Performance under capitation: the true cost of infrastructure

Administrative costs are a major item of concern for capitated provider groups, who must maintain a sophisticated infrastructure to allow them to manage and deliver clinical care to their patients under a fixed budget. The cost of this infrastructure is under steady upward pressure, as HMOs delegate more activities to providers and step up their reporting requirements. Our experience in establishing an infrastructure for a provider network is reported, and indicates substantial costs for both start-up and ongoing operations, which are highly volume dependent. A powerful case exists in favor of centralizing and pooling administrative infrastructure across related provider groups.