Don’t Capsize Under Capitation: A Primer for PCPs

Two years ago, I was sitting at a meeting as one of our largest local insurers discussed a new payment program they were rolling out. It was called capitation. I listened to the details with a feeling of dread, quickly considering the possibility of dropping our contract completely. I wrote my partner a note, “How many patients do we have under this plan?” His answer: around 2000. Yikes.

Later, I spent hours furiously googling for real-life experience with any form of capitation, to no avail. I posted more targeted questions on my physician Facebook groups. And again...crickets. We made a plan to enter capitation with an open mind, and revise our approach and contracts as needed. The following year, another major insurer rolled out their version of capitation. We adjusted our workflow and continued practicing medicine the way we wanted. Here is some general guidance, specifically crafted around my experience as an internist and pediatrician in independent private practice under a partial capitation model.

First: What is Capitation?

Capitation is when an insurance company pays a specific amount of money to a physician to care for a patient. This differs from traditional fee-for-service payments, where you see someone for a sick visit, bill a certain CPT code corresponding to the medical complexity or time spent, and are reimbursed at a fixed amount (which is typically less than the standard rate you bill out and varies per insurer, patient plan and individual provider contract). Full capitation means that you are not paid separately for any form of episodic patient care. Partial capitation is a hybrid model where some services, usually preventative care, continue to be paid in a traditional fee-for-service method while other encounters, such as sick visits, are covered by a lump sum paid out monthly. This lump sum is called a “per member per month” payment (PMPM). It is adjusted by the level of risk or burden of illness of the patient; in this way you get paid more to care for more medically complex patients.

Second: How is Risk Determined?

Having experience with Medicare Advantage plans is incredibly helpful as the risk is determined in a similar fashion.  Some Medicare eligible patients choose to enroll in a commercial insurer’s Medicare Advantage program for extra benefits or to expand the network of covered providers. The Centers for Medicare and Medicaid Services (CMS) allot a certain amount of money per member per year to the insurance companies to cover the health expenses of their Advantage members. This payment is based on risk. Imagine that CMS allots $10,000 a year for each Medicare Advantage patient. A healthy 66 year old retired physical education teacher who exercises daily and is on no medications may spend much less than this amount. By contrast, a 57 year old on twice weekly dialysis who is depressed, has poorly controlled diabetes and is awaiting CABG may need hundreds of thousands of dollars a year to cover their expenses. But how does Medicare know how much funding to allot for each patient? They know by the ICD-10 codes we assign when billing.

Similarly, the PMPM payment under capitation reflects the health of the patient, highlighting the importance of accurately capturing the severity of illness of the patients through the ICD-10 codes we assign for each encounter.  In the above referenced example, the patient’s comorbidities contribute to medical decision making. CPT code 99080 covers “special reports such as insurance forms, more than the information conveyed in the usual medical communications, or standard reporting form.” It can be linked to the patient’s other diagnosis and transmitted to the insurance company as a secondary CPT code when billing. There are certain ICD-10 codes that signify severe illness and translate into a higher amount of money allotted to care for those patients, called Hierarchical Condition Category (HCC) codes. The American Academy of Family Physicians (AAFP) has excellent educational reviews on HCC codes on their website and in their Family Practice Management (FPM) journal. With capitation, the range of PMPM payments is much narrower than the example used above. Last time I checked it was anywhere between $10 per month for a young healthy patient and $28 per month for one with multiple comorbidities and the need for frequent visits.

Third: So What Do We Get Paid and Not Get Paid For?

This depends on the model. Each insurer will have a list of excluded codes. In my local partial capitation model, all sick visit codes, ie. 99211-99215, are excluded. We still need to bill for them and document accordingly, but we are not paid fee-for-service for these codes. Things like routine EKGs, UAs or PFTs may be excluded. Under our contract, preoperative exams are excluded as well. The PMPM payment is meant to absorb, or “pay for”, all of the non-covered visits. Physical exams, annual wellness exams, new patient visits, transition of care visits and most procedural codes continue to be paid for fee-for-service. There also may be incentive payments for meeting certain quality measures. Examples include patients with diabetes who have had an eye exam within the past year or the percentage of patients up to date on their colorectal cancer screening.

Final Thoughts: Real-Life Experience with Capitation

Moving from fee-for-service to PMPM payment brings flexibility. We no longer have to bring patients in “to get paid” as we are paid for their care even if done outside of the office. With increased availability, I can allot thirty minutes for complex medication management, see my transition of care visits within one week of hospital discharge and perform more procedures (for example, biopsies and suturing, which I enjoy). As medication checks and routine follow ups are not separately reimbursed, this frees doctors to be more creative with monitoring. I frequently use the patient portal for sharing labs while my patients can conveniently send me their home blood pressure or glucose readings.

As a primary care doctor who strongly believes in prevention, small bonuses for closing gaps in care are a welcome reward for me and lead to better health outcomes for my patients. Our membership in a strong local Independent Practice Association (IPA) was a huge driver of our ability to stay financially sound during capitation. We had care coordinators who worked directly with key office staff to disseminate information and close gaps in care.

I am thankful annual wellness exams continue to be a paid fee-for-service as I consider them a crucial opportunity for reviewing preventative screening and promoting a healthy lifestyle. I know that seeing patients within a week of discharge drops their risk of readmission, and remain appreciative that these time consuming transition of care visits are paid out separately.

Don’t Capsize Under Capitation.  

Arm yourself with information. Membership in a strong IPA is advantageous. Staying up to date on the changing CPT codes and national trends through reading practice management journals and connecting with other physicians through the Private Practice Physicians Facebook group has been invaluable. Adapt to stay financially afloat. For now, capitation works. But, each year, we reevaluate.

Lauren Kuwik, MD, is a medicine/pediatrics physician and a 2018–19 Doximity Author.

Image by LeoWolfert / Shutterstock


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