Cost, cost, go away—is capitation here to stay?

Healthcare Financial Management, March, 2007

Twenty years ago, the cover article in hfm dealt with capitation. At that time, many in the healthcare field speculated that capitation would become "the next method of payment for services after [diagnosis-related groups]," wrote author Stuart H. Altman, then a university dean and chairman of the Prospective Payment Assessment Commission.

Altman had been a keynote speaker at an HFMA program entitled "After PPS: What's Next?" The program explored Medicare's next payment system, the strengths and weaknesses of different alternatives, when a change could occur, and how to prepare for the future. At the time this article was written, the United States had experienced a 50 percent increase in the number of uninsured since the early 1980s, an increase in the percentage of out-of-pocket healthcare costs paid by consumers, and a decrease in the percentage of medical bills that were paid by patients at the time of service. "People are finding that their backup coverage, whether it is Medicare, Medicaid, or private insurance, is not covering as much as it used to cover. Where is this going to lead?" Altman wrote.

"These are uncharted waters," he wrote. "I continue to feel that if the extent of health insurance coverage continues to decline and if the number of uninsured continues to grow, we could by the end of this decade again see a serious debate on the need for national health insurance."

Altman discussed four options for the future of healthcare financing:

* Return to cost-based reimbursement, an option that Altman did not consider likely

* Adjustment of the status quo by moving to a weighted DRG payment

* Expansion of DRGs to outpatient care

* Capitation and vouchers

Ultimately, he predicted that the hospital payment system would be dominated by DRGs and other buyer-controlled systems for at least the next decade; that outpatient and physician services would move away from cost-based and fee-for-service systems; and that the United States would move toward national fee schedules with increased scrutiny by peer review organizations.

Today, payment trends continue to be a major source of concern for healthcare finance professionals, as shown through market research conducted for HFMA's new report Healthcare Finance Outlook 2007. "Key Medicare regulatory issues of particular concern to CFOs over the next 18 months are pending changes to the DRG system to account for patient severity, pay-for-performance initiatives, cost-based methods for weighting medical and surgical DRGs, and an overhaul of ambulatory surgical center payments," the report reads. "In early 2007, CMS is expected to announce study results of possible revisions to DRGs to account for severity-based payment."

To read the report, visit www.hfma.org/hfo.>

COPYRIGHT 2007 Healthcare Financial Management Association

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