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Pricing strategies for capitated delivery systems.

L Gruenberg, S S Wallack, C P Tompkins

    Health Care Financing Review
    |December 11, 1985
    PubMed
    Summary
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    This study proposes fairer Medicare pricing for health maintenance organizations (HMOs) by adjusting for enrollee health status and sharing financial risk. Current methods are inadequate, potentially leading to underservice and higher costs.

    Area of Science:

    • Health economics
    • Healthcare policy
    • Medicare reform

    Background:

    • Current Medicare pricing for competitive medical plans (CMPs) and health maintenance organizations (HMOs) uses the adjusted average per capita cost (AAPC) method.
    • The AAPC method inadequately adjusts for health status differences among enrollees.
    • This inadequacy creates incentives for underservice and links payments to the inefficient fee-for-service system.

    Purpose of the Study:

    • To discuss alternative Medicare pricing mechanisms for HMOs and CMPs.
    • To identify flaws in the current AAPC pricing model.
    • To propose improvements for a fairer and more efficient Medicare payment system.

    Main Methods:

    • Analysis of the current Medicare pricing structure for HMOs and CMPs.

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  • Identification of limitations in the adjusted average per capita cost (AAPC) method.
  • Conceptualization of alternative risk-sharing and experience-based payment models.

    • Main Results:

    • The AAPC method fails to account for health status, leading to potential adverse selection and underservice.
    • Current pricing is tied to fee-for-service costs, which may not reflect the actual costs in managed care settings.
    • Alternative methods could improve fairness and efficiency by incorporating health status and risk-sharing.

    Conclusions:

    • Revising Medicare's payment methodology is crucial for equitable pricing in managed care.
    • Alternative models incorporating health status and risk-sharing offer a more robust framework than AAPC.
    • Implementing experience-based payments could align incentives and improve the quality of care for Medicare beneficiaries in HMOs.