Capitation or fee-for-service: Which pays better?

October 21, 2005

Follow this step-by-step formula to find out, the author says.

We'd all like to know what we really earn from the various IPAs and health plans we participate in. But it's been hard to determine who's paying us what they should and who isn't. The introduction of capitation-with its per-member-per-month reimbursement formula-has added to the confusion, especially for doctors who also participate in fee-for-service plans. How do we realistically compare reimbursements in each of the two systems?

Several years ago, that's exactly the question I set out to answer. At the time, about two-thirds of my patients belonged to one of two IPAs-the first paid me on a capitated basis, the second on a fee-for-service basis. Under IPA One, which I'll call Cap/IPA, I was paid about $8.17 per month for a female patient in her 30s, whether I didn't see her at all or she came in five separate times and created uncollectable charges of several hundred dollars. IPA Two, which I'll call Fee/IPA, paid me an average of $45 per visit, which I assumed protected me from the kind of loss I could experience under capitation.

So there I was-with one foot in each system. Of course, I might have placed all my eggs in one basket. But which was the better basket, Cap/IPA or Fee/IPA?

I needed a method for comparing my earnings in the two IPAs. I experimented with several methodologies, and finally came up with one that worked well for me and would probably work well for you, too.

I began with two options: I could figure out how much my Cap/IPA patients earned for me, and then compare that amount to what they would have yielded had these same patients been enrolled in Fee/IPA. Or I could reverse the process, calculating what my Fee/IPA patients earned for me, and then comparing that amount to what they would have yielded under the per-member-per-month rate offered by Cap/IPA. I chose the second option for this reason: Transposing my Fee/IPA patients into a capitated model would be much easier than doing it the other way around. You can adapt my step-by-step process to your purposes.

1.

I selected about 10 percent of my fee-for-service patients, being careful to exclude Medicare patients. For these patients, I chose a payment period during which any or all of them might have come to see me for a billable service. I ended up choosing a continuous 24-month period, but the longer the period you choose the better.

2.