Capitation pricing: adjusting for prior utilization and physician discretion

Area of Science:

• Health economics
• Healthcare policy
• Medical economics

Background:

• Medicare beneficiaries in at-risk capitation arrangements are increasing.
• Current methods for setting payment rates, like the adjusted average per capita cost (AAPCC), face scrutiny.
• Modifications, including prior utilization adjustments, have been proposed for AAPCC.

Purpose of the Study:

• To propose a modified utilization adjustment for Medicare capitation payment rates.
• To address limitations of the current AAPCC methodology.
• To develop a more accurate and equitable payment rate adjustment model.

Main Methods:

• Proposed a utilization adjustment incorporating only hospitalizations with low or moderate physician discretion.
• Analyzed the impact of this modification on payment rate accuracy.
• Compared the explanatory power of the proposed model to the current AAPCC.

Main Results:

• The proposed utilization adjustment avoids discrimination against capitated systems that manage discretionary admissions.
• The new model explains a greater variance in per capita expenditures compared to the current AAPCC.
• This modification offers a more nuanced approach to utilization adjustment.

Conclusions:

• The proposed utilization adjustment offers a more equitable and accurate method for setting Medicare capitation payment rates.
• This approach better accounts for physician discretion in hospitalizations.
• The refined AAPCC methodology improves the financial stewardship of capitated healthcare systems.