Fully Capitated Payment Breakeven Rate for a Mid-Size Pediatric Practice

Payers are implementing alternative payment models that attempt to align payment with high-value care. This study calculates the breakeven capitated payment rate for a midsize pediatric practice and explores how several different staffing scenarios affect the rate.

We supplemented a literature review and data from >200 practices with interviews of practice administrators, physicians, and payers to construct an income statement for a hypothetical, independent, midsize pediatric practice in fee-for-service. The practice was transitioned to full capitation to calculate the breakeven capitated rate, holding all practice parameters constant. Panel size, overhead, physician salary, and staffing ratios were varied to assess their impact on the breakeven per-member per-month (PMPM) rate. Finally, payment rates from an existing health plan were applied to the practice.

The calculated breakeven PMPM was $24.10. When an economic simulation allowed core practice parameters to vary across a broad range, 80% of practices broke even with a PMPM of $35.00. The breakeven PMPM increased by 12% ($3.00) when the staffing ratio increased by 25% and increased by 23% ($5.50) when the staffing ratio increased by 38%. The practice was viable, even with primary care medical home staffing ratios, when rates from a real-world payer were applied.

Practices are more likely to succeed in capitated models if pediatricians understand how these models alter practice finances. Staffing changes that are common in patient-centered medical home models increased the breakeven capitated rate. The degree to which team-based care will increase panel size and offset increased cost is unknown.