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Related Experiment Videos

Medicare risk contracting. Lessons from an unsuccessful demonstration.

G R Nycz, F J Wenzel, R J Freisinger

    JAMA
    |February 6, 1987
    PubMed
    Summary

    Medicare capitation financing demonstrations revealed significant financial losses due to inadequate reimbursement. The adjusted average per capita cost method failed to account for key risk factors, ultimately proving unsustainable for efficient healthcare delivery.

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    Area of Science:

    • Health economics
    • Healthcare policy
    • Public health

    Background:

    • The Tax Equity and Fiscal Responsibility Act of 1982 introduced Medicare risk capitation financing for Health Maintenance Organizations (HMOs) and Competitive Medical Plans (CMPs).
    • Demonstration projects were implemented to test this financing model.
    • Final regulations were published in January 1985.

    Purpose of the Study:

    • To evaluate the financial viability and operational challenges of Medicare risk capitation financing.
    • To assess the effectiveness of the adjusted average per capita cost (AAPCC) reimbursement method.

    Main Methods:

    • Analysis of a 28-month demonstration project in Marshfield, Wisconsin.
    • Examination of enrollment data, financial performance, and hospital utilization rates.

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  • Review of reimbursement mechanisms and their impact on program costs.

    • Main Results:

    • The Marshfield demonstration incurred aggregate losses exceeding $3 million (11.6% of revenue).
    • Despite stringent utilization reviews and a decline in hospital days, federal reimbursement was insufficient.
    • Enrollment reached 37% of resident beneficiaries.

    Conclusions:

    • The adjusted average per capita cost reimbursement method inadequately addresses enrollment selection, unmet medical needs, and regional cost variations.
    • Reimbursement at 95% of estimated fee-for-service costs is insufficient to sustain efficient healthcare delivery systems under Medicare risk contracting.
    • The demonstration project was terminated due to financial unsustainability.