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In addition to fee-for-service, which continues to be the dominant reimbursement model in the United States, other methods exist and new models are emerging as the healthcare industry attempts to deal with sky-rocketing medical costs. Here we'll look at capitated reimbursement models and accountable care organizations.


Capitation is a reimbursement model in which a provider is paid a set amount for each enrolled patient that is assigned to them regardless of whether or not the patient seeks care. So while a capitated provider will most likely be reimbursed less for a patient who utilizes care frequently than under fee-for-service, the provider will also be reimbursed for low utilizers and patients who never seek care. In effect, the provider shares in the risk of keeping his or her patients healthy, so many capitated providers are strong advocates for preventive health services. Maybe the most widely known example of a capitation healthcare delivery model is the Kaiser Permanente (KP) HMO. Kaiser Permanente operates what they refer to as an integrated health system, meaning that KP provides both the insurance plan and the medical care for their members. So under the umbrella of Kaiser Permanente sits two sides. One side operates the KP health insurance plan and hires the majority of KP's staff, and the other side is the KP medical group comprised of all the KP physicians. The KP physicians provide services to members covered under KP health insurance plans on a capitated basis, so they are reimbursed a set amount per member as opposed to being reimbursed for individual procedures that are provided. Kaiser Permanente is only one example. HMO's, Independent Physician Associations (IPA's), and other managed care organizations operate under capitated agreements in many markets and in a variety of ways.

A common criticism of fee-for-service reimbursement is that it encourages providers to offer as many services as possible in order to maximize payment. Add to this that patients who are shielded from healthcare costs by their insurance will typically welcome any procedure that might be beneficial, and it can be argued that you've created incentives for unnecessary care. On the other hand, a common criticism of capitation is that it discourages providers from providing services, including those that are necessary, due to the fact that they are reimbursed the same amount regardless of the number of services provided. Recognizing the imperfections of these systems, Medicare and other healthcare advocates have begun developing new reimbursement models, the most well known being Accountable Care Organizations (ACO's).

Accountable Care Organizations (ACO's)

An Accountable Care Organization (ACO) can be generally defined as a team of doctors, hospitals, and other providers that come together to offer coordinated, efficient, and effective care and have the opportunity to share in the cost savings that they generate for Medicare. Current ACO's may utilize multiple reimbursement models, including fee-for-service and capitation, but the ACO model ties into Medicare's efforts to move away from fee-for-service and toward bundled payments for episodes of care (e.g. the Bundled Payment for Care Improvement (BCPI) Initiative). Medicare fee-for-service providers that are interested in becoming an ACO utilize what's known as the Medicare Shared Savings Program. ACO's were created as part of the Affordable Care Act, and one of their primary goals is to get patients the care they need while eliminating wasteful duplication of services and reducing hospitalizations. Medicare is testing out the ACO concept with a group of early adopters in what's known as the Pioneer ACO Model that kicked off in January of 2012. 32 participants began in the Pioneer ACO Model, and as of October 2013, 23 remain. CMS has also begun the Advance Payment ACO Model, which is designed for physician-owned and rural practices and offers participants upfront and monthly payments that they can use to enhance their care coordintaiton infrastructure. The jury is still out on whether ACO's will be a long-term, viable reimbursement model, but they are a significant topic of conversation in the healthcare industry today.

Essential QSA Knowledge

Capitation differs from fee-for-service in that capitated providers receive a set payment amount per patient assigned to them as opposed to reimbursement by service. The capitated fee is paid whether the patient seeks care or not. Accountable Care Organizations (ACO's) represent a fairly new reimbursement model in which coordinated care teams work together to reduce healthcare costs and are financially rewarded if and when they do so.

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