capitation: a payment method for health care services. The physician, hospital, or other health care provider is paid a contracted rate for each member assigned, referred to as “per-member-per-month” rate, regardless of the number of nature of services provided.

I’m not sure about you, but I never had plans to get old.  I still rock out to The Who singing “My Generation…hope I die before I get old.”  I’m a part of the generation that decided that 40 is the new 30, and then 50 is the new 40.  Next year I will plant my feet firmly on age 60, and will hope that it’s the new 50!  As much as we may try to stay young, the truth is that we can’t stop the clock, and time does march on, and those of us in the Baby Boomer generation (born Post-World War II between 1946 – 1964) are sliding head-first into retirement.

As we enter the eligibility range for Medicare benefits, the Medicare consumer population will continue to grow – with an estimated 76.4 million US citizens in the Boomer age group.  The oldest Boomer group won’t turn 80 until 2026 and will lead the wave of seniors who may eventually need short-term rehabilitation, long-term and/or hospice care.  

For insurance companies as well as the Federal Government, the focus on policy is shifting to preserving the funds in the Medicare Trust – or: “make sure the money is there when I need it!”  We are a long way away from the historical fee-for-service programs that reimbursed providers for their actual expenses, and insurance companies are searching for reimbursement programs that will provide efficiencies for provider reimbursement – without compromising delivery of care and services.

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The Omnibus Budget Reconciliation Act of 1987 (OBRA) brought about sweeping changes to the Long Term Post-Acute Care community – significantly changing not only what consumers can expect from a nursing home care experience, but also the methods in which the facility must provide care, report the services and seek reimbursement.  This Federal Nursing Home Reform act was the first major policy overhaul since both Medicare and Medicaid programs were created in 1965.

While there have been numerous policy changes since OBRA 1987 that have continued to tighten the reins on Federal spending in the Long Term Post-Acute Care (LTPAC) environment, one of the more recent reimbursement options should have providers getting out their calculators and really evaluating the true costs of service delivery.

Capitated Care Contracts

We’ve previously seen LTPAC facilities engage with ancillary providers in a capitated contract. For example, a pharmacy may charge a capitated (or fixed) monthly fee to a facility based on previous history of skilled care utilization – instead of charging them for the actual cost of medications provided to their skilled residents. This allows a facility to better control their cash outflow and avoid the expense of high-cost medications.

Capitation is also now being applied to reimbursement for skilled care services within the LTPAC setting. Insurance companies are offering LTPAC facilities a fixed monthly amount of reimbursement for each insured resident in the facility whether they are receiving skilled care or not.  The facility will then “bank” this amount and use it as a Health Savings Account of sorts to cover the cost of skilled care when and if a beneficiary should require it.

Let’s say that the insurance company is paying The Richter Nursing Home $500 per insured resident each month, and there are 15 insured residents in the facility.  The Richter Nursing Home would receive a check for $7500 each month.   If the residents are all “stable” and require no skilled care, the nursing home continues to accumulate the capitated payments.  But the big question becomes – “what happens when one or more residents have significant status changes that require skilled care?”

How does the facility cover its costs - if the cost of care exceeds the capitated payments received?  And how does this impact the delivery of care?

Analyzing The True Cost Of Patient Care

With the inception of these capitated programs, providers are just beginning to analyze the true cost of patient care.  Many still do not track the cost of ancillary charges and services which can be a huge monthly expense, and in the case of this new capitated reimbursement, may cause some financial hardship.  Using our example, the cost of providing skilled care to just one resident per month would significantly exceed the total capitated amount received from the insurance company.

Needless to say, this type of contract should be entered into and utilized with a great deal of review and oversight!  Cost containment is key – but what are the care considerations?  Let’s ask an expert:

“The “new” ways of billing for skilled care are cause for numerous clinical concerns. We are now faced with the reality that we have to give the resident what the contract mandates. That being said, there is no penalty for exceeding the contract requirements. This should be determined on a case by case basis in order to meet the resident's specific needs. I have recently seen an increasing number of insurance audits that have ended in recoupment due back to the insurance company for failure to meet the contract requirements. Facilities need to start to think out of the box for how to best manage these contracts.

There has recently been an emergence of a new role within the LTPAC setting; the role of Case Manager (CM).  The CM is typically a clinician and is well versed in the insurance contract requirements. Facilities are currently doling out the needed tasks to several individuals which can very easily end in failure to meet the contract requirements. The CM will be given the responsibility to ensure that all departments are aware of their specific contract requirements on an ongoing basis via interdepartmental communication/memos and care conferences. This person will also be responsible for any communication between the facility and the insurance company, such as weekly updates. The CM will  be the point person for coordinating the resident discharge including setting up Home Healthcare, ordering medications for discharge under the direction of the physician, ordering any durable medical equipment, and setting up follow-up appointments. Having one person spearheading this initiative will ensure compliance and therefore safeguard the facilities reimbursement.”

Jennifer Leatherbarrow, RN, BSN, RAC-CT, QCP - Richter Healthcare Consultants

With so much to consider – is a capitated contract the right thing for your facility?