The business model for health and human service organizations is changing. Traditionally, payers reimburse for the cost of the services delivered – or for the volume of services delivered. But the new models are linking health plan and provider organization reimbursement to value – incorporating cost, consumer health outcomes, and consumer experience into the payment equation. There is a continuum of reimbursement arrangements moving from paying for volume to paying for value – with capitation rates that are based on performance at the “most advanced” end of the scale (see The Business Model Transition To Value-Based Care).
In terms of market evolution, it appears that the use of capitation as a reimbursement model is on the increasing, though the model has changed. The traditional specialty-specific carve-out model (for behavioral health, radiology, etc.) is being replaced by the use of these risk-based arrangements for care coordination (When You’ve Seen One Health Home, You’ve Seen One Health Home and Health Homes Go Private!), with full-risk models for specific populations ( The New Carve-Out & More Seismic Change, and Rhode Island To Launch Phase Two Of Care Coordination Model For Dual Eligibles), and within payer/ACO arrangements (see Brief: Care Coordination for Dual-Eligible Beneficiaries: Evaluation Special Needs Plans’ Models of Care and Dual Eligible Demonstrations: Where Are We 4 Years Later?).
So what does this use of the word capitation mean? The term “capitation” is from the Latin root meaning “head.” In health and human service financing, it means getting paid per head – and you most commonly see the term “per member per month” or “PMPM.” The math is simple. An organizations gets paid a fixed amount for everyone in a population and is responsible for managing and paying for all of their service needs. If the amount of services demanded and provided by the population is less than the capitation amount, the organization experiences “positive variance” and makes money. If the amount of services demanded and provided by the population costs more than the capitation amount, there is “negative variance.” This financial situation calls for “population health management” in order to succeed. (For more, see Understanding The “Risk” In An “At-Risk” Contract and Financing In Flux: Succeeding In The Era Of Value-Based Contracting.)
So what are the keys to managing a capitation contract? Debbie Cagle, Chief Marketing Officer at Centerstone and Jeff Richardson, Executive Director of Mosaic Community Services spoke about their experiences managing capitated contracts during the session, The Key To Successful Management Of Capitated Contracts – led by OPEN MINDS Senior Associate Joe Naughton-Travers at The 2016 OPEN MINDS Performance Management Institute.
Ms. Cagle described two pending capitated contracts – in Tennessee, Centerstone will receive a capitated rate to provide care coordination services to individuals enrolled in the state’s new health home initiative and in Florida, Centerstone has a capitated contract with a health plan for Medicaid behavioral health services. In Tennessee, Centerstone will receive a capitated rate to provide care coordination services to Medicaid beneficiaries with a serious mental illness (SMI) of all ages who are enrolled in the state’s new Medicaid health home initiative. Centerstone will receive a per member per month fee based on acuity – however, the rates have not yet been established. The program will go live in October 2016, and Centerstone will manage 8,000 beneficiaries to start. In Florida, Centerstone has a capitated contract with a managed care organization (MCO) to provide behavioral health services (including outpatient, inpatient, residential, crisis stabilization, and targeted case management services) to all Medicaid beneficiaries (beneficiaries or all ages and those with and without a SMI) in region six of the state (Tampa-area). The capitation rate will vary based on whether a beneficiary has a diagnosed SMI. The program will be effective March 1, 2016, and Centerstone will share the population in the region with other community mental health centers (CMHCs).
Mr. Richardson described Chesapeake Connections, a capitated pilot program for individuals with SMI. The program provides Medicaid behavioral health services to individuals with SMI in the city of Baltimore. Mosaic receives a single rate inclusive of state general funds and Medicaid funds to cover all behavioral health services for individuals including up to 30 days for psychiatric inpatient costs. The program has two rates one for Medicaid and/or uninsured individuals, which is $2,410 per member per month (PMPM) and another rate for individuals who also have Medicare coverage which is $2,259 PMPM.
What was their advice on successfully managing capitation?
- Do your homework before signing the contract
- Put the right organizational culture in place
- Balance your monthly costs and financial reserves
Do your homework before signing the contract: Both Ms. Cagle and Mr. Richardson stressed the importance of vetting the contract before agreeing to a capitated rate. Ms. Cagle said that you must have someone look over the contract who understands the legal terminology, this is new territory for many provider organizations and they may not have the in-house expertise to understand what they are signing. Mr. Richardson stressed the importance of running the math and models beforehand to make sure you can actually afford to operate the contract.
Organizational Culture: Both Ms. Cagle and Mr. Richardson spoke to the importance of creating a culture that supports capitation. Ms. Cagle stated that when transitioning to a capitated rate, it is really important to have internal champions to lead workforce transitions. Mr. Richardson, also stated that it can be difficult to maintain the culture needed to be successful in a capitated environment when other areas of the organization are still operating under a fee-for-service model.
Balance your monthly costs and financial reserves: Mr. Richardson noted that one of the hardest elements of operating a capitated contract is managing the monthly costs while formulating reserves. Some years and months, individuals are healthy and costs are below the capitation rate, but that doesn’t mean in another month or year members won’t get sick and exceed the capitation rate. The trick is being able to provide needed services while still building a reserve.
For more on the changing reimbursement landscape, be sure to join my colleague Joseph P. Naughton-Travers, Senior Associate, OPEN MINDS for his session on June 8 at The 2016 OPEN MINDS Strategy & Innovation Institute, How To Move From Idea To Action: A Guide To Building Successful Partnerships With Managed Care Organizations.