Medical groups in California: managing care under capitation

California-based health maintenance organizations (HMOs) have reduced use of hospital services well below national averages; much of this reduction appears linked to lower surgical procedure rates. Also, multispecialty groups in California have been able to maintain physician compensation under capitated payment arrangements at the expense of retaining earnings at the group level. With capitation payments linked to HMO premiums for commercial enrollees, and with HMO premiums having dropped in response to market pressure from employers, California's provider groups are coming under increased financial pressure. A shakeout among thinly capitalized medical groups is anticipated. As full-risk capitated contracting becomes more common outside of California, these general trends are likely to be replicated at a national level.