Pricing strategies for capitated delivery systems

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.
• 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.