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What is capitation? Medical billing

The cost of providing an individual with a specific set of services over a set period of time, usually a month or a year. It is a payment system where managed care plans pay the health care providers a fixed amount to care for a patient over a given period. Providers are not reimbursed for services that exceed the allotted amount. The rate may be fixed for all members or it can be adjusted for the age and gender of the member.

Capitation can have both positive and negative impacts for providers and payers. However, because providers are responsible for managing their patient populations’ healthcare costs, the use of utilization management techniques should be weighed against the ability to maintain quality objectives. Providers must find the balance between meeting the needs of their patients while ensuring the right care is provided to the right patient at the right time to achieve the best quality outcome. Secondary capitation is somewhat of a hybrid between the primary and partial models.

capitation in medical billing

A payment or fee of a fixed amount per person, such as one remitted at regular intervals to a medical provider by a managed care organization for an enrolled patient. Partial capitation, also referred to as blended capitation, provides reimbursement payment for some care-related services but not everything that the patient may need. For example, partial capitation may cover preventative and urgent care, including lab tests and diagnostic imaging without coverage for pharmaceuticals or hospital-based care. US healthcare is researching ways to tackle the challenges of lowering costs and improving the quality and the outcome. The traditional, age-old Fee for Service model is under scrutiny for being expensive and for focussing on rewarding medical providers for volume and quantity of services rather than the results.

Residency Career Guidance

These reports are made available to the public as a measure of health care quality, and can be linked to financial rewards, such as bonuses. A capitation payment model works by paying healthcare providers a fixed amount for each patient they deliver care to, per unit of time. Historical claim data is typically used as a starting point for developing capitation rates. The capitation rates are managed as a budget for providing care to patients. If the cost of care for a provider’s attributed patient panel is less than the budgeted amount, then the differential results in a greater payment yield and potential profit or surplus for the provider.

  • This supports cost-control, preventative care, quality care, and improved patient outcomes so that patients will not require so many services for acute illnesses.
  • Commercial lines of business can include products that have significant differences in the morbidity of the covered population and differing degrees of regulatory oversight.
  • Clean claims are a huge boon to providers, as they reduce turnaround time for the reimbursement process and lower the need for time-consuming appeals processes.

HMOs contract IPAs to provide services to patients within the HMO’s network, but their individual practices do not have to be part of the HMO network. To understand Capitation, let’s look at its competitor, Fee-for-service . Traditionally this method of reimbursement pays providers based on the number of services provided. Providers make claims based on the number of procedures carried out for a patient over a period of time. FFS can create an uncertain financial climate for providers because finances depend on the number of services rendered, this potentially incentivizes providers to schedule more unnecessary medical procedures. Additionally, the projected gain per patient will vary widely because some patients require little to no care, while others need extensive treatments.

That’s because they assume more of the financial risk if the cost of services exceeds capitation payments. With fee-for-service billing, a patient goes into a clinic and the doctor bills for all services performed. If a patient isn’t seen, the doctor doesn’t bill for services for that patient. In contrast, capitation payments are provided for every enrolled member, even if that patient never comes in for an exam or treatment. Depending on the contract terms, risk scores may be incorporated to adjust for differences in morbidity. The table in Figure 2 provides an example of how to construct a capitation rate starting point using historical claim data.

FFS is a volume-based system that can become costly and cumbersome for both the provider and the patient. Primary capitation is a relationship between a managed care organization and primary care physician, in which the physician is paid directly by the organization for those who have selected the physician as their capitation in medical billing provider. Global capitation is a relationship based on a provider who provides services and is reimbursed per-member per-month for the entire network population. Underprovision of services within the risk group, for which a particular flat-rate capitation amount is applicable, is a problem to be dealt with.

Understanding Capitation

Posting cap in your practice management system can be done in a variety of ways. Some choose to post a one lump payment to a “cap account” in their system, some post to the individual member every month . Some, more advanced systems, have their own methods for handling cap, which is nice. The care provided between the nephrology group and the patient is considered critical. For providers, these visits can be the difference between thousands of dollars each month. There are risks however, which include revenue loss for chronically ill patients requiring complicated medical care.

capitation in medical billing

This is because the payment to the provider is a fixed amount, regardless of the time, effort, and other resources required to provide care to the patient. This risk is increased for providers who enroll a larger percentage of patients with complex medical issues. This may potentially lead providers to avoid enrolling patients whom they think will need more services, such as those with complicated issues or multiple comorbidities.

Bundled Payment Models

Primary capitation models are focused specifically on primary care services for the population in question. They involve having the payer reimburse on a regular frequency for all patients in the providers group of covered lives, regardless of whether or not they receive care during that time. This model requires that a patient have a primary care physician identified and there is an assumption made that they will utilize this provider for primary care needs. (I.e., they will not frequent urgent or emergency care centers for primary care events.) HMOs leverage this type of capitation model.

Advantages to capitation payments include streamlining the administrative side of health care and encouraging efficiency. These payments aren’t determined by the type of care patients receive, unlike fee-for-service medical billing structures. If you’re deciding which type of plan to enroll in—one that uses a capitation method of payment or one that uses FFS—consider how each might affect the quality of care you need. Even with the carve-out services handled separately, there is a risk that patient care costs more than the payment provided. A claim received by an insurance payer that is free from errors and processed is a timely manner. Clean claims are a huge boon to providers, as they reduce turnaround time for the reimbursement process and lower the need for time-consuming appeals processes.

capitation in medical billing

Money in this risk pool is withheld from the physician until the end of the fiscal year. If the health plan does well financially, the money is paid to the physician; if the health plan does poorly, the money is kept to pay the deficit expenses. Capitation payments are used by managed care organizations to control health care costs. Capitation payments control use of health care resources by putting the physician at financial risk for services provided to patients. At the same time, in order to ensure that patients do not receive suboptimal care through under-utilization of health care services, managed care organizations measure rates of resource utilization in physician practices.

Capitated Payments & Reimbursement Explained

In the same way capitation provides stable predictable revenue for providers, it provides predictable costs for payers as long as participating patient volumes do not fluctuate significantly. Challenges exist, however, in updating claim adjudication systems to accommodate a capitation payment arrangement, as it is different from FFS and other standard payment methodologies that have been in place for decades. An alternative to modifying claim adjudication systems to accommodate new prospective capitation models is to allow claims to continue to be paid FFS and allow for a retrospective financial reconciliation on a determined timeframe.

Keeping costs down may lead to a provider not wanting to offer certain elements of medical care. For example, generic medications may be offered over name brand medications, and a less expensive procedure may be ordered that weighs heavily on the ethics of a physician practice. Providers are able to supplement some costs with a FFS payment model for certain services. One of the main concerns about healthcare capitation is that the practice incentivizes doctors to enroll as many patients as possible, leaving less and less time to actually see a patient. A doctor contracted by an IPA does not have to maintain a larger billing staff, nor does the practice have to wait to be reimbursed for its services.

With capitations that encourage preventative care, the provider is rewarded for providing preventive health care services. This incentivizes the doctor or provider to help avoid expensive medical services. If the health plan does well financially, the medical provider receives this money; if the health plan does poorly, the money is kept to pay the deficit expenses. Capitation payments are fixed payment amounts between insurers and medical providers as part of the capitation health care payment system.

An insurer enters a one-year capitation contract with a healthcare provider to secure coverage for its members. The healthcare provider would be paid a fixed amount to provide care services for all of the insurer’s members, say 3,000 of them. Many commercial insurance payers also require providers to submit their claims using a CMS 1500, making this one of the most common and important tools in the medical billing process. An arrangement between a healthcare provider and an insurance payer that pays the provider a fixed sum for every patient they take on. Capitated arrangements typically occur within HMOs (See “Health Maintenance Organization ”). HMOs enlist patients to service providers, who are paid a certain amount based on the patient’s health risks, age, history, race, etc.

If the patient is not enrolled with the secondary payor then the balance is billed to the patient. Periodic patient statements are sent to the patient in order to intimate the balance which is pending from patient. The fee determined by an MCO to be acceptable for a procedure or service, which the physician agrees to accept as payment in full.

With a fixed overall revenue for a patient, providers may ration or deny access to expensive procedures and services even if the services can lead to better long-run outcomes. It is difficult to fully risk adjusted patient popluations so capitated payers and providers can boost margins and profits by targeting healthy populations and avoiding unhealthy ones. Capitation payments also create a disconnect between the payment and what a provider actually controls. Under capitation, providers assume the actuarial risk of which conditions and circumstances they will be required to treat, not just the clinical risks, costs, and outcomes they can better control. Providers are poorly equipped to manage this actuarial risk, especially when they do not have sufficient patient volume to mitigate it. Capitation, then, distracts providers from focusing on what really matters – improving patient value through excellent care at the medical condition level.

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