How Capitated Payments prompt Payer, Provider Innovation
A robust and efficient healthcare system is needed for providing enhanced healthcare quality and reduced care costs for its consumers. As more and more firms today indulge in value-based services, payment models based on value-based services are also on the rise. In the past years, the healthcare industry had worked on the Pay-per-service model, where the patients were charged on a per-service basis. This type of payment model led to inflated costs as healthcare providers often introduced extra services that were inappropriate or unnecessary for the patients, and led to the accumulation of high prices. This has led payers to encourage the use of the Capitation payment model.
Capitated Payments Model: An Overview
The Capitation payment model has been introduced in the healthcare sector as an improved model of reimbursement. This type of payment allows care providers to receive a definite amount of money on a per-patient basis. This amount is extended as an advance payment, for a defined fixed time, whether the member takes the services or not. Based on this payment model, the patients with less care service utilization will compensate for the patients with higher utilization and thus high costs of healthcare.
The capitated payment model is thus a quality-based payment model where providers get reimbursed based on the number of procedures carried out for a patient in a definite period. This system creates cost-control and better health care opportunities.
Capitation Payments in Healthcare: Features and Services
Capitation payments are agreed upon between the medical service provider and the health care company with the help of a capitated contract. Thus, the hospital, clinic, or doctor receives fixed, pre-arranged monthly payments for every patient enrolled in that health plan. The charges are calculated in advance and remain fixed for the contract year. The prices do not change for that year, even if the patient requires services multiple times.
The capitated payment rates vary from one region to the other and do not stay uniform as they are determined based on local costs of service utilization. Many capitated plans also keep a portion of the capitation payment in a kind of a “risk pool”. The money in this risk pool is kept safe and not distributed to the medical providers until the financial year ends. This pool is a type of contingency fund where the money is kept to pay for any deficit in the care expenses.
The capitation amount is determined by the number of services provided by the PMPM or per member per month method. It will vary from one health plan to the other, and the ratio of payment rate to the period is based on a rate known as the capitation rate. Generally, most payment plans following the capitation payment model for healthcare care services include specific services that need to be provided to the patients as per the contract, like:
- Preventive medical, treatment, and diagnostic services
- Immunizations, Injections, and medications administered in the office
- Outpatient laboratory tests
- Health awareness and counseling services performed in the office
- Routine check-ups for hearing and vision
Advantages of Capitation Payments
Capitation payments work on a value-aided payment model. This model follows rigorous reimbursement guidelines. These checks help payers reduce any inflated healthcare costs, thus promoting value-based care outcomes. The healthcare providers cannot receive more than the fixed rate for care, even if the patient’s care cost exceeds the capitation amount or the “cap.” Overall, the Capitation system of payments provides specific certain advantages and benefits.
- This is so far the most effective method to keep healthcare costs under check.
- Since the healthcare providers do not have to wait for the billing cycle to be completed for payments as they are paid in advance. This gives them the freedom to plan their activities as they know about the intended cash influx.
- This method saves costs for unnecessary billing and accounting per patient.
- It increases the healthcare quality as providers also include preventive care and wellness programs, which lead to cost control by effective health management in advance.
- This method considerably reduces the cost of unnecessary medical procedures that the patient may be charged for, which prevents the healthcare from resulting in exorbitant expenses.
Capitation payments have now been incorporated in both private and public payer payments to address healthcare challenges.
How Capitated Payments are great for commercialized players
Capitated payment-based payment models prove to be ideal for commercialized payers who intend to engage in value-added care payment contracts with providers. Companies can resort to a calculated proportion of capitated payments and performance incentives for providers that can help them save the high care costs for various members, whether commercial, high-risk, or the average–risk Medicare members.
Health care companies can expect to get high returns by leveraging the use of capitated payments for health services. On the other hand, payers can incorporate value-based medical insurance systems with prior authorization features along with these payments, and provider performance incentives. This will result in opportunities for cost reduction, which is otherwise challenging to maintain in a large population of high-risk patients.
A capitation payment system not only keeps a check on high costs and wasteful utilization of healthcare services but also promotes efficient quality of healthcare. This payment model holds the provider entirely accountable for all the services provided. Physicians would thus automatically limit unnecessary care, thereby reducing care costs. The overall effect is an empowered health care system with reasonable healthcare outcomes. As providers drive for service excellence, patients’ relationships become respectable, paving the way for health care reforms.
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