Healthcare costs in the United States remain the highest per capita of any nation in the developed world. On the face of it, this is due in large part to the fact that the US medical system has the highest pricing structure and remains one of the newly developed nations in the world that still charges its citizens for health services.

To help mitigate these alarming statistics, the United States Federal Government and many private payer health insurance organizations are attempting to adopt an alternative model to the fee-for-service (FFS) care model.

In recent years the FFS healthcare model has faced increasing criticism for the high volume of costly and wasteful payments. Opponents claim that FFS does little more than encourage providers to deliver more services to be paid more, even if those services aren’t 100% necessary for the patient’s overall well-being.

Under the FFS paradigm, providers are paid on a per-piece basis. This means that each individual procedure, diagnostic test, lab work, imaging, or other treatment service, are all billed to a payer. Oftentimes the cost is shared between the individual’s insurance company, as well as out-of-pocket copay or deductibles paid out by the patient.

The overriding concern with the existing form of the FFS model is that there seems to be a strong tendency for providers to deliver more services in order to maximize their income. This results in inflated costs passed on to the insurance industry and patients without fully improving the quality of care the patient receives or bearing fruit for any long-term health outcomes.

One of the models that are gaining traction against the FFS model is known as Capitation, which is sometimes referred to as Capitated Insurance. Though to understand if this model is capable of rising up to become the new normal of the healthcare industry, and how it might be used in other specialties like ABA therapy billing for BCBAs, we’ll have to take a closer look at some important details.

How Does Capitation Work In Medical Billing?

Capitation is a specialized healthcare payment model in which physicians and other healthcare providers receive payment based on an agreed-upon fixed amount per patient. This payment model is applied over a defined time frame for those specific health care services.

In this model, the capitated payment will be the same for each patient throughout that period, regardless of where they receive treatment.

It’s important to note that within the capitation model, the participating providers are reimbursed for each enrolled patient, for each member enrolled per month. This is known as “PMPM.” This is also known in the medical billing industry as the capitated rate or capitation premium or CAP.

Key Components Of Capitation

  • Providers receive an advanced payment of a flat fee
  • Terms of service are for a specific set of services during a limited period
  • Rate only applies to enrolled members
  • Payment is made regardless of whether a patient receives treatment or not

How Are Capitated Payments Made?

Capitation payments are paid per person in advance and are based on a range of specific factors. This includes the average expected healthcare usage of the members, factoring in the local and/or regional costs of medical services.

A lot of private insurance payers also monitor a “Risk Pool” which is a percentage of the overall payments that are strategically withheld until the end of the fiscal year. When healthcare providers performed well in the previous fiscal year, the payer institution might opt to release an additional amount to physicians at the end of that fiscal year.

On the other side of the coin, in a scenario where the services provided in the fiscal year, have a higher cost that’s higher than the total of the agreed-upon amount, the payer institution might withhold the money. In this scenario, the “Risk Pool” of reserved money helps the payer institution to make up for the loss.

What Is A Capitation Agreement?

A “Capitation Agreement” is essentially a contract that is entered into by a pool of similar healthcare providers and the payer institutions that their network works with. It establishes rate details and other covenants that govern specific terms of service. This capitation agreement might also include a list of specialized services that can be provided to patients by the health plan.

This often includes things like:

  • Preventive services
  • Medications
  • Immunizations
  • Lab tests
  • Routine screenings
  • Diagnostic services
  • Treatment services

Different Types of Capitation Agreements

Most participating physicians and payer institutions recognize three main types of capitation agreements. The one that is right for your network and patient pool will depend on the relationship of the paying entity as well as the payment receiver’s needs.

Primary Capitation Agreement

This is the most common type of agreement that you see being used by managed care organizations like an HMO that pays a physician or a group of physicians for care to be provided to the HMO’s members.

Secondary Capitation Agreement

A secondary capitation agreement is often created when an HMO negotiates a contract for a group of primary care physicians as well as technicians performing diagnostic or imaging services for those providers. This ensures that patients don’t receive additional bills for things like lab tests X-rays and MRIs.

A Global Capitation Agreement

Global Capitation agreements often represent a large group of providers with different specialties. These are fixed payments made to health care professionals or organizations for the care of their patients. It typically necessitates a contract period that can be adjusted to account for the severity of illness of the patients.

What Services Covered by Capitation

The American College of Physicians recognizes the capitation model can be applied to:

  • Preventive treatment services
  • Diagnostic services
  • Injections and immunizations
  • Medications administered in the clinical setting
  • Outpatient laboratory tests
  • Health education
  • Counseling services, such as ABA therapy, are performed in the office
  • Routine vision screenings
  • Hearing screenings

Capitation In ABA Therapy Services

ABA therapy is seen as the gold standard for the treatment of Autism Spectrum Disorder. A lot of people with ASD rely on a team of caregivers and professionals. This includes medical providers, ABA therapists, speech pathologists, and diagnostic services.

An ASD patient’s needs are long-lasting, with most needing some degree of ABA therapy throughout their lifetime. When your ABA practice is part of a capitation agreement you can spend more time focusing on patients, and less time having to interact with payer institutions.