Pros and Cons of a Healthcare Capitation Payment System

The areas of improvement cited include videoconferencing for outpatient visits and home telemonitoring. The payment amount a provider receives per month depends on several factors, including average care costs in their location as well as their enrolled patients’ ages and genders. These payments aren’t determined by the type of care patients receive, unlike fee-for-service medical billing structures. This is the most common type of agreement that you see being used by managed care organizations like an HMO that pays a physician or a group of physicians for care to be provided to the HMO’s members. Dr. Joseph understands why different types of capitation work better with different healthcare systems. But he asks his new practice what the incentives are for using a healthcare capitation model.

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. Alleviating these costs and hassles can allow a practice to treat more patients at a lower overall operating expense. Projected profitability for this model is ultimately based on how much health care the group is likely to need. Given that patients with pre-existing conditions will be often mixed with younger, healthier ones, the expected profits can sometimes converge from the actual profit. If an individual patient utilizes $2,000 worth of healthcare services, the practice would end up losing $1,500 on that patient. On the other hand, if an individual uses only $10 worth of healthcare services, the doctor would stand to make a profit of $490.

  • Verywell Health content is rigorously reviewed by a team of qualified and experienced fact checkers.
  • Medisys Data Solutions Inc. provides best value comprehensive solutions to medical practices, including Medical Billing, Medical Coding, and Credentialing.
  • Provider revenues are fixed, and each enrolled patient makes a claim against the full resources of the provider.
  • Historical fee-for-service information provides the basis for defining capitation models.
  • The main difference between a healthcare capitation program and a fee-for-service model is in the way that payment is made.

Healthcare systems and providers focus on population-level issues to reduce their expenses. As part of this effort, it is often high-cost services that are ‘leaned’ down first. With a strategic focus on all covered lives within the network, there can be patients who slip through the cracks and a perceived reduction in individualized capitation in medical billing care. An example of a capitation model would be an IPA which negotiates a fee of $500 per year per patient with an approved PCP. For an HMO group comprised of 1,000 patients, the PCP would be paid $500,000 per year and, in return, be expected to supply all authorized medical services to the 1,000 patients for that year.

Example of a Capitation Payment

If a non-physician performs the comprehensive visit for the month, it should then be billable under his/her individual PIN. All healthcare providers included in the care must be a partner, an employee of the same group practice, or an employee of the MCP physician or practitioner. Partial capitation is more flexible and only covers certain types of services while also accepting fee-for-service for other services. Providers are reimbursed with a monthly rate per patient member regardless of how many services individual patients receive.

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capitation in medical billing

Some insurance like Medicare automatically transfers the pending balance to the secondary payer if the patient has any. This procedure is termed as Crossover which reduces the work of the billing office. We are a group of medical billing experts who offer comprehensive billing and coding services to doctors, physicians & hospitals. The first is where the provider is paid directly by the insurer, also called a primary capitation.

Medical Marketing Services for Providers

The primary care provider receives a certain amount of money for each member enrolled in the health care plan, and the provider agrees to take care of their covered medical needs for this amount. A “Capitation Agreement” is essentially a contract that is entered into by a pool of similar healthcare providers and the payer institutions that their network works with. It establishes rate details and other covenants that govern specific terms of service. This capitation agreement might also include a list of specialized services that can be provided to patients by the health plan. Secondary capitation is somewhat of a hybrid between the primary and partial models.

Capitation payment is the amount paid per person in advance and is based on various factors, including average expected healthcare utilization of the members as well as the local costs of medical services. Primary capitation is a relationship between a managed care organization and primary care physician , in which the PCP is paid directly by the MCO for those enrolled members who have selected the physician as their provider. Each visit must be face-to-face by a physician, nurse practitioner, clinical nurse specialist, or by a physician assistant. However, the physician or practitioner who provides the comprehensive assessment for the month is the physician the bill should be under.

It alleviates the risk of excessive billing for procedures that may or may not be necessary. The groups most likely to benefit from a healthcare capitation system are the HMOs and IPAs. Medicare is a U.S. government program providing health insurance mostly to people 65 and older. The idea is that not all patients will use $400 in services over the course of the year.

Keep up on our always evolving healthcare industry rules and regulations and industry updates. The main benefit to the patient is the avoidance of unnecessary and often time-consuming procedures that may trigger higher out-of-pocket expenses. Marley Hall is a writer and fact checker who is certified in clinical and translational research. Her work has been published in medical journals in the field of surgery, and she has received numerous awards for publication in education. Verywell Health content is rigorously reviewed by a team of qualified and experienced fact checkers. Fact checkers review articles for factual accuracy, relevance, and timeliness.

Issues and Instructions for Typical AR and Denial Management Scenarios

This approach reimburses the primary care physician/group for each of the covered lives and requires that they act as a coordinator for additional care within the model. The Capitation model medical billing contracts are entered into by the healthcare provider and the payer to set up rates and other contact details. Health insurance companies use capitation payments to control health care costs. Capitation payments control the use of healthcare resources by putting the physician at financial risk for patient services. Healthcare providers in the past have run on a fee-for-service payment model, which reimburses medical providers based on the number and type of services that they provide to each patient. Under the Medicare Access and CHIP Reauthorization Act of however, healthcare providers are expected to evolve to a model that focuses on a quality of care.

capitation in medical billing

See Bundling, Fee for service, HMO, Medicare risk contract, Per diem, PMPM, PPO, Rate setting. If the patient is enrolled with the secondary payor then the balance is billed to it. Generally for secondary billing the claim must be submitted along with the primary payor’s EOB.

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To increase profitability, a medical practice may alter how it would otherwise treat a patient or instigate policies that actively exclude procedures to which the patient may be entitled. It becomes a form of healthcare rationing by which the overall level of care may be reduced to achieve greater financial gain. A health insurance deductible is the amount of money you must pay out of pocket each year before your insurance plan benefits kick in.

Providers may look to increase profitability under the capitation model by cutting down on the time that patients see the doctor. Health care providers often “carve out” services they aren’t experienced at managing. These services also protect public health care providers, which often specialize in carved-out care. So providers can receive more money for some members, particularly those at higher risk of needing more involved medical care. The specific amount of the payment is defined in the capitation agreement. This number is based on local medical costs, so it may vary from region to region.

As a personal finance writer, her expertise includes money management and insurance-related topics. DisclaimerAll content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional. Unfortunately, capitation-based reimbursement is not the rosy perfect solution everyone was looking for. Offering guidance on clinical use cases, technology, regulations and waivers, and billing and coding. Please reach out and we would do the investigation and remove the article.

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