Capitation Adoption is Growing in U.S. Healthcare

For those old enough to remember healthcare in the 1990s, capitation is likely a familiar – if unpleasant – concept. That’s when some of the first capitated payment models emerged in the U.S., with only limited success and even less enthusiasm among providers and healthcare delivery organizations who participated in them.  

But capitation is back, and it’s not the version that we saw 30 years ago. Today’s capitated payments are part of a larger effort to establish alternative payment models (APMs) that move away from a firmly entrenched and ultimately failing fee-for-service payment system. There are some key differences in the way organizations build and administer these payment models today, and it’s contributing to more success and growth as providers and payers continue to adopt APMs like full and partial capitation.  

Capitated payments are dramatically different from fee-for-service (FFS) claims. In a FFS system, provider payments are tied directly to the volume of services they provide – more care means more revenue. However, that doesn’t necessarily incentivize better care or care that will improve outcomes for a patient.  

In a capitated payment model, providers receive a set amount of money every month to deliver all the care a patient needs. The payment is adjusted for risk, so a patient with more complex medical needs will have a higher per-month reimbursement than someone who is relatively healthy and low risk. If a healthcare organization can deliver all the necessary services for less than the capitated payment (while hitting specific care quality metrics), they get to keep some or all of the excess as a bonus.  

The New Capitation Model is Built Around Data 

One of the key differences between today’s capitation models and the ones from the 1990s is the focus on data. When providers are asked to take on risk by managing the health of an individual patient or an entire population, they need access to data to guide appropriate care decisions. Complete, enriched datasets can offer key insights into the needs of a patient or population, and uncover actionable steps providers can take to proactively intervene for better outcomes. 

Unfortunately, data interoperability and data sharing remain challenging in healthcare. Data from multiple disparate sources is often messy, unstructured, and useless for gleaning analytics insights. Success requires an enterprise data management tool that can ingest massive volumes of data from dozens of sources, then cleanse and normalize the information into a single format. By further enriching the data, the information is both usable across an entire technology ecosystem, and useful in identifying opportunities to excel in alternative payment models. 

Pairing capitation software with a comprehensive analytics platform can further improve performance in these advanced APMs. Predictive and prescriptive analytics uncover critical trends in utilization, costs, and care gaps for patients and members. Payers and providers can use this data to build cohorts, create actionable workflows, and identify programs or point solutions that help patients better manage their health. 

Capitation is Growing in U.S. Healthcare 

The Health Care Payment Learning and Action Network (HCPLAN) created an Alternative Payment Model (APM) Framework whitepaper with the intent to “[track] progress toward payment reform and provides a pathway for the delivery of person-centered care.” The original whitepaper came out in 2017, and HCPLAN has published regular updates on payment reform progress in U.S. healthcare.  

The analysis groups healthcare payments into four categories. Category 4 is population-based payments, another term for capitation:  

In 2017:  

• 66.4% of payments fell into categories 1 and 2 

• Only 3.8% of payments were category 4 (capitation) 

• Medicare Advantage had the highest proportion of capitation-based payments at 10.3% 

By 2022:  

• 58.7% of payments fall into categories 1 and 2 

• Participation in capitation payment models has nearly tripled to 9.6% 

• Notably, in Medicare Advantage, 24.6% of payments are in population-based payment models (more than doubling since 2017) 

Cedar Gate is Ready for the Future of Healthcare Payments 

The future of healthcare payments is shifting away from fee-for-service to models that incentivize the right behaviors to keep people and populations healthy. Cedar Gate’s Capitation Adjudication software has been around for more than 30 years, and provides organizations with the capabilities to administer these complex payment models. As adoption grows, legacy systems built for a FFS world won’t be able to keep up, and healthcare payers and providers will need technology purpose-built for a value-based care future.