Percent-of-premium capitation yields mixed results in a Rhode Island case study.

Area of Science:

• Health economics
• Healthcare management
• Managed care organizations

Background:

• In 1996, Harvard Pilgrim Health Care of New England (HPHC-NE) partnered with five Rhode Island Physician Hospital Organizations (PHOs).
• These partnerships involved six percent-of-premium arrangements and capitation fees.
• The goal was to manage healthcare costs and utilization through joint ventures.

Purpose of the Study:

• To evaluate the financial performance and utilization outcomes of these PHO joint venture agreements.
• To identify factors influencing the success or failure of these innovative payment models.

Main Methods:

• Analysis of six percent-of-premium arrangements with PHOs.
• Inclusion of demographic, benefit, and group size adjustments in financial calculations.
• Monitoring of per-member-per-month capitation fees.

Main Results:

• All six joint ventures incurred losses exceeding withhold amounts in the first year.
• Despite improved communication and reduced inpatient utilization, financial losses persisted.
• Key contributing factors included market premium pressures, risk pool dynamics, and data limitations.

Conclusions:

• The initial percent-of-premium arrangements between HPHC-NE and Rhode Island PHOs proved financially unsustainable.
• Challenges in data availability and market conditions significantly impacted the outcomes.
• Further analysis is needed to refine risk-sharing models in managed care.