The road to capitation

Physician groups who consider expanding capitated payment agreements should know about some pitfalls

AT IKP FAMILY MEDICINE, a 10-provider practice in northwest Houston, the sudden, forced switch to video visits amid the COVID-19 pandemic could have been a disaster, as some patients are in their 80s and 90s and still use flip phones.

Fortunately, IKP has been reimbursed in part through capitated models for at least 16 years, so its doctors are used to treating patients however it makes sense for them, without worrying about how they’ll get paid. When a 92-year-old patient recently needed a medication refill but was terrified to come in for fear of getting COVID, for example, Dr. Timothy Irvine simply called her to sort it out.

“With a capitated model, you’re trying to take care of the patient the best way you can,” said Irvine, who founded the practice with two other physicians. “You don’t have these financial hurdles you have to get across to take care of the patient.”

Not only that, it was a dependable revenue stream even when patient visits plummeted, he said.

The pandemic has laid bare the vulnerability and waste associated with the traditional fee-forservice model, which is how most primary-care physicians are still paid, and has underscored the benefits of the increasingly enticing world of value-based care, wherein doctors receive set payments for managing patients’ health and

have more flexibility in how they do that.

But experts caution this isn’t the sort of arrangement a practice can go into on a whim. There are logistical hurdles, state and federal regulations, existing insurance contracts and cultural issues to consider.

“In theory it sounds so simple, and it’s extremely complicated,” said Tracy Watrous, vice president of the Medical Group Management Association.

Where to start

For starters, most experts advise against diving directly into the most extreme form of value-based care—full capitation, in which a provider is paid a set rate to care for a group of patients—if that provider has never done value-based care.

A better place to start might be shared-savings programs, which are closely associated with Medicare but can also be done through commercial insurers. That’s when providers are rewarded for meeting certain quality and financial metrics. Some carry upside risk only and others include some degree of downside risk.

Moving into capitated models—in which physician groups receive pre-arranged payments to care for a group of patients and risk losing money if their costs exceed those payments—is where it gets complicated.

States have a mishmash of different regulations for providers who assume downside risk. Some treat providers, or so-called risk-bearing entities, the same as insurers, which means they must maintain a set amount of financial reserves and go through an onerous registration process similar to that of an insurer. In some cases, semi-annual filings are required, including fees and ownership disclosure.

The purpose is to prevent a repeat of what happened in the 1990s, Watrous said. That was when some providers who dived headfirst into full-risk arrangements subsequently went bankrupt or out of business, putting insurance companies on the hook for huge losses. After that, the federal and state governments implemented regulations designed to require providers assuming financial risk to have the same level of reserves as insurers, Watrous said.

The problem, though, is there’s no alignment across states in terms of the criteria providers have to meet, said François de Brantes, senior vice president of episodes of care for Signify Health, a company that designs and administers episodic payment programs for third-party payers, employers and providers. “It’s very, very frustrating for those of us who are trying to work through these value-based payment arrangements,” de Brantes said.

It’s also an impediment to national employers and health plans who want to spread value-based payments nationwide, he said. He hopes the federal government or another organization works to harmonize those rules.

It’s not an issue that’s divided along political lines, either. A blue state like Connecticut, for example, has fairly loose regulations on risk-taking providers, while nearby in New Jersey, also blue, the regulations are very strict, de Brantes said. California is known for being particularly strict, while Washington state has little or no regulation, he said.

In states that are more lax, de Brantes said, he believes providers are better off not asking anyone and going ahead with their risk arrangement.

“Just wait until someone comes knocking on your door,” he said. “In fact, no one is going to come knocking on your door.”

If providers do consult the state’s insurance regulators, they run the risk of encountering someone who doesn’t know the difference between insurance risk and a risk-bearing provider, which means the regulator would direct the provider to jump through the same 20 hoops insurers do. That could mean months’ worth of lawyers’ time explaining to the regulator why they’re not an insurer.

State regs offer clear-cut path

It might actually be easier for providers to do risk arrangements in states with regulations, because there is at least a clear-cut path, said Nesrin Tift, a member of Bass, Berry & Sims who specializes in healthcare compliance, reimbursement and fraud.

“It can be trickier in states where insurance law is grayer on what constitutes risk, and there is an element of having to sort of carve the path themselves and then potentially be subject to regulation at the state insurance level,” she said.

No matter what state a provider is in, they’ll have to consider fraud and abuse laws governing the relationships between physicians and their referral sources to get a sense for how risk pools can be shared, Tift said.

Some experts recommend providers rely on the insurers with whom they’re entering capitated agreements to ensure they comply with the relevant state regulations, as those carriers are likely to be well-versed in the rules. That’s with the important caveat that providers have their own legal counsel review any contracts before signing them.

Kari Hedges, senior vice president of commercial markets and enterprise data solutions with the Blue Cross and Blue Shield Association, said she agrees the insurer can help a provider understand how contracts should be structured and how to comply with relevant regulations, including from CMS for Medicare programs.

Piedmont Health Care CEO Jeff Smith thinks that’s a bad idea. His North Carolina multispecialty group—which has more than 200 providers and is not affiliated with the not-forprofit Georgia health system of the same name—is fiercely

I’ve never known an insurance company that was looking out for the provider, ever. So I think that is just a horrible plan.”

Jeff Smith CEO Piedmont Health Care

independent. While it has started looking at downside risk arrangements, so far it’s assuming only upside risk.

Smith is skeptical of relying on insurers because he views entering risk-based contracts like buying a used car, wherein each party is trying to get the best deal for itself. He said he doesn’t trust an insurer to act in the interest of a provider. “I’ve never known an insurance company that was looking out for the provider, ever,” Smith said. “So I think that is just a horrible plan.”

Smith fears smaller providers might get financially dinged if they rely too heavily on insurers to shape their plans, which could force them to merge with a bigger practice or sell to a company that aggregates regional practices nationally.

Beyond the regulatory hurdles, providing care under a capitated model is simply a massive logistical undertaking for providers when they first start assuming risk. That includes an internal examination of their data analytics and their ability to manage patients and expenses to a budget, said Andréa Caballero, program director at Catalyst for Payment Reform. “If they’re not used to doing that, that could be a major thing they need to implement before you could convert,” she said.

That means having a sophisticated system that’s able to track a set of patients and remind them to get necessary screenings and other services at the appropriate intervals. That often means hiring new staff members specifically for those tasks.

Not only that, but moving from a fee-for-service practice to one that manages the health of a population requires a cultural shift.

Tough for small or midsize groups

All of this makes it incredibly difficult for small or even midsized physician groups to enter risk agreements on their own. Instead, many join independent practice associations, accountable care organizations or management services organizations, who develop the agreements on their behalf.

For IKP Family Medicine in Texas, that means a Cigna subsidiary called CareAllies, which oversees value-based payment contracts for more than 9,000 physicians nationwide. CareAllies helps providers undergo a “paradigm shift” away from being paid per visit to being paid based on outcomes, said Dr. Joseph Nicholson, CareAllies’ chief medical officer.

“It becomes a bit of a sea change intellectually in the approach to the patient for some practices,” he said. “The heavier the reliance they’ve had on a traditional fee-forservice system, the more training and education and cajoling it takes to bring them down the line.” ●