Initiating a capitated program for HMO patients

In 1986, our hospitals were selected by a large Massachusetts independent practice HMO to administer a capitated program for psychiatric inpatients residing in Boston and in neighboring northern cities and towns. Administering this program necessitated designing new systems of accounting, utilization review, physician reimbursement, staff education, orientation, and management control as well as contracting with other hospitals for locked psychiatric beds. It also included developing day treatment, crisis intervention, and visiting nurse services. Psychiatrists had to adapt to a new reimbursement system which paid by the admission or which withheld 30% of payment until program performance was evaluated. Those who valued intrapsychic change found it hard to value crisis intervention and symptom reduction to the same degree. Although there was considerable variation in each hospital's performance, there was over a 25% decrease in patient days and an overall reduction in readmission rate during the first year of the program.