UHF Report Outlines Changing Roles for Providers and Health Plans under Full-Risk Capitation Payment Approaches

Capitation Is Far More Demanding than Earlier Steps toward Value-Based Payment

Release Date: 05.05.2016
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A United Hospital Fund report released today examines the shifting roles of providers and payers related to the adoption of full-risk capitation. Presenting opportunities and challenges for providers, health plans, consumers, and policymakers, the report also summarizes a number of open issues, including the question of whether enough provider groups will pursue full-risk capitation and be sufficiently successful at it to make a real difference in the health care and health insurance marketplace.

Capitation—prepaying provider groups a flat, periodic, per-enrollee fee for all the health care required by a defined population—increases providers’ financial risk, as well as their incentives for providing quality, efficient care. It is considered the step beyond the shared savings and shared risk contracts under which most accountable care organizations work today—and represents a major change for provider groups and payers alike, as the health care system moves away from fee-for-service structures and toward value-based payments.

The report Capitation and the Evolving Roles of Providers and Payers in New York describes the basics of capitation, spelling out the range of new skills and capacities required by providers to be successful. It lays out the changing roles for accountable care organizations and payers, and notes the options accountable care organizations may consider to acquire needed infrastructure.

“The desired outcomes of capitation—improving quality of care and the patient experience, and restraining growth in the costs of care—won’t happen easily,” said Gregory Burke, UHF’s director of innovation strategies, and lead author of the report. “Capitation requires new skills and perspectives, and it’s not necessarily something that all provider groups can—or should—pursue.”

To capture the complexity of the challenge, the report highlights what’s involved in providers’ accepting and managing capitated arrangements with payers, and it details some of the short- and long-term pros and cons from the perspectives of providers, payers, consumers, and policymakers.

For providers, capitation can help improve relationships with payers, create a closer and more supportive relationship with patients, and allow a new flexibility in approaches to a fixed budget (based on flat, periodic, per-enrollee fees). The strategic, administrative, and financial challenges providers will face include managing competing investment demands, potential conflicts regarding how much an accountable care organization will pay its providers, and a new attitude toward services that have traditionally been sources of revenue but will now be costs. Successful organizations may have to deal with addressing excess provider capacity.

For health plans, having shared goals with providers presents the opportunity to more effectively improve care and reduce preventable utilization and costs. But capitation is also a threat to their business model, with opportunities for profit reduced and transferred to accountable care organizations. The duplication of services provided by both payers and providers creates economic inefficiency. Long-term, as provider groups gain more experience with the insurance business, more of them may develop and offer insurance products of their own, so with capitation plans, health plans may be enabling their own competition.

For consumers, the experience of care will be improved in many ways, as health care providers invest in care management, patient education, and customer service. These changes are expected to result in closer and more effective patient-provider relationships, with increased patient engagement. But consumers will need to better understand how capitation can affect their relationship with the provider group, what their rights will be and what pathways exist for resolving conflicts.

For policymakers, the creation of higher-performing, clinically integrated health systems that can offer more patient-centered, less fragmented care has long been a goal. But the creation of partnerships in place of competition among groups increases market leverage and may raise antitrust concerns.

“Value-based payment is unquestionably a central theme of health reform today, and capitation is one endpoint of its logical progression,” said Jim Tallon, president of United Hospital Fund. “But a practical implication of capitation is the evolution in the roles of providers and plans, and that affects all players in the health care system.  The value of this report is bringing together all the players and their respective concerns in one document—as well as a number of related open questions—to help frame ongoing discussions. Before we can agree upon common answers, we need to examine the questions.”

Capitation and the Evolving Roles of Providers and Payers in New York was written by Mr. Burke with Suzanne Brundage and Nathan Myers, both senior health policy analysts. The report is available on UHF’s website, www.uhfnyc.org.

Support for this work was provided by the New York State Health Foundation.

About United Hospital Fund: United Hospital Fund is an independent, nonprofit organization working to build a more effective health care system for every New Yorker.

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