Discuss problems that MCOs have experienced when implementing capitation arrangements in specialty-care practices.

The textbook explains that capitation is prepayment for services on a per-member per-month (PMPM) basis. In other words, a physician is paid the same amount of money every month for a member regardless of whether that member receives services or not and regardless of how expensive those services are.

It further explains that although many practices have now acclimated to capitation, there is a feeling that capitation is really funny money. When PCPs are receiving a capitation payment of $15, this is sometimes unconsciously (or consciously) confused with the office charge. In their minds, it appears as though everyone is coming in for service and demanding the most expensive care possible, all for an office charge of $15 It is easy to forget that many of the members who have signed up with that physician are not even coming in at all. It only takes 10% of the members to come in once per month to make it seem as if there is a never-ending stream of entitled demanders in the waiting room. The best approach to this is to make sure that the plan collects data on encounters so that the actual reimbursement per visit can be calculated.

(Kongstvedt p. 97, 115-116)

Providers often don’t see the benefit of getting paid regardless if the patient come to the office or not but at the same time they must remember to realize this can be considered a little “LANGIAPPE”. When patients do come in is to collect the appropriate information in order to be reimbursed. Peer review is a good way to keep documentation of this. We utilized this in our clinic on the Navy side. There were two purposes to this. First, we had opened services to dependents as well as Active Duty. We were always excessively busy and wanted to ensure that our clinic was receiving correct compensation for the services which were being rendered. Secondly to ensure that the care which was being provided was appropriate for the needs of the patient.

Chance is the most common problem with capitation because when there are not enough members in a physician’s base this cause too much finanical risk. The solution is to spread the risk for expensive procedures throug risk sharing.and use stop loss protection. In relation to MCOs this is an ACUTE problem and the way it is handled is through pursuading the providers to use FFS for a short time until they can get their member count up. If a specialist is to contract with an MCO, he or she must accept a number of somewhat unpalatable changes in the way the practice will be managed. These include most significantly, reductions in reimbursement levels, access to patients controlled through primary care gatekeepers, and increased administrative requirements necessary to perform effectively in a managed care environment. However, despite all these onerous changes, specialists must wake up and smell the coffee. Increased participation in managed care is critical to the success of their practice. Accepting a capitation to guarantee volume and ensure income will be a necessary part of a specialist’s business plan in the 2000’s.


Specialists assume much of the same risk of capitation as PCPs. However, because of their access to and utilization of more expensive services, the costs of providing services tend to be much higher for specialists than for PCPs. When capitation brings down specialists’ income, it’s usually for the same reasons primary-care physicians have found: the rate is too low, the number of referrals has surpassed expectations, or the contract requires too many services. If specialist and primary-care services aren’t clearly defined, primary-care physicians will tend to refer excessively. This can lead to a phenomenon called “specialist-dumping,” where a few capitated specialists are overwhelmed with large numbers of MCO members. In such cases, they can rapidly blow through their capitation payments for the year (and even the withhold funds as well). This causes specialists to lose financially due to excessive risk. Capitation arrangements in specialty care practices, puts the specialists at a greater risk. Julie, you mentioned “specialist dumping;” and I found that very interesting. This is when the patients are fearful of the risk that can be manifested from an overutilization by the PCPs. These constraints lead to more financial costs.

Kongstvedt, P. (2007). Essentials of Managed Health Care (5th ed). Jones & Bartlett Publishers. Retrieved from http://devry.vitalsource.com/books/9780763797928

MCO agreed to fixed premium for the purpose of all medical care which provides for government, third party or commercial company. MCO must share the risk called capitation. MCO faced problem when implementing capitation when arranging specialty care practices. MCO designs specialty network which causes referral relationship more difficult to maintain. Also, many times based upon the pressure MCO place upon physician, through referrals and utilization management process by requiring higher level of managed care. Many physicians are not familiar with this process so they do not like it. I think it is a good idea to have some types of check and balance for physicians and hospital to make sure the patient is not over charged and follow strict medical practices and follow right standards.


Discuss problems that MCOs have experienced when implementing capitation arrangements in specialty-care practices Answer