service; health maintenance organizations; Rand Health Insurance Study; Group Health Cooperative data.

Trends in medical care costs. Do HMOs lower the rate of growth?

Total medical care expenses are generally lower for HMO enrollees than for comparable persons with other coverage. However, a rarely addressed question is whether HMO enrollees also experience a slower rate of growth in costs. This paper examines data from several sources (Federal Employees Health Benefits Program, California State Employees, and Kaiser-Oregon) to compare trends in utilization and costs for HMO enrollees and comparison groups over periods of up to twenty-five years. Total costs can be decomposed into cost per unit of service and the number of units, or utilization of services. Trends over time in cost per unit of service (e.g., per hospital patient day) in HMOs are generally comparable to national trends, as are measures of factor inputs (e.g., physician office visits per physician per year). Trends in utilization, such as hospital days per 1,000 enrollees, show slight reductions for HMO enrollees relative to persons with conventional coverage. Therefore, the rate of growth in total costs (including out-of-pocket expenses) is only slightly lower for persons in HMOs. While HMOs may offer lower costs at any point in time, they have not been able to substantially alter the national patterns of medical care inflation and increasing resource use.

The 1980s: the rise of HMOs and marketplace competition

Hospitals that fail to take the leadership in the capitation movement will find themselves competing in traditional ways for a shrinking share of the market.