American College of Physicians: Internal Medicine — Doctors for Adults ®

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To share in managed care savings, take on more risk

From the April 1996 ACP Observer, copyright 1996 by the American College of Physicians.

Editor's note: This article is part of ACP Observer's occasional column dealing with questions about managed care. This month's respondent is Jack Resnick, FACP, a member of ACP's Managed Care Advisory Panel. He is president of Telesis Medical Management, an organization that specializes in the creation and management of globally capitated physician organizations.

Q. High-quality internists produce monetary savings for insurers and hospitals when they practice efficiently. How can general internists share in those savings?

A. To keep physicians from over utilizing services, many managed care organizations put a percentage of their physicians' income into "withholds" or "risk pools." This income is returned at the end of the quarter or fiscal year, but only if the physicians in the plan have ordered a number of tests, procedures or medications that the managed care organization deems appropriate. If physicians spend too much money on these resources, the plan keeps part of the withhold. If, on the other hand, physicians keep their spending on these resources to a minimum, the plan returns the withhold but keeps the savings and gives the physicians no bonus or extra income. As a result, physicians often are not given the opportunity to share in the savings they produce.

How can internists change that scenario? Primary care physicians can take financial responsibility--also known as risk--for their patients by taking charge of all aspects of health care, such as referrals to subspecialists, hospital care and ancillary services like diagnostic testing. In such a system, known as global capitation, the physician organization (PO) receives a single prepaid fee to provide all services for its patients. If patients use few resources--hospital services, drugs, etc.--the PO keeps the money that is left at the end of the month; if patients use a lot of resources, however, the PO can lose money.

Before taking global capitation, internists might want to enter into a more limited risk-sharing relationship with a managed care organization. Instead of taking capitation for all aspects of patient care, for example, POs can assume responsibility--and risk--for only the specialty care of their patients. New independent practice associations, for example, often enter capitation by taking full risk only for primary care services.

It is essential that POs taking global capitation be dominated by--or be composed completely of--primary care physicians. To succeed under capitation, practices must decrease the costs of hospital and subspecialty care; giving hospitals or subspecialists control of an organization that accepts risk has caused many physician hospital organizations and group practices to fail.

To effectively manage risk, POs must also make a commitment to quality control and eliminate borderline practitioners. Excessive health care costs cannot be controlled without controlling quality. Finally, POs should seek contracts from as many managed care carriers as possible.

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