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Partial Capitation for Healthcare in the Aftermath of COVID-19

By Dr. Martin Lustick

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The Coronavirus (COVID-19) pandemic has served as a stunning reminder of both the critical role that healthcare plays in society and the inherent risks associated with working with sick patients. 

At the same time, this crisis has already left an indelible mark on the economics of healthcare.  Ironically, amid unprecedented demand for ICU beds and nurses and doctors to care for those who are sick, the halt in elective procedures and routine outpatient care have wreaked economic havoc on both hospitals and physician practices.  

In our blog on April 7, we explored the possibility that capitation will see a resurgence in the post-COVID-19 pandemic “new normal.”  But capitation is a fairly drastic step, and may feel to some like jumping off a cliff. In reality, there are a variety of ways to move incrementally toward capitation and begin to shield your practice from a singular dependence on fee-for-service (FFS). 

Currently, most value-based contracts deliver shared savings payouts in the year following the performance year. This puts providers in the uncomfortable position of potentially forfeiting current revenue for the possibility of future, unknown reward. An alternative approach that can be negotiated is a partial capitation arrangement. 1This could take the form of a blend of FFS payments with monthly prepayments.  Imagine a primary care group with 10,000 patients that average 2.5 visits per year at $80 per visit resulting in $2 million in revenue.  A breakeven conversion might involve a monthly “patient management” payment of $5 per patient combined with a 30 percent reduction in reimbursement for visits. In this scenario, the provider would receive $50,000 monthly as a prepayment to help cover overhead, with FFS making up the other $1.4 million over the course of the year. This blended payment method would stabilize the provider’s revenue stream by dampening the impact of variability in patient encounters.

Over time, a higher percentage of the payment could be converted to these monthly “patient management” fees and those payments could be adjusted up or down based on performance measures. By gradually diminishing the focus on encounter-based services, practices would have time to adapt workflows to include virtual visits and population management, while reassessing their long-term space requirements and staffing models. This gradual approach also enables both payers and providers to learn as they go, so they can pause, accelerate, or reverse course as needed.  

As providers move increasingly toward prepayment, they can be rewarded for maximizing efficiency and effectiveness of their services to patients. They can set themselves up for success by maximizing gainshare opportunities related to cost control, clinical quality, and patient satisfaction, even as they create opportunities to efficiently grow their patient base.

There are a variety of other approaches to partial capitation and bundled payments that lessen a somewhat singular focus on procedures. While there are still hurdles for providers and payers to overcome to implement these payment models, the current COVID-19 pandemic will likely increase stakeholders’ appetites to explore better and safer ways to finance healthcare.  

1http://www.chqpr.org/downloads/PartialCapitationPaymentforACO.pdf


Dr. Martin Lustick

Senior Vice President, NextGen® Advisors

Dr. Martin Lustick is a principal and senior vice president with NextGen Healthcare focused on supporting provider organizations in their successful transition from volume to value-based care…

Dr. Martin Lustick is a principal and senior vice president with NextGen Healthcare focused on supporting provider organizations in their successful transition from volume to value-based care.

Dr. Lustick earned a BA in History from Cornell and an MD from Columbia. After completing his pediatric residency at Children’s Hospital National Medical Center in Washington, DC, he was in clinical practice for 17 years with Kaiser Permanente of the Mid-Atlantic States. While there, Dr. Lustick held various management and leadership roles, including chief operating officer for the 800-physician medical group. He oversaw development of their hospitalist program, population health capability, and open access delivery model.

Dr. Lustick then served as chief medical officer for ThompsonHealth—a small health system in Canandaigua, NY—where he provided clinical oversight for hospital, SNF, nursing home, IT, and out-patient physician practices.

In 2005, Dr. Lustick assumed the role of SVP & CMO for Excellus BCBS which covers 1.6 million lives comprised of Medicare, Commercial, and Medicaid. In his 13+ year tenure there he led a variety of strategic initiatives, including a patient-centered medical home program which served as the foundation for the plan’s value-based payment strategy. He also led the implementation of an automated authorization program for care management services, development of a clinical quality improvement strategy, and creation of innovative programs in management of low back pain, screening and prevention, opioid addiction, and chronic disease management.

Dr. Lustick has also been very active in the community, serving on boards and committees confronting issues such as: healthcare capacity planning, Health Information Exchange, mental health, substance use disorders, social determinants of health, and childhood obesity.

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