Capitated Arrangements: IT’s On-Going Battle
By Michael J. Landers
Senior Consultant
Beacon Partners, Inc.

Managing capitated arrangements requires comprehensive reporting to track utilization and profitability. This creates an on-going management dilemma for IT and associated business departments in the health care industry and many headaches for IT administrators, who are responsible for providing vital statistics on the outcomes of these arrangements. Additionally, in many instances, capitated arrangements are entered into without the parties responsible for negotiating the arrangement having a thorough understanding of the contract definition - further complicating an already cumbersome process.

All this confusion and uncertainty places considerable pressure on system administrators to develop effective monitoring tools to enable measurement of profits obtained from capitated services. IT Departments often receive frantic requests for data to decipher expected returns or lack of returns from specific health plans - sometimes considerably after the arrangement became effective.

As a result, software vendors have been forced to revamp standard reporting packages to include reports that monitor physician productivity. Other reporting needs in high demand include those that monitor patient utilization and track individual patient visits to providers within an organization. This data may be used later by the medical group or health plan when categorizing certain patients. Patient premiums may also be impacted by what is viewed as “excessive” use of the system.

Internally, IT analysts must create reports that monitor the number of patients seen who are covered under capitated arrangements. In order to determine profitability from participating in this type of arrangement, capitated dollars must be compared to dollars that would have been received if the services were billed on a Fee for Service basis. Based on these reports, administrators and contract managers must determine to what extent contracts should be modified when renegotiating or determining if this type of contract fits the needs of the group practice. Providing accurate data, performing on-going system training and allowing for rapid response to contract definition/maintenance issues are ways that IT assists Business Operations in dealing with the day-to-day issues that arise with capitated contracts. Without effective management tools and the more extensive these agreements are within the organization, the more widespread the resulting fiscal headaches.

In addition, there has been considerable frustration from an account management standpoint as to how capitated dollars should be posted. Business office managers have had to create procedural workarounds to deal with placement of these remittances. Often “dummy” accounts are configured to post capitated receipts, as these payments are generally received in bulk on a monthly or quarterly basis. The charges incurred against individual patients are then adjusted against a designated code and subtracted from the total capitation payment received to help determine profitability.

Under a capitated arrangement the provider is paid a negotiated flat fee amount by the managed care organization for overseeing the care of numerous patients. This group of patients is known as a “Panel”. The provider is paid a Per Member, Per Month (“PMPM”) amount even if the member never presents for services. It’s hit or miss as to how this arrangement may benefit the provider from a fiscal standpoint - hence the frustration of IT and business administrators in trying to justify this type of arrangement through reporting tools. In the best-case scenario for practices, the provider is compensated a substantial amount monthly while seeing a limited number of patients.

Understanding the implications of capitation on provider practices is important to developing effective tools to manage the process. When providers become part of a managed care organization (“MCO”), they must work within a designated network of providers. This entails referring patients only to specialists who are also part of the MCO’s network. Substantial financial penalties can be imposed on both provider and patient for seeking care with a specialist outside of the network. Health care administrators have long wrestled with referral tracking tools to determine physician referral patterns. With heavy administrative burden placed on physicians involved in managed care contracts, there is little incentive for the provider to see a high volume of patients, as payment is not the full Fee for Service amount. Many providers may opt to consult via telephone for less serious patient concerns as opposed to requiring that the patient be seen. This practice has also resulted in the need for development of tracking mechanisms to determine both patient utilization and physician activity.

The presence of capitated arrangements has been responsible for a host of headaches for physicians, administrators and patients alike. Issues ranging from physician productivity and financial feasibility of contracts to patient care concerns have all emerged with the evolution of this model. With capitation having become more common during the past decade, the playing field has shifted not only regarding the quality of patient care but also with creating the dilemma of how these contracts should be administered and tracked. While not the responsibility of IT departments to facilitate the administration process, more often than not, the creation of tracking mechanisms does land in their court. In order to avoid eleventh-hour crisis management, IT departments can be proactive in preparing for the arrival of new managed care contracts by working extensively upfront with business operations and contract managers. A series of scheduled meetings in anticipation of new contracts, as well as a designated point person to address issues that may arise in both administration and IT, can help lessen the impact of implementing and supporting these products. Proactive steps may help in determining both immediate and long-term reporting needs as well as specific reports that can be used in a decision support capacity when reviewing contracts for profitability.

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About the Author
Michael Landers is a Senior Consultant with Beacon Partners based in Norwell, MA. He has over 14 years of experience in various health care information systems environments. Mr. Lander’s experience includes physician system implementations and upgrades, reengineering of physician practices and implementations of managed care systems. He is well versed in the operations of billing and accounts receivable, electronic data interchange products, and HIPAA EDI assessments. Mr. Landers can be reached at 781-982-8400 ext. 454, or mlanders@beaconpartners.com.

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