Partial Capitation for Healthcare in the Aftermath of COVID-19

The Coronavirus (COVID-19) pandemic has served as a stunning reminder of both the critical role that healthcare plays in society and the inherent risks associated with working with sick patients. 

At the same time, this crisis has already left an indelible mark on the economics of healthcare.  Ironically, amid unprecedented demand for ICU beds and nurses and doctors to care for those who are sick, the halt in elective procedures and routine outpatient care have wreaked economic havoc on both hospitals and physician practices.  

In our blog on April 7, we explored the possibility that capitation will see a resurgence in the post-COVID-19 pandemic “new normal.”  But capitation is a fairly drastic step, and may feel to some like jumping off a cliff. In reality, there are a variety of ways to move incrementally toward capitation and begin to shield your practice from a singular dependence on fee-for-service (FFS). 

Currently, most value-based contracts deliver shared savings payouts in the year following the performance year. This puts providers in the uncomfortable position of potentially forfeiting current revenue for the possibility of future, unknown reward. An alternative approach that can be negotiated is a partial capitation arrangement. ¹This could take the form of a blend of FFS payments with monthly prepayments.  Imagine a primary care group with 10,000 patients that average 2.5 visits per year at $80 per visit resulting in $2 million in revenue.  A breakeven conversion might involve a monthly “patient management” payment of $5 per patient combined with a 30 percent reduction in reimbursement for visits. In this scenario, the provider would receive $50,000 monthly as a prepayment to help cover overhead, with FFS making up the other $1.4 million over the course of the year. This blended payment method would stabilize the provider’s revenue stream by dampening the impact of variability in patient encounters.

Over time, a higher percentage of the payment could be converted to these monthly “patient management” fees and those payments could be adjusted up or down based on performance measures. By gradually diminishing the focus on encounter-based services, practices would have time to adapt workflows to include virtual visits and population management, while reassessing their long-term space requirements and staffing models. This gradual approach also enables both payers and providers to learn as they go, so they can pause, accelerate, or reverse course as needed.  

As providers move increasingly toward prepayment, they can be rewarded for maximizing efficiency and effectiveness of their services to patients. They can set themselves up for success by maximizing gainshare opportunities related to cost control, clinical quality, and patient satisfaction, even as they create opportunities to efficiently grow their patient base.

There are a variety of other approaches to partial capitation and bundled payments that lessen a somewhat singular focus on procedures. While there are still hurdles for providers and payers to overcome to implement these payment models, the current COVID-19 pandemic will likely increase stakeholders’ appetites to explore better and safer ways to finance healthcare.  

¹http://www.chqpr.org/downloads/PartialCapitationPaymentforACO.pdf