- Providers need to gain an understanding of the demographics of the members that will be part of their network so they can evaluate the cost of delivering service. In the world of capitation, the goal is to control costs. You, as the provider, bear the risk if the capitated payments are not sufficient to cover the cost of service provision.
- Providers need to project costs they will incur. By understanding your cost structure, you are in a better position to determine if the capitated rates that you are being offered are appropriate.
- Providers need to make sure they have in place strong accrual-based accounting records to be able to track incurred, but not yet recorded claims based upon actuarial calculations so that they can monitor actual costs against capitated revenue.
- Providers need to make sure their capitated contract provides a regular, predictable payment stream so they have the funds necessary to cover costs.
- Providers need to make sure they properly consider carveouts and mitigate risk through stop-loss coverage.
- Providers should understand what services are included in the capitated agreement. Are they only services offered by the provider, or will the provider also be responsible for services rendered by others?
- Providers need to understand the time-frame of the coverage period. Are they responsible for services after an employee’s termination?
All of this requires access to information. Take the time to understand your practice and the frequency at which patients visit you. Make sure you have in place accurate accrual-based accounting systems (most physicians maintain their records on the cash basis) to ensure you truly understand practice costs. Determine what level of care is too much for you to provide to one patient so you can mitigate the risk through stop-loss insurance coverage. Assess your internal expertise and capabilities and consider bringing on additional external support where internal expertise does not exist (budgeting and forecasting, cost accounting, contract reviews, etc.). Providers need to take the time to fully understand the contract they are entering into and how the services they provide compare to the services they are required to provide.
Physicians are, once again, receiving invitations from commercial payers to enter into capitated arrangements. Governmental payers and federal policymakers are also reconsidering the possibilities of capitation as a means of controlling the growth of health care costs. In order to make capitation work, providers need to properly plan and prepare for it. If they do not, the consequences can be drastic.
Kenneth R. Cerini, CPA, CFP, FABFA
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.