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The growth of medical groups paid through capitation in California
1School of Public Health, University of California, Berkeley 94720, USA.
Insights
Large medical groups in California paid via capitation experienced significant growth in health maintenance organization (HMO) enrollees. These capitation-model groups offer an alternative physician status within managed care, despite facing financial challenges.
Area of Science:
- Health Services Research
- Managed Care Organization Models
- Physician Practice Management
Background:
- California health maintenance organizations (HMOs) commonly contract with large medical groups.
- These groups are compensated through capitation and manage a comprehensive range of medical services.
Purpose of the Study:
- To analyze the growth and characteristics of large, capitation-based medical groups in California.
- To compare healthcare utilization (hospital days, physician visits) within these groups to benchmarks.
Main Methods:
- Study included six large, capitation-paid medical groups in California experiencing growth.
- Data collected on patient enrollment, revenue, hospital days, and physician visits per enrollee.
- Interviews were conducted to gather qualitative insights.
Main Results:
- HMO enrollment in capitated groups surged by 91% between 1990 and 1994.
- In 1994, hospital days per 1000 enrollees were lower than state/national averages for non-Medicare and Medicare patients.
- Physician visit rates were also slightly lower than statewide and national averages.
Conclusions:
- Capitation-based medical groups present a distinct physician employment model compared to staff-model or direct-contract HMOs.
- These groups demonstrate substantial growth but encounter significant financial hurdles, particularly in securing assets for expansion.
- Four groups divested assets to investors while retaining physician employment through professional corporations.
Background:
In California, it is common for health maintenance organizations (HMOs) to contract with large medical groups that are paid through capitation and are responsible for managing a full spectrum of medical services.
Methods:
We studied six large medical groups in California--Bristol Park Medical, Friendly Hills HealthCare Network, HealthCare Partners Medical Group, Mullikin Medical Centers, Palo Alto Medical Foundation, and San Jose Medical Group--that are paid through capitation and that are growing as a result of contracts with managed-care organizations. We conducted interviews and obtained data on factors such as patient enrollment, capitation and other revenue, numbers of days spent by enrollees in the hospital, and numbers of visits to physicians per enrollee.
Results:
Between 1990 and 1994, the number of HMO enrollees whose care was paid for through capitation in the six medical groups increased by 91 percent, from 398,359 to 759,474. In 1994, the mean number of hospital days per 1000 HMO enrollees ranged from 120 to 149 for non-Medicare patients and from 643 to 936 days for Medicare patients. By comparison, in 1993 the mean numbers of hospital days per 1000 HMO enrollees not covered by Medicare were 232 for California and 297 for the United States; for HMO enrollees covered by Medicare, the numbers were 1337 for California and 1698 for the United States. In 1994, the average annual number of visits to physicians for HMO patients in the six groups not covered by Medicare ranged from 3.1 to 3.9; for Medicare patients, it ranged from 7.2 to 9.3; these rates were slightly lower than statewide and national rates. Four of the groups have sold their assets (such as facilities, supplies, equipment, and patients' charts) to outside investors; the physicians remain employed by physician-owned professional corporations.
Conclusions:
Medical groups paid through capitation offer a model for the status of physicians in managed-care systems that differs from the employee status offered by staff-model HMOs and the subcontractor status offered by HMOs that negotiate directly with individual physicians. Despite their growth, such medical groups in California face substantial challenges, such as obtaining the financial assets necessary to sustain rapid growth.