Capitation at the crossroads: The trend back to fee for service

HMOs are de-emphasizing capitation in the face of physician resistance. But even some doctors say that might not be a good idea.

By Leigh Page, AMNews staff. March 5, 2001.

Managed Care: What's Next?"
With the managed care system drawing complaints from all quarters, doctors, patients, payers and even insurers themselves found themselves looking for alternatives to a concept that hadn't met its promise of improving care while reducing costs. This 2000-02 occasional series highlighted what physicians and others were doing to come up with a way to improve the system -- or replace it with something else.

After years of trying to keep physicians under capitation, HMOs are taking the lid off and letting them switch back to fee-for-service reimbursements.

Among just the large health plans, Aetna Inc., UnitedHealthcare, Cigna HealthCare, PacifiCare Health Systems and Coventry Health Care, all have acknowledged that they are moving some HMO contracts from fixed per-member, per-month payments under capitation to fee-for-service claims that doctors must submit for each procedure.

Physicians are leaving capitation because they lost money on it, disliked its emphasis on cost containment and saw new opportunities in fee-for-service medicine. In addition to the shift in HMO contracts, fee for service is riding a boom in preferred provider organizations. PPO enrollment swelled to 106.8 million in 1999, surpassing that of HMOs for the first time, according to the American Assn. of PPOs.

Health plans, for their part, have concluded that doctors' hostility about capitation was bad business. Also, they are facing class action lawsuits that challenge financial incentives including capitation. And in any case, plans say improvements in their utilization data make it easier to manage financial risk themselves without having to hand it over to doctors.

The results are showing up in surveys. The Medical Group Management Assn. reports that the proportion of multispecialty practices with capitated contracts fell from 68% in 1996 to 58.3% in 2000. And Dave Gans, MGMA's director of survey operations, said he expected that rate to continue falling to 40% in the next year or two. [...]