PHYSICIAN GROUPS: Risk is Ruining Some, But Helping Quality
Is capitation a blessing or a curse? Declining reimbursement rates in California have pushed many of the state's medical groups into the red, but some industry insiders continue to defend capitation as an effective means of reducing waste and the tool that could ultimately improve the overall health of the state's physician groups, reports the current issue of California Medicine. On the negative side, the California Medical Association argues that rock-bottom rates -- down to $75 per member per month for global risk contracts in markets like Los Angeles and San Francisco -- have led one in three state physician groups to fail since 1996 and could force the "imminent collapse" of other physician networks. BBA reforms are compounding the problem, as physicians, still smarting from capital losses incurred by the MedPartners' sudden withdrawal and the FPA's bankruptcy, find themselves no longer able to shift costs from low-paying commercial contracts to Medicare and MediCal. The CMA has sponsored three legislative proposals that seek to soften capitation's blow by regulating risk contracting structures, but only one -- a measure mandating minimum solvency standards for risk-bearing groups -- has become law. Meanwhile, health plans are hiking employer premiums by 10% to cover losses but are sharing as little as 3% of those increases with physicians. In defense, California Association of Health Plans officials note that more than 60% of health plans in the state had profit margins of just 2% or less last year and contend it is poor management, not insurer efforts to withhold reimbursement, that is destroying medical groups.
Capitation Pays Off for Larger Groups
Proponents of capitation say that despite the low rates, capitation's motives are on target and the market is in the midst of an "inevitably painful transition into a bright new era for California doctors." The payment scheme is creating a financial climate that favors larger, well-organized physician groups and could ultimately lead insurers to adjust rates based on individual groups' quality rankings, they argue. One study showed that out of California's 300 delegated physician groups with capitated contracts, only 17% -- mostly very large groups with more than 20,000 enrollees -- control 70% of the capitated environment, leaving smaller groups struggling. For example, San Ramon-based Hill Physicians Medical Group, a 2,500-physician IPA that boasts enrollment of more than 360,000 members, saw $2.3 million in net income last year. But the group's CEO says the keys to such success, such as improving quality, lowering costs, implementing best practice guidelines and improving administrative infrastructures, may not be within reach for smaller physician groups who lack capital.
'Recasting the Players'
Some industry leaders speculate that today's market conditions will begin to level the playing field, forcing smaller groups to merge into larger entities. Health plans of the future, in turn, will raise their standards and begin limiting contracts to a smaller number of groups that have distinguished themselves as well-managed, financially stable organizations. Ultimately, differential payment structures that would reward better- performing groups with increased reimbursement could reform capitation, although observers quickly caution that quality-based payment models are controversial and too difficult to implement in the current market. Consumers could be the driving force in introducing quality-based pay scales: The rise of the Internet will allow increasingly savvy consumers to assume some health care purchasing decisions from employers, a shift that would likely raise the premium placed on high-quality providers (Hagland, October/November issue).