Pharmaceutical cost growth under capitation: a case study

Rising drug spending has generated concern among purchasers and policymakers. This paper compares drug cost growth in a capitated system with that in managed care systems that generally did not place physicians directly at risk for drug spending. We focus on cost growth because a substantial body of literature indicates that managed care interventions that reduce the level of costs may not influence the rate of cost growth. Drug cost growth under capitation initially was below that of other systems but still above targeted rates. Over time the capitation rates rose, the amount of risk transferred to physicians declined, and spending growth accelerated.