Capitation tossed as HMO market dries up

A Cincinnati group's shift from full capitation to full fee for service is an example of changes in some regions from managed care to PPOs.

By Mike Norbut, AMNews staff. Feb. 23, 2004.

Because it started as a staff-model HMO 30 years ago, Cincinnati-based Group Health Associates wasn't ready to pull up its capitation roots with the first market tremor.

That tremor, however, became a full-fledged quake over the last few years as employers started looking for ways to avoid dramatic premium increases and consumers started looking for more choice, despite the added cost. PPOs were growing, and the HMO market was simply drying up.

Over the course of two years, Group Health, which found comfort and success in managing risk, went from a fully capitated practice to one that accepted only fee-for-service contracts.

"We found if we stuck with capitation, we would be all dressed up with nowhere to go," said Patrick Tellez, MD, CEO of Group Health Associates. "We would have had the best buggy whip in the world."

The experience of Group Health, which has more than 100 physicians in most specialties, is a fairly extreme example of the evolution -- or de-evolution, in the mind of some physicians -- of health insurance across the country. Few practices have gone from one end of the spectrum to the other in such a short time, but many have opened up more to PPO patients simply out of necessity.

The PPO plan has gained market share at the expense of HMOs over the past decade. The American Assn. of PPOs reported more than 112 million people are enrolled in PPOs around the country as of Feb. 2002, and that number is expected to increase when new figures are released this year. The association also points to Mercer's National Survey of Employer-sponsored Health Plans, which reported that 49% of all people with insurance were enrolled in a PPO, compared with 31% in an HMO and 14% in a point-of-service plan.