Adapting Capitation Payment

Dr. Sam Ho described how PacifiCare Health System has developed a payment structure that rewards quality care provided by the 700 medical groups with which the plan contracts. PacifiCare pays the majority of medical groups by capitation for all professional services. Hospitals are also paid predominantly through capitation. The health plan retains risk for certain hospital, pharmacy, and ancillary services (e.g., durable medical equipment). The core of the system is a report card program that provides quality performance information to both physicians and consumers. The provider profile contains about 80 measures enabling medical groups to compare their own performance over time, as well as with regional and national benchmarks. The consumer-focused performance report currently contains 32 indicators, with more being added each year. Preliminary analysis conducted by PacifiCare indicates that the medical groups with higher scores on “best practice” are seeing statistically significant increases in membership and high member retention rates.

Two specific elements of the PacifiCare approach are worth noting. First, the approach focuses on the availability of data, relying on depth and breadth of data. Second, much of the information is directed toward consumers as decision makers. Rather than being directed at selection of a health plan, the information is at the medical group level, where consumers can evaluate their own trade-offs among cost, quality, access, and any other dimensions of importance to them.

Adapting Blended Payment Methods

Ann Robinow of the Buyers Health Care Action Group, Minneapolis, Minnesota, described what some have termed a direct contracting approach. The group contracts with “care systems,” defined as groups of primary care physicians and affiliated specialists and facilities that could assume responsibility for the provision of a full continuum of care (Christianson et al., 1999). Payment is blended in that a budget target is set prospectively and adjusted retrospectively. Each year, care systems set a financial target for all care to enrollees (including pharmacy) that becomes the price to consumers and the benchmark for financial performance. The prices are risk adjusted every quarter using ACGs by comparing the care system’s performance for the most recent 12-month period with the target (Christianson et al., 1999), which is adjusted each quarter to reflect the relative illness burden of patients during the same time period for which financial information is being collected. Because it is a claims-based system in which each employer pays its own fees, fee levels are increased or decreased over time so that the fees approximate the target submitted (fees increase if the organization is below target and decrease if the target is exceeded). Consumers receive comparative information at the care system level. Ms. Robinow indicated that the group’s own analysis indicates people are moving from the higher-cost to the

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