An income-based approach for evaluating the financial components of capitated managed care contracts

In this fictitious example the contractual reimbursement level being reviewed would produce an annual income level of $246,564, if we could replace 100% of our practice with patients at this reimbursement level. This resulted in a 64% increase over the income level shown in the example. In this example we have learned that this is a very favorable contract and we should identify and employ techniques to increase the volume from this payer. If, on the other hand, this analysis had shown that the capitation rates reduced the current income level we should implement measures to limit the extent of volume that this contract represents in the practice. If you desire the actual increase or decrease in income expected from the volume associated with this contractual arrangement can be calculated. To do this one needs to estimate the number of members in the plan that will choose to be in your panel and then calculate the volume and reimbursement level associated with this patient population. Rarely, does this next level of calculation need to be performed. It is usually quite clear, from a decision-making and negotiating perspective prior to going to this level of detail, if the contract in question is attractive or not attractive.