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Hospitals Told Not to Capitate for 'Wrong' Reasons

Hospitals Told Not to Capitate for 'Wrong' Reasons

SAN DIEGO--There are many sound reasons why a medical center may
want to capitate its oncology services and just as many wrong
reasons, said Paul M. Kennelly, who recently assumed the position
of president and CEO of the management services organization at
the City of Hope Oncology Network in Southern California.

He called it a "leap of faith" to take the step to capitation,
but added that "most hospitals, if they prepare properly
for it and continue to monitor the process, are doing very well
with capitation."

Retaining market share is among the many attractive reasons for
capitation, Mr. Kennelly said in his presentation at a symposium
sponsored by the Society for Ambulatory Care Professionals and
Health Technology Assessment of the American Hospital Association.

"When you are capitated, basically you've captured that book
of business, and it's very difficult for the business to go elsewhere."
What's more, he added, a hospital can build market share if it's
quick to the draw and plunges into capitation before its competitors.

Noting that "fee-for-service" is a "dirty word"
among California insurers, Mr. Kennelly said that capitation is
also a logical response to the growing phenomenon of managed care.
And capitation can improve an institution's cash flow. "Any
chief financial officer can appreciate that the capitation checks
come on a certain day every month like clockwork," he said.

But Mr. Kennelly urges hospital administrators to capitate for
the right reasons. "I have a real philosophical problem with
capitation if it's done to control things," he said. "You
should be capi-tating because it's the right thing to do, it's
the right reimbursement mechanism for your facility, and it represents
an opportunity to truly have a partnership and good working relationship
among your hospital, your physicians, and your insurance plans."

If, however, controlling premiums and dollars is the main driving
force behind capitation, "you are capitating for the wrong
reason," he said. Going forward under those circumstances,
"you will find yourself in trouble either philosophically
or financially with your capitated partners. I would walk away
from capitation at that stage because you just aren't ready to
do it."

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