Physician's Capitation Trends: Take a tip from wealth makers: Pursue, manage risk
Physician's Capitation Trends
Take a tip from wealth makers: Pursue, manage risk
Examine health status by occupation
In many ways, capitation and its focus on risk resembles the current transition in the business and financial sectors where risk, too, is the name of the game. If you think capitation resembles gambling and that gambling is not unlike the stock market, you may be getting close to the secret of capitation.
For business, as for managed care medicine, risk management is increasingly a required core competency. Consider this advice from Ernst & Young analysts Stan Davis and Christopher Meyer in Cambridge, MA: "Companies should consider setting up what we’ll call strategic risk units’ (SRUs) within the corporation." An SRU in a physician practice could be the managed care division.1
In addition to the business units that focus on production of goods, services, or information, "SRUs would enable a corporation to isolate and clearly identify risks. Then it could manage them directly or trade them in the financial markets, perhaps by selling to insurance companies, perhaps by hedging itself."
To some degree, physician practices already are doing this. They practice medicine as a core competency, and they’re adding risk management as a parallel core competency via their capitated, per member per month payment contracts.
Davis and Meyer, who both are principals at the Ernst & Young Center for Business Innovation, point out that there is good risk, bad risk, and ambiguous risk. The key, they contend, is to (1) pursue risk, (2) identify which components of your business bears risk and at what level or degree, and (3) share excessive risk when you need to.
The advantage of risk is that it brings money inside the practice right away, which can be used to make the practice more productive and profitable (sometimes by investing in the market, too).
That’s the most current advice for how to succeed in business, and it has significant application to medicine.
A good way to isolate and project your financial risk in a particular capitation contract is to study health risk by occupation, particularly if you’re dealing with a capitation contract that is significantly populated with a clearly identifiable work force, says Sean Sullivan, president and CEO of the Institute for Health and Productivity Management (IHPM). The Irving, TX-based company published the report in mid-October.2
For example, if your local Fortune 500 company, or the local steel mill, has signed on with Insurer A, don’t miss the opportunity to study disease risk in that employer’s specific occupational group, advises Sullivan. IHPM released its analysis of disease-specific data based upon 4 million employees in 61 large companies.
"This study provides purchases, providers, and health plans with their first comprehensive information on condition-specific medical costs segmented by industry," Sullivan said in a prepared statement. "It will help focus attention
on the most prevalent and costly diseases for employers and show business leaders from different industries how to concentrate resources on health conditions most relevant to their employee population. Targeting interventions this way will pay off in better overall health and productivity in the workplace."
Overall, the study cites coronary artery disease as the nation’s leading most expensive disease among employed persons. Colds and sniffles aren’t exactly a disease, but they claim epidemic proportions, the IHPM report states. Another key seasonal and high-cost illness that can be better managed in terms of patient outcomes and costs is influenza, according to a recent Glaxo-Wellcome study.
According to IHPM, the top most expensive conditions for the group they studied are:
• coronary artery disease (bypass surgery) — $467 million;
• gastrointestinal disorders — $173 million;
• high blood pressure — $155 million;
• vaginal delivery — $146 million;
• osteoarthritis — $145 million.
While much less expensive per individual treatment, the costs of less drastic conditions are nonetheless sizeable when grouped together.
The most common conditions and causes of absence are:
• ear, nose, and throat ailments (15%);
• sinusitis;
• skin and subcutaneous diseases and disorders;
• high blood pressure;
• nonstreptococcal pharyngitis.
Occupation and risk for disease
The study also reflects how disease risk varies according to type of occupation. For example, breast cancer is the third most costly condition affecting retail workers, even though it is not within the top 10 most cost-incurring conditions of manufacturing and durable goods workers. Back disorder is third most cost-incurring for government workers, and it ranks ninth among the service industry.
In addition to providing aggregate costs, the study breaks out yearly medical claims costs by patient. For example, gallbladder treatment ranks ninth in total payments across all industries, but it is the most expensive kind of care on a per-patient basis. For gall bladder, the average cost per patient is $4,721, while the cost of patients with heart disease averages $4,639 per year.
The array of data produced for IHPM in their top 10 study is "suggestive but not definitive in its implications for total health-related costs and the impact of health on productivity," Sullivan says. Recognizing the gap between average costs and a particular company’s disease costs may be one way physician groups and employers could work together successfully to reduce medical costs.
Employers and providers can gain valuable insight into their own situations by comparing their own cost data with the study findings by industry, Sullivan says. Wide variances — assuming similar employee demographic characteristics — may indicate cost-improvement opportunities.
References
1. Davis S, Meyer C, Future Wealth. Boston: Harvard Business School Press; 2000.
2. Institute for Health and Productivity. Industry-Specific Medical Care Utilization and Expenditures. Irving, TX; 2000.
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