Various Capitation Models Are Available for Oncology Networks

ORLANDO—Payers have an obligation to provide the best possible
oncology care, and the obligation is fulfilled "as a direct
result of having a managed network," said Christine Ngo,
capitation network manager for Blue Cross Blue Shield of Florida/Health
Options, Inc., Jacksonville. Further, she said, "the most
successful way we have found to develop a managed network is through capitation."

Various levels of capitation are available, depending on the needs
and desires of both the payer and the oncology network. Speaking at a
managed oncology care conference organized by International Business
Communications, Ms. Ngo described five possible reimbursement methods.

Discounted fee-for-service (paying for each service performed,
but at a discounted rate). With this method, the payment structure is
usually already in place, so the status quo is not disturbed. On the
other hand, without a utilization management mechanism, the potential
for overutilization exists.

Even so, Ms. Ngo said, this is often a good interim step for a payer
to use with a new managed oncology network if the validity of the
available data is in question or the organizations can't agree upon a
rate. The payer, for instance, might start with this method for 6 to
12 months while both sides collect data to help them determine a fair
capitated rate.

Capitation with fee-for-service carve-outs, in which
professional services such as office visits are capitated but all
other services--inpatient admissions, chemotherapy, etc--are paid fee-for-service.

"The rationale for this approach is similar to that of straight
fee-for-service," Ms. Ngo said. "This method works well in
a market new to capitation or when the data are unsure. Remember,
though, that utilization is not being managed for those services that
continue to be paid fee-for-service."

Full professional capitation, in which all services, except
inpatient admissions, are capitated. This method poses a financial
risk for physicians because inpatient lengths of stay are difficult
to predict. However, the risk can be lessened by including a
stop-loss provision specifying that costs over an agreed-upon amount
will be shared.

Global capitation, in which all services, including inpatient
admissions, are capitated. This is especially risky for physicians
because of potential high-cost cases and the uncertainty of the level
of utilization. Another stumbling block, Ms. Ngo pointed out, is that
hospitals may balk at receiving payments directly from physicians.

Case rate payment, in which a lump sum payment is made for a
particular diagnosis. For example, a doctor treating a stage II
breast cancer patient would be paid a flat fee for that patient's
entire treatment, no matter what it involved. If the treatment
ultimately cost less than that amount, the doctor would keep the
extra money, but if the costs exceeded the payment, he or she would
have to absorb the loss.

"This, in my opinion, is the most sophisticated method and the
most managed alternative," Ms. Ngo said. "It is usually not
a good alternative, though, until the network is firmly established,
and benchmarks and average costs have been determined."

Direct or Third-Party Contracting

Payers can contract with managed oncology networks either directly or
through a third-party administrator, she said. Contracting through a
third-party administrator offers the advantages of sophisticated data
collection and analysis methodologies as well as certain economies of
scale if the third-party administrator operates in different
locations around the country.

Ms. Ngo pointed out, however, that some physicians are resistant to
dealing with a third party. Contracting directly with a group of
oncologists eliminates the intermediary and can be the best choice
when the physicians are a cohesive group.