Practice Management Alert

Capitation was a commonly heard word in the billing world in the 1990s, but it fell out of use several years ago. With Blue Cross and Blue Shield of Massachusetts- new plan to stop paying doctors and hospitals for each patient visit or treatment and instead pay doctors and hospitals a flat sum per patient each year, capitation is in the billing forefront again.

Now's the time to make sure you know the ins and outs. Take a look at this capitation FAQ to learn the capitation basics.

Capitation is a payment method in which the payer reimburses the provider a fixed amount per month for every member of the health plan panel to whom they provide some type of service, says Peter Lucash, MBA, MPH, a medical practice consultant and trainer in Charleston, S.C., who writes the "Medical Practice Business Blog" at http://www.allbusines.com/11417 and is the author of Medical Practice Business Plan Workbook -- 2nd edition.

The payer reimburses the provider at set intervals throughout the year, as set up in the capitation contract -- usually monthly, quarterly, semiannually, or annually. Under capitation the contracted payer reimburses you based on the number of patients covered in the contract (by head) rather than by the number of services your physician provides.

Example: You bill for an internist. Health Plan A has 1,000 members who are assigned to your provider as their primary-care physician. Based on your contract with Health Plan A, your office gets a check for $15 per member each month, or $15,000 per month. This is known as "per member per month" (PMPM), Lucash says. Some months the internist sees 50 patients from this panel, and in the height of the flu season he-ll see 275 per month. "You will get the same check, regardless of the services rendered to this group, more or less," Lucash says.

Under capitation, you have to track services for the panel and will probably have to submit claims, even though the payer won't pay you on a per-claim basis, Lucash says.

"That said, there may be services that are not covered by the contract and for which you will be paid in addition to the capitation fee," he adds. Flu shots are often an example of these non-contract-covered, or carve-out, services.

Tip: Check to see how your billing software deals with capitation claims. "Some software, if set up correctly, will adjust off all of the charges at the time of posting and leave the patient's copay," says Melinda S. Brown, CMBS, insurance biller for a primary-care provider in Kennewick, Wash. "However, I had to set up a separate insurance carrier (plan) -Ins X Capitated- and -Ins X.- I can control my posting by carrier, so I set up Ins X Capitated to adjust off."

Best practice: Be sure to review your explanations of benefits even though you-re not getting reimbursement on a claim-by-claim basis. The payer could still inaccurately process your payments even when you-re paid on the PMPM system.

Yes. You still submit claims to secondary insurance even if you have a capitation contract with the primary insurance. "I find that many other commercial/PPO insurances don't have a clue what capitation means," Brown says. "It totally depends on the claims handler you get on the other end and whether they were trained to know what capitation is and how to handle claims that went to capitation."

Best bet: Include a statement with the claim you send to the secondary payer explaining that the physician receives payment under a capitation contract from the primary insurance company. Make sure the secondary payer understands that just because the explanation of benefits from the primary payer shows no payment, that doesn't mean the claim is invalid.

Caution: To get paid at secondary, you-ll still need the explanation of benefits from the primary payer. If the primary payer, which you-re capitated with, doesn't automatically provide the EOB, you need to work something out with the payer, or the secondary payer may not pay you.

Before signing a capitation contract with any payer, thoroughly read that contract. Follow these best practices:

- Get a handle on your costs. Use relative value units (RVUs) "as the means of putting a -cost- on each service you provide," Lucash says.

- Continue to code and enter the data on all patient encounters. Even though you may not generate a claim from every service for the payer, you should be monitoring all of the provider's services. This will help you monitor quality of care and help you see if the capitation contract is in fact profitable for the group as a whole, Lucash says.

- Do not agree to be the party responsible for paying other providers.

- Know your capitation contract limits. For example, to ensure you-ll deliver quality services, you should limit the number of patients you-re under contract for.

- Calculate your profit and loss for each capitated contract. To do this, determine your delivered cost of services and compare that to what you-re getting paid under the capitated contract. If you see a problem,

re-evaluate having the capitation contract or find a way to make capitation more profitable. For example, by having registered nurses doing triage and scheduling patients, you may be able to avoid some patient visits and reduce utilization.