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

In 1996, Harvard Pilgrim Health Care of New England (HPHC-NE) established six percent-of-premium arrangements with five Rhode Island PHOs. Each PHO received a percentage of the regional earned premium amounts for members who selected a primary care physician affiliated with it, adjusted for member demographics, benefit differences, and group size. Each of these six joint venture agreements also incorporated a per-member-per-month capitation fee. Despite improved communication between the PHOs and the plan and inpatient utilization reductions, all six joint ventures experienced losses beyond the withhold amounts during the first year of the arrangement. Factors affecting the medical utilization and financial results included market pressure on premium levels; risk pool size and adverse selection; and lack of timely, complete, and reliable financial and utilization data.