Why is capitation often used in integrated care systems?

Section 3

Integrated care differs from most care models because it aims to improve the overall outcomes people really care about – their well-being – rather than aiming only to deliver high-quality care on a narrower service. Paying a fee for service, for episodes of care, and for blocks of services all implicitly focus the care system on completing each individual step well. Paying on a capitated basis focuses care on overall wellbeing. That creates a number of specific advantages for capitation in satisfying the goals for a payment model that will support delivery of Whole Systems Integrated Care.


Why do capitation models best support whole systems integrated care?

Capitation models create full accountability for quality and cost and therefore incentivise providers to keep people well, rather than paying providers to help people get better. This matches the vision for Whole Systems Integrated Care.

Despite this fit, there are important challenges that must be overcome if capitation is to be implemented correctly. These mostly centre on the ability of the commissioner to track individual outcomes effectively and the maturity of the provider organisations.

Given the complexity of the task, commissioners and providers should build a plan for early adopters to allow alternative contractual arrangements in the event of substantial mismatch of expectations to actual results.

The most important advantages capitation has over other payment models, relative to the goals for payment models established by the working group, are:

  • Accountability for outcomes rather than activity: Providers are not rewarded for any particular activity, not even for blocks of activities. The entire focus of payments is on the degree to which outcomes are met.
  • Funds flow where they are needed and can support the direct costs of coordination: One holistic budget is shared across providers. This allows funds to flow where they are needed, including for coordination such as care plans, care navigators, shared management and integrated information systems.
  • Providers have an incentive for prevention: Providers are paid for population outcomes, rather than outcomes on particular interventions or service, so they have a reason to work to keep people well, rather than only provide care when it is needed.
  • Providers have an incentive to improve services: Providers are encouraged to be innovative and constantly improve their services to keep people well for less cost. Providers are also not penalised, as they are under other payment models, for reductions in activity caused by people being able to look after themselves better at home.
  • Shared investments: Capitation allows providers to jointly invest in the direct costs of coordination, such as network management, information systems or activities like care planning. These costs can be top sliced off the capitation with saving made in other areas. Other payment models that fund providers separately for different services makes agreeing these joint investments far more complicated.
  • Allow providers flexibility: Providers can personalise care according to what is best for an individual’s outcomes, rather than having service specifications that are used in other payment models.
  • Offer incentives to manage overall costs: Providers become accountable for the end-to-end costs of care because there is no longer any advantage in passing costs to another organisation.

Case study/example

Valencia has an integrated care system that uses capitated budgets to fund care for the whole population across primary, ambulatory and acute care, representing approximately 50% of services. Providers have used the capitation to establish ambulatory care hubs, invest in integrated information systems and offer specialist support in the community. This has led to:

  • 25% reduction in net cost per head
  • 30% drop in emergency admissions
  • 90% service user satisfaction

Source: Richardson, Dorling – Global Integrated Care Case Compendium (McKinsey), Adeslas presentation (April 7, 2008); Ribera health department 11 presentation (June 9, 2008)

What are the challenges that need to be overcome to implement capitation?

Capitation requires a set of capabilities to be in place from both commissioners and providers in order for it to be successful. It should not be assumed that these requirements are in place for your setting. If these are missing, capitation will be difficult to implement and may have negative unintended consequences, as the management systems, information systems and provider maturity will be inadequate to manage towards the best outcomes for the service users. These issues are discussed in more detail in Supporting Material A: Discussion Paper Compendium

Commissioners face the following challenges, explored in greater detail in other chapters. These include:

  • Governing pooled funds for providers: Commissioners will need to be able to ensure robust joint commissioning governance, as described in Chapter 7: How can we commission integrated care?
    • Decide which budgets to pool
    • Manage and govern pooled budgets
    • Manage performance of providers
    • Operate new payment systems
  • Building an informatics infrastructure to support the payment process: Commissioners will need an appropriate informatics capability as described Chapter 11: What informatics functionality will we need?, in order to:
    • Set the appropriate metrics by which to track performance
    • Collect and consolidate data
    • Visualise and track performance based on data
  • Provider market maturity: Commissioners need the providers for services in their area to be able to offer the range of services required for capitation. If single providers or networks of providers are not able to provide for an entire population group, commissioners will need to work with providers to build those capabilities.
  • Double running costs: Commissioners also must be aware that in the intermediate stage where a new payment model is being adopted, additional costs from running multiple systems will occur.
 Providers also face substantial challenges in adapting to capitated payments
  • Selecting a model of care for a population group: Providers must work through the issues addressed in Chapter 4: What population groups do we want to include?, and Chapter 6: How do we innovate a new model of care working with users and carers?, including:
    • Identify a population group that can benefit from integrated care
    • Design and cost an innovative model of care to support that population group
  • Building a provider systems to deliver care: Providers must be able to form integrated multi-disciplinary teams as addressed in Chapter 10: How will provider networks develop and support new models of care? This requires the ability to:
    • Build the capabilities to deliver the care and manage the performance of shared multi-disciplinary teams
    • Develop the information capabilities required to manage shared teams
    • Develop a governance process robust enough to reallocate funds to improve care for service users
    • Build financial robustness sufficient to bear and manage new risks.

Case study/example

ChenMed, primarily in Florida, uses capitation to fund care for older people with complex needs. The capitation covers their primary, community and acute care services. Having a capitated budget has allowed ChenMed to change what services are used and redesign their model of care to help keep people out of hospital. This has been achieved with intensive primary-care support, including:

  • Monthly 30-minute appointments with the same GP
  • Ambulatory care hubs with access to diagnostics and specialist support
  • Case conferences 3x a week

Source: Tanio et al. – Innovations At Miami Practice Show Promise For Treating High-Risk Medicare Patients Health Aff June 2013 vol. 32 no. 6 1078-1082, Interviews

Check and challenge

  • Do the commissioning organisations in your area have the capabilities to implement a capitated payment model? If not, how can they get there?
  • Are providers willing and able to take on financial risk of a capitated model? If not, how can you support them to develop the capabilities to do so?
  • Who should you get in a room to develop the payment model that can deliver the changes needed to the model of care?