Pa. Blues plan may pursue capitation

Capitation, largely abandoned in favor of fee-for-service payments to physicians and hospitals, could be making a comeback in Pennsylvania, ushered in by the state's largest health insurer.

Pittsburgh-based Highmark Inc. is reportedly in the early stages of discussing "global payments," a form of capitation, with some regional rural health systems.

Highmark spokesman Michael Weinstein would not confirm any specific plans or negotiations. Instead, he said in an e-mailed statement, "We are in the most preliminary stages of discussion with some health care providers and communities to see if there is a shared understanding about the need and willingness to consider alternative reimbursement approaches, consistent with some of the approaches being discussed during the health care reform debate."

Representatives at two hospital systems specifically mentioned by local media outlets as potential partners, Meadville Medical Center and Heritage Valley Health System, could not comment on any specific negotiations. But Weinstein said reports were "accurate about the types of health systems and communities with which we may have discussions."

Highmark ended its last capitated agreement in 2006, according to local business reports at the time, as those arrangements fell out of favor in much of the rest of the country as well. But capitation is being reconsidered, with some changes to deflect earlier criticism that it rewarded denial of care by focusing solely on cost.

In Pennsylvania, tests are under way on a global-payment/integrated care model also referred to as an Accountable Care Organization.

The Pittsburgh Regional Health Initiative, a project whose goal is reducing health care costs and improving quality, has been working on developing an ACO-type model for hospitals and physicians in rural areas that share patients but are not formally integrated. Those programs have not involved changes in payment structures, but future ones likely will, PRHI spokesman Cliff Shannon said.

He said Highmark has been "an avid watcher" of those early projects and discussions of the next steps but that the insurer hasn't been directly involved in negotiating new payment arrangements with the pilot program sites.

The adoption -- or re-adoption -- of "global payments" or capitated contracts wouldn't necessarily be a huge upheaval for Pennsylvania physicians, because some of them still work under HMO models with other payers, said Dennis Olmstead, chief economist and vice president for practice economics and payer relations at the Pennsylvania Medical Society.

"HMOs did wane for a while for various reasons, including the whole backlash against managed care," he said, "But that's not to say HMOs aren't still alive and well, and in some cases may be on their way back for cost-cutting purposes."

According to the latest available data from the Kaiser Family Foundation, 3.5 million people in Pennsylvania were enrolled in HMOs as of July 2008. That translated to a 28% HMO penetration rate, the sixth highest in the country after California, the District of Columbia, Hawaii, Massachusetts and Utah. Capitation is a common payment method in HMO plans.

Massachusetts also has been exploring adopting a global payment model: Beginning in 2008, Blue Cross Blue Shield of Massachusetts contracted with several of that state's largest health systems under what it terms an "alternative quality contract," paying for care on a per-member basis with an incentive payment based on the hospital and physicians' scores on quality measures.

And in June 2009, a commission charged with exploring changes to the health care payment system recommended that the entire state move to a global fee system, moving away from fee-for-service payments within five years.