HI215 Unit 3 Managed Care Analysis Example

Twenty-One Dollars a Child Whether or Not She Visits: A Unit 3 Managed Care Analysis of a Composite Pediatric Group's Medicaid Capitation Offer, Worked Through Revenue, Cost, Volume and the Behavior the Money Rewards

[Student Name]

Purdue University Global

HI215: Reimbursement Methodologies

Unit 3 Managed Care Analysis

[Instructor Name]

[Date]

The practice, the plan and every figure are composite; the payment concepts and the sources cited are real.

The Arrangement

The plan would pay the practice a fixed amount each month for every child assigned to it, whether or not the child is seen. The payment covers office visits, well-child examinations and sick visits, telephone advice and care coordination. Carved out, and still billed separately, are vaccine administration, laboratory tests and behavioral health visits. The vaccines themselves reach the practice free through the federal children's vaccine program and sit outside both payments. The contract runs one year with a quarterly reconciliation of the member list.

The Money

Capitation: 4,200 members at $21 per member per month gives $88,200 a month, or about $1.06 million a year, fixed. Last year under fee-for-service: the same panel generated about 1,700 covered visits a month at an average Medicaid payment of $55, or $93,500 a month. On last year's volume, the capitation pays $5,300 a month less than fee-for-service would have.

The Cost Side

The practice's monthly cost to serve these children has a fixed part, about $52,000 for staff, rent and overhead allocated to the Medicaid panel, and a variable part of about $17.50 per visit for supplies and part-time staff hours. At 1,700 visits, cost is $81,750.

1. At 1,700 visits: capitation margin $6,450; fee-for-service margin $11,750.

2. At 1,530 visits, 10 percent fewer: capitation margin $9,425; fee-for-service margin $5,375.

3. At 1,870 visits, 10 percent more: capitation margin $3,475; fee-for-service margin $18,125.

4. Break-even under capitation: about 2,070 visits a month, roughly 22 percent above last year's volume.

Under fee-for-service every visit adds money; under capitation every visit costs money. The contract flips the sign on the practice's busiest days.

What the Arrangement Rewards

Capitation shifts the financial risk of volume from the plan to the practice. That creates incentives in both directions. On the useful side, it rewards care that keeps children well and handles problems by phone or portal, since none of those require a billable visit. On the risky side, it rewards fewer visits whether or not they are needed, and a practice under financial pressure might schedule sick children less readily. Research on physician payment design finds that every method carries incentives of this kind, and that blended methods, such as capitation with targeted fee-for-service payments for preventive services, are used to balance them (Robinson, 2001).

Risks to the Practice

1. Volume spikes. A respiratory virus season can raise visits 20 to 30 percent for weeks. The analysis shows margin falling toward zero at that level.

2. Assignment errors. Children assigned to the practice who never come cost nothing, but children seen and not on the list may not be paid at all. Monthly member list reconciliation is essential.

3. Adverse selection. If the plan assigns the practice a sicker group, such as more children with asthma or complex needs, visits rise with no change in payment. The analysis asks whether the plan risk-adjusts its rates.

4. Data. Capitated practices often stop submitting detailed encounter records because they are not paid per claim, yet Medicaid managed care plans must collect and submit encounter data from their providers under federal rules, so the plan will still require it (42 C.F.R. § 438.242, 2024). Health information staff must keep coding every visit.

What the Practice Should Ask Before Signing

Is the rate risk-adjusted for children with chronic conditions? Is there stop-loss protection above a set number of visits? Are well-child visits paid separately as incentive payments? What quality bonuses apply, and how are they measured? Federal rules govern the incentive arrangements Medicaid plans may include in their contracts, so any bonus should be written into the agreement rather than promised informally (42 C.F.R. § 438.6, 2024). How often is the member list updated?

Recommendation

Do not sign at $21 without a risk adjustment and a stop-loss provision. At current volume, the contract pays less than fee-for-service and leaves the practice exposed in a bad virus season. A counteroffer of about $23, or $21 with separate payment for well-child visits, would put the practice at roughly the same revenue as last year at current volume while keeping the incentive for preventive care.

What Health Information Staff Would Do Differently

Under capitation, the claim no longer drives revenue, but the record still drives everything else. Visit coding becomes the basis for encounter reporting, quality measures and any risk adjustment the plan applies, so a sloppy diagnosis code that cost nothing under the old arrangement could now lower the practice's risk score and its rate. The department would also need a monthly match between the plan's member list and the practice's scheduled patients, a task that did not exist under fee-for-service.

Limits of This Analysis

The cost figures are allocations and could shift. Visit volume under capitation may change in ways last year's figures cannot predict. Payment for carved-out services is not included.

References

42 C.F.R. § 438.6 (2024). https://www.ecfr.gov/current/title-42/section-438.6

42 C.F.R. § 438.242 (2024). https://www.ecfr.gov/current/title-42/section-438.242

Robinson, J. C. (2001). Theory and practice in the design of physician payment incentives. The Milbank Quarterly, 79(2), 149-177. https://doi.org/10.1111/1468-0009.00202