Paying specialists and subspecialists on a capitated basis

To successfully contain costs in a capitated environment, the incentives of hospitals and physicians must be aligned. Keeping costs as low as possible only can be achieved when both hospitals and physicians work toward the same goal--maintaining the wellness of the enrolled population--and when they both are paid a fixed amount per enrolled member per month. This is not to suggest, however, that physician employees, physicians in medical groups, or physicians in practice divisions have to be paid in a capitated manner on an individual basis or that all physicians should be capitated. However, to successfully align incentives and to keep costs down, physicians in general should be paid on a capitated basis.

Capitating specialists and subspecialists

Initially, many health plans capitated only primary care physicians to contain healthcare costs and align incentives. Specialty physicians continued to be paid on a fee-for-service basis. Such arrangements concerning specialty physicians, however, are no longer as well accepted, and many experts now believe they should be changed.

If a primary care physician is paid on a capitated basis by a health plan for providing primary care only, the risk to the physician is that he or she might have to work harder by seeing more patients and therefore ordering more laboratory tests. But if the primary care physician is paid on a capitated basis for all physician services, including the services of specialists and subspecialists, as well as certain ancillary services, the primary care physician assumes the financial risk of overutilization by specialists, subspecialists, and ancillary providers unless they also are paid on a capitated basis or are subject to some overall payment limitation.

Specialty and subspecialty physicians generally order expensive tests and perform costly procedures. They usually prefer to be paid on a modified fee-for-service basis. Many specialty physicians prefer to participate in managed care on a fee-for-service basis because this allows them to maintain their practices as they have in the past. However, if a primary care physician is paying a specialist or subspecialist on a modified fee-for-service basis, without a mechanism that would put some of the specialist's or subspecialist's compensation at risk, the primary care physician has little control over utilization after referral is made. The risk to the primary care physician, in this...