ARRS: The upside of capitation

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CHICAGO—It’s possible to survive and thrive under capitation, opined Fred Gaschen, MBA, with Radiological Associates of Sacramento (RAS) in Calif., during a Monday presentation at the annual meeting of the American Roentgen Ray Society (ARRS).

Sacramento is the HMO capital of the world, quipped Gaschen, who explained that 84 percent of the market was tied up in managed care (defined as HMOs and PPOs) in 1990s.

Executives and administrators at RAS read the writing on the wall in the late 1980s, and realized that HMOs and capitation were on the horizon. They accounted for anticipated changes in the strategic planning process.

"We knew companies would want low rates, geographic coverage and one-stop shopping and addressed these needs in the strategic plan development," explained Gaschen, emphasizing that access is key to capitation. RAS ensured access by merging with and purchasing other providers.

Gaschen outlined flaws in capitated contracts. Specifically, he asserted, “The number one problem with a capitated contract is that increasing utilization decreases the value of the contract.”

RAS employed a multi-faceted approach to control utilization. The practice refers to internally developed guidelines to help hold the line on increasing utilization.

On the other side of the equation, RAS negotiated a sliding scale, or capitated fee-for-service, model with its contracts. Rates are set based on utilization at a single point in time and then renegotiated every six months based on the prior six months’ data. The strategy, said Gaschen, protects the practice from the deleterious financial effects of overutilization.

Gaschen offered a host of positives about capitation. He explained:

  • It’s not going away in Sacramento; however, numbers are declining because employers are gravitating toward high-deductible/high-co-pay products.
  • Sliding scale, fee-for-service capitation offers a degree of control and protection.
  • Capitation provides a pull-through effect. That is, referring providers also send Medicare and other patients to the practice.
  • The practice is paid prior to delivery of services.
  • Competition is reduced.

Practice management in a capitated model

RAS has tweaked several practice management strategies to ensure survival.

For example, every six months the practice calculates percent positive to utilization ratios on a physician basis and shares the data with referring practices. Referring practices can use the data to educate physicians and may address physicians who fall into the low positive yield/high utilization quadrant.

RAS also employs concerted marketing efforts to solidify its position in the community. To capitalize on the power of mothers as the decision-maker for family imaging services, the practices focused on its mammography program, developing nice facilities and splurging on amenities.

In addition, the practice developed “customer service training program with teeth,” stated Gaschen, providing customer service training for all employees and tying 40 percent of annual evaluation points to customer service.

A final, key initiative, opined Gaschen, is to get radiologists to start giving referring physicians what they want. The practice uses marketing specialists to gather such information from referring providers.

Gaschen closed with a brief look into the crystal ball, focusing on Jan. 1, 2012. “ACOs will not be capitation,” he said. “Patients will be able to choose where they go. Direct-to-consumer marketing will play a larger role.”