CapitationCapitation. Determination of Premium Rates Benefit Payments –Paid to providers Risk...
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Transcript of CapitationCapitation. Determination of Premium Rates Benefit Payments –Paid to providers Risk...
![Page 1: CapitationCapitation. Determination of Premium Rates Benefit Payments –Paid to providers Risk Premiums –Profit earned by payer as a function of accepting.](https://reader030.fdocuments.net/reader030/viewer/2022032518/56649ccb5503460f94994680/html5/thumbnails/1.jpg)
CapitationCapitation
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Determination of Premium Determination of Premium RatesRates
Determination of Premium Determination of Premium RatesRates
• Benefit Payments–Paid to providers
• Risk Premiums–Profit earned by payer as a function of
accepting financial risk
• Administrative Costs –Claims processing, marketing, insurance
coverage, etc.
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Determination of Premium Determination of Premium RatesRates
Determination of Premium Determination of Premium RatesRates
• Marketing Expenses– Intangibles (i.e. market power, good
service)
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Definition of a Stop LossDefinition of a Stop LossDefinition of a Stop LossDefinition of a Stop Loss
• Specific Stop Loss–Severity of claims
• Aggregate Stop Loss–Frequency of claims
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Corridors & Trends To Specific Corridors & Trends To Specific and Aggregate Stop Lossand Aggregate Stop Loss
Corridors & Trends To Specific Corridors & Trends To Specific and Aggregate Stop Lossand Aggregate Stop Loss
• Trends–Measured by Utilization Level &
Charges
–Related to Aggregate Stop Loss
• Corridors–Refers to Costly Claims Requiring LCM
Intervention
–Refers to Specific Stop Loss
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Risk RatingRisk RatingRisk RatingRisk Rating
• Process of adjusting healthcare utilization for demographic factors and other factors
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Other Factors Affecting Other Factors Affecting Healthcare UtilizationHealthcare Utilization
Other Factors Affecting Other Factors Affecting Healthcare UtilizationHealthcare Utilization
• Income–Wealthier use more services
• Education–More educated use more services
• Type of Employer–Manufacturing, healthcare, and
unionized workers use more services
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Other Factors Affecting Other Factors Affecting Healthcare UtilizationHealthcare Utilization
Other Factors Affecting Other Factors Affecting Healthcare UtilizationHealthcare Utilization
• Location–Urban residents use more services
• Benefit Design–Copays & deductibles affect utilization
• Sex–Women use more services
–Men have more catastrophic care
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Other Factors Affecting Other Factors Affecting Healthcare UtilizationHealthcare Utilization
Other Factors Affecting Other Factors Affecting Healthcare UtilizationHealthcare Utilization
• Age–0-17 yrs. has lowest utilization
–Utilization increases for 18-34 yrs.
–Utilization decreases for 35-44 yrs.
–Utilization rapidly increases for 44+ yrs.
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Causes of Financial Risk in Causes of Financial Risk in CapitationCapitation
Causes of Financial Risk in Causes of Financial Risk in CapitationCapitation
• Adverse Selection–Occurs when a group’s characteristics
predispose them towards higher than predicted utilization
• Random Nature of Healthcare Demand–Much of utilization results from
random events (i.e. epidemics, accidents, etc.)
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Causes of Financial Risk in Causes of Financial Risk in CapitationCapitation
Causes of Financial Risk in Causes of Financial Risk in CapitationCapitation
• Law of Large Numbers– Increased risk with smaller groups
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Effects of CapitationEffects of CapitationEffects of CapitationEffects of Capitation
• Gatekeeper
• Transfer of Risk–Payer to provider
• Utilization Ground Rules
• Specialty Referrals–Reverse Capitation
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Effects of CapitationEffects of CapitationEffects of CapitationEffects of Capitation
• Pressure for Fee Reductions– Increased likelihood that specialists
are capitated
– Increased pressures for sub-capitation, carve outs, and disease management
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Process of Calculating a Risk Process of Calculating a Risk Contract PMPM Rates Using a Contract PMPM Rates Using a
Capitation ModelCapitation Model
Process of Calculating a Risk Process of Calculating a Risk Contract PMPM Rates Using a Contract PMPM Rates Using a
Capitation ModelCapitation Model1Define services included in the
capitation contract
2Risk adjust medical services
3 Identify other variables in PMPM premium rate model
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Process of Calculating a Risk Process of Calculating a Risk Contract PMPM Rates Using a Contract PMPM Rates Using a
Capitation ModelCapitation Model
Process of Calculating a Risk Process of Calculating a Risk Contract PMPM Rates Using a Contract PMPM Rates Using a
Capitation ModelCapitation Model4Adjust for current demographic
factors for this health plan– Inflation factor
–Premium rate structure & rates at respective levels
–Community rating flexibility
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Process of Calculating a Risk Process of Calculating a Risk Contract PMPM Rates Using a Contract PMPM Rates Using a
Capitation ModelCapitation Model
Process of Calculating a Risk Process of Calculating a Risk Contract PMPM Rates Using a Contract PMPM Rates Using a
Capitation ModelCapitation Model5Continuous assessment of key
managed care performance indicators–Membership
– Inpatient care
–Ambulatory care
–Financials
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Process of Calculating a Risk Process of Calculating a Risk Contract PMPM Rates Using a Contract PMPM Rates Using a
Capitation ModelCapitation Model
Process of Calculating a Risk Process of Calculating a Risk Contract PMPM Rates Using a Contract PMPM Rates Using a
Capitation ModelCapitation Model6Adjust for variances in key
indicators–Physician mix
–Level of services
–Level of integration under capitation contract
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Average Benefit PaymentsAverage Benefit Payments
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Average Benefit PaymentsAverage Benefit PaymentsAverage Benefit PaymentsAverage Benefit Payments
• Total benefit payments usually account for approximately 70-90% of the premium
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Average Benefit PaymentsAverage Benefit PaymentsAverage Benefit PaymentsAverage Benefit Payments
• Breakdown for a typical group of insureds during a policy year:–500 of 1,000 = No claims
–375 of 1,000 = Payments of $0-$500
–2 of 1,000 = Payments of >$10,000
–Average cost of providing care per insured = $560 per policy year
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Operational ExampleOperational ExampleOperational ExampleOperational Example
• 1,000 insureds at following premiums:–Employee only coverage = $120/month• With 400 lives = $48,000/month
–Employee + 1 or more = $350/month• With 600 lives = $210,000/month
–Total premium per month = $258,000 • $3,096,000 annualized
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Operational ExampleOperational ExampleOperational ExampleOperational Example
• Average claims = $560 x 1,000 employees
= $560,00 pre-shock losses
• Two shock losses at $1M & $500K
• Surplus = ($3,096,000 - $560,000 - $1M - $5K)
= $1,036,000
–Covers other operating expenses such as cost of reinsurance, administrative overhead, acquisition costs, etc.
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Operational ExampleOperational ExampleOperational ExampleOperational Example
• Operating costs = 20% of total premiums
customarily = $619,200
• Pre-tax surplus = $1,036,000 - $619,200
= $416,800
= 13.5%
• After tax profit = $416,800 x .61
= $254,248
• Return on total premium = 8%
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Are Withholds Ethical or Are Withholds Ethical or Unethical?Unethical?
Are Withholds Ethical or Are Withholds Ethical or Unethical?Unethical?
• Clinical protocols–Can reduce liability exposures
–Must make changes when dictated by indication & necessity
• Professional liability exposures–Claims denials
–Failure to provide coverage
–Abandonment of patient
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Requirements for Transition to Requirements for Transition to CapitationCapitation
Requirements for Transition to Requirements for Transition to CapitationCapitation
• Align financial incentives
• Develop primary care driven medical groups
• Establish long-term preferred relationships
• Decentralize medical management
• Develop a continuous improvement process
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Calculation of Basic Capitation Calculation of Basic Capitation RateRate
Calculation of Basic Capitation Calculation of Basic Capitation RateRate
Routine Office Visit: Example #1• Primary care practice receives $45/visit• Average of 3 visits PMPY• 3 visits x $45/visit = $135 PMPY• $135 PMPY/12 months = $11.25 PMPM
(Approximate Cap Rate)
• 2,000 subscribers assigned to the practice • 2,000 ss x $11.25 PMPM = $22,500/month• $22,500/month x 12 months = $270,000 per year
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Calculation of Basic Capitation Calculation of Basic Capitation RateRate
Calculation of Basic Capitation Calculation of Basic Capitation RateRate
Routine Office Visit: Example #2• Primary care practice receives $45/visit • Members pays $10 copay/visit• Average of 3 visits PMPY• 3 visits x ($45/visit - $10 copay/visit) = $105 PMPY• $105 PMPY/12 months = $8.75 PMPM
(Approximate Cap Rate)• 2,000 subscribers assigned to the practice • 2,000 ss x $8.75 PMPM = $17,500/month
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Calculation of Basic Capitation Calculation of Basic Capitation RateRate
Calculation of Basic Capitation Calculation of Basic Capitation RateRate
Routine Office Visit: Example #2 (cont.)
• $17,500/month x 12 months = $210,000/ year• Add projected copay of patients– 2,000 ss with 3 visits PMPY = 6,000 visits/year– 6,000 visits x $10 copay/visit = $60,000 copay/yr
• $210,000/yr + $60,000 copay/yr = $270,000/yr
Example #2 has become the prevalent method. Why?
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Calculation of WithholdCalculation of WithholdCalculation of WithholdCalculation of Withhold
Using Examples #1 & #2• Withhold policy of managed care company is
20% of total reimbursement• Under Example #1, net reimbursement after
withhold is calculated as follows:
$22,500 x 20% = $4,500/month x 12 months
= $54,000/year
Net reimbursement from MCO = $216,000/yr
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Calculation of WithholdCalculation of WithholdCalculation of WithholdCalculation of Withhold
Using Examples #1 & #2 (cont.)
• Under Example #2, net reimbursement after withhold is calculated as follow:
$17,500 x 20% = $3,500/month x 12 months
= $42,000/year
Net reimbursement from MCO = $168,000/yr
• Which practice is better off financially? Why?
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Liability and Compliance Liability and Compliance IssuesIssues
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Liability Exposure Among Liability Exposure Among MCOsMCOs
Liability Exposure Among Liability Exposure Among MCOsMCOs
• Negligent credentialling &/or provider selection
• Network development
• Vicarious liability
• Utilization review
• Warranties
• Financial incentives
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Types of Liability Coverage Types of Liability Coverage Required by MCOsRequired by MCOs
Types of Liability Coverage Types of Liability Coverage Required by MCOsRequired by MCOs
• Medical Professional Liability Coverage–Claims made vs. occurrence from
coverage
–Covers direct patient care
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Types of Liability Coverage Types of Liability Coverage Required by MCOsRequired by MCOs
Types of Liability Coverage Types of Liability Coverage Required by MCOsRequired by MCOs
• Directors and Officers Liability Insurance–Decisions and policies– Two types• Managed Care D & O
• Corporate D & O
• Managed Care Professional Liability Coverage–Covers sale of MCO products & services to
third parties