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63% Capitation Needed to Sustain Primary Care Transformation

A study indicates that high levels of capitation are needed to financially sustain team- and non-visit-based care in primary care practices.

Capitation payments and practice transformation

Source: Thinkstock

By Jacqueline LaPointe

new study in Health Affairs found that 63 percent of primary care patients need to be under a capitation payment model to sufficiently fund the practice's transformation to population health managementincluding team- and non-visit-based care. 

Using a validated microsimulation model for over 40,000 primary care practices that collectively employed almost 241,000 full time-equivalent (FTE) physicians, researchers found that 95 percent of practices would gain revenue by shifting to team- and non-visit-based care as long as the practice was above 63 percent capitation. 

In contrast, 95 percent of simulated practices would lose revenue if less than 23 percent of patients were under a capitation payment model. 

Primary care rests at the center of value-based purchasing reform. Care delivery and reimbursement models, such as the patient-centered medical home, aim to increase a primary care practice's capacity to provide patient-centered care to a larger number of patients. 

However, the rising chronic disease burden and the shrinking primary care workforce spurred reform efforts to emphasize team- and non-visit-based care.  

READ MORE: Key Capabilities for Population-Based Alternative Payment Models

The population health management strategies may boost primary care access and convenience of care for patients. But traditional fee-for-service payment structures do not reimburse practices for team- or non-visit-based care. 

Under some value-based purchasing models, payers have offered the practices capitation payments to allow the practices to manage additional patients using non-traditional care delivery methods. Researchers explored to what degree shifting to the reimbursement approach would help primary care practices fund and sustain team- and non-visit-based care. 

In the simulated model, researchers uncovered that each FTE internal medicine physician conducted an average of 3,776 visits per year for 1,684 unique patients under the traditional fee-for-service payment model. The physician grossed an average of $530,181 annually in visit-based revenue. 

Under the fee-for-service arrangement, medical services also cost about $451,893 per FTE physician, including compensation for providers and support staff, benefits, and overhead costs. 

As a result, net annual surplus per FTE physician was $78,288 under fee-for-service payments. 

READ MORE: Understanding the Value-Based Reimbursement Model Landscape

By shifting to population-based care, the simulation showed that 20 percent of primary care visits would be replaced by alternative visit types, with 10.9 percent of all annual physician visits categorized as low-complexity chronic care appointments and 9.1 percent defined as low-complexity acute care visits. 

With office visit time freed up by replacing low-complexity appointments with alternative visits types, primary care practices increased the number of unique patients seen annually to 2,017, representing a 20 percent growth. 

However, the new revenue earned from seeing additional patients did not exceed the costs of alternative visit types when practices received fee-for-service payments. Population-based care reduced the net surplus to $35,890, roughly a $42,400 decline per FTE physician. 

Primary care practices only started to see their profitability increase with population-based care when they received capitation payments. As practices experienced greater unique patient volume, the organizations received more per-member-per-month payments and reported fewer opportunity costs for deferring office visits. 

After implementing team- and non-visit-based care under capitation payments, annual net surplus per physician rose from $35,890 under the fee-for-service model to $120,654 at 50 percent of patients under the capitation payments. 

READ MORE: Best Practices for Value-Based Purchasing Implementation

The annual net surplus continued to increase as more patients enrolled in the capitated payment plans, with the surplus reaching $205,418 with all patients under the model. 

The primary care practices could financially sustain team- and non-visited-based care as long as over 23 percent of patients enrolled in plans with capitation payments. 

But the threshold for financial sustainability shifted when researchers added a shared savings component to the capitation payments. If practices received a bonus of 0.6 percent of their total medical spending for capitated payments, net surplus per year per physician grew by an additional $59,823 at full capitation. 

With shared savings opportunities, 95 percent of practices would increase revenue with over 56 percent of patients under capitation. 

As new payment models encourage primary care practices to shift to team- and non-visit-based care, our study suggests that relatively high levels of capitation might be required for such changes to be financially sustainable for those practices,” researchers stated. 

They also noted that their findings are key to the new Comprehensive Primary Care Plus (CPC+) initiative, a multi-payer alternative payment model run by CMS that aims to support primary care practices as they implement patient-centered, population-based care delivery. 

CMS plans to support the transformation by shifting over 5,000 practices to capitation payments by January 2017. CPC+ practices can either receive 40 percent or 65 percent capitation. They can also earn a shared savings bonus. 

The study's results indicated that the 65 percent capitation track would be a viable financial track for practices seeking to sustain the shift to team- and non-visit-based care. 

Although, researchers noted that other factors, such as patient safety, health outcomes, workflow improvements, and physician satisfaction, would also influence a practice's decision to implement more population-based care.

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