Accountable Care Organizations, Capitation, and Emergency Care Providers – Lessons Learned from California’s Delegated Payer Model


Talk to legislators about factors responsible for the high cost of health care in the U.S., and they will likely bring up the fee-for-service model of physician compensation. I am not sure if this is an issue of a few well-publicized ‘bad apples’, or if no one really believes any more that the vast majority of physicians are motivated first and foremost to provide appropriate care. In any case, the search for an alternative to fee-for-service physician (and hospital) compensation eventually led to the concept of capitation – a mechanism to put providers at risk for the cost of the services they provide, thus countering the incentive to provide questionably necessary services. The concept of capitation achieved its fullest expression in the Knox-Keene law that expanded the HMO concept to incorporate not only the capitation of ‘risk bearing organizations’ or RBOs (medical groups and IPAs),  but also the delegation of payment responsibility to these RBOs. This model effectively allows HMOs licensed under Knox-Keene in California to carve their ‘management overhead’ and profits right off the top of the premium dollar, and delegate not only some or all of the financial indemnity risk of care, but also the responsibility to pay providers who are not contracted or otherwise incorporated as participants in the RBO’s provider network. This model not only incentivizes these RBOs to deny needed services to the enrollees assigned to their network, it also incentivizes the RBOs to underpay non-contracted emergency care providers who are obligated by EMTALA to treat these enrollees whether or not the RBO pays these claims appropriately, or at all.

Accountable Care Organizations (ACOs) have been included in proposals for health care reform in both the House and Senate versions of health care bills now working their way through Congress, as a potential solution to rising health care costs. ACOs are predicated on the idea that ‘the current provider payment system pays for volume rather than value’; and that by addressing both delivery system and provider payment reform simultaneously, ACOs can achieve the value driven objective imbued in the managed care model (see Can Accountable Care Organizations Improve the Value of Health Care by Solving the Cost and Quality Quandaries?) Two basic versions of ACO physician compensation models are being considered in the House version: a shared savings program (SSP) which is fee-for-service based but incorporates an expenditure savings risk pool / quality standards threshold concept, and a population based payment (PBP) model using a ‘partial capitation’ approach involving risk and profit sharing rather than full-risk contracting, similar to the Medicare Prescription Drug Program’s risk corridors to limit potential ACO losses. The proponents of the partial capitation model often point to the ‘success’ of California’s Knox-Keene program as evidence that population based payment is a better alternative than a fee-for-service based model. On hearing of this argument, I felt compelled to point out that the Knox-Keene HMO concept, and particularly the delegated payer model, has been a nightmare for emergency care providers (ECPs) in California.

ECPs are obligated by EMTALA to provide care to HMO and subcontracted RBO enrollees no matter how inappropriately these providers are paid for the services provided to these HMO enrollees. With the prohibition of balance billing imposed by the California Supreme Court; Governor Schwarzenegger’s veto of SB 981, a bill designed to establish a fair payment rate and dispute process for non-contracted emergency physician services; and the Department of Managed Health Care’s reticence to enforce AB 1455 fair payment regulations: ECPs have nearly lost all leverage to obtain fair payment for non-contracted services, and to obtain reasonable rates in contract negotiations with both plans and RBOs. We have become the ‘indentured servants’ of the HMOs in California. The delegation of payment responsibility to the HMO’s capitated medical groups and IPAs was the rancid icing on this cake.  Here is how capitation and the delegated model have screwed ECPs in California:

1. HMOs are directly regulated by the DMHC, but unregulated medical groups and IPAs that subcontract to the for-profit HMOs often pay less than half what the plans pay, because they are insulated from the DMHC’s direct regulatory oversight.

2. Many on-call specialists have cited, as a reason for leaving on-call rosters, having to fight medical groups for fair payment of their claims. These medical groups are happy to have the on-call specialists take care of the group’s patients in the ER at 3 am, but these very same medical groups often decline to refer patients to the on-call specialist during regular office hours

3. The EMTALA mandate puts emergency care and hospital based providers at a real disadvantage in contract rate negotiations – if you can’t say no, you have no leverage. Further, some RBOs have the equivalent of a monopsony in their local markets, and use this leverage to get hospitals to coerce their hospital-based physicians into accepting below market contract rates with the RBO. Coercive contracting is supposed to be illegal in California (CA Health and Safety Code Section 1322, Stark II, Anti-trust, etc) but violations are difficult to prove, retaliation is a real threat, and the laws are hard to enforce.

4. Many capitated medical groups and IPAs routinely down-code 50% of ER physician claims, and some even down-code 100% of the claims for the care of our sickest patients. The DMHC has been reticent to respond to numerous complaints from providers, and the Department’s claims adjudication process is flawed and expensive.

5. Capitated medical groups and IPAs that are on the verge of bankruptcy from poor risk management put emergency care provider claims at the end of the list of claims to be paid because they know these providers must continue to see their patients even if payments are withheld. When the medical group or IPA finally goes bankrupt, the contracting HMOs refuse to take responsibility for these unpaid claims. Emergency care providers have lost millions as a result of delegation to financially insolvent subcontracting medical groups.

6. Several ER groups have been forced to go to court to obtain fair payment from capitated groups, and this has undermined otherwise positive and long-standing collegial relationships. Amazingly, some staff at the DMHC have actually encouraged this approach.

7. Many capitated medical groups do not have the resources to employ certified coders for claims review: and inappropriately down-code, bundle, and deny payment of legitimate emergency care claims; have great difficulty complying with AB 1455 prompt payment regulations; and rarely submit their payment practices to outside reviewers to verify compliance.

8. The RBOs have resisted giving up paying for ECP claims, citing that if the HMOs have to pay these claims, the capitated medical groups will have no incentive to keep their patients from using the ED, and the RBOs will also lose the capitation revenues they retain by keeping their patients out of the ED. However, ED usage risk pools can provide incentives for capitated physicians to provide access for after hours urgent care and to manage their chronically ill patients so they don’t need to use the ED for exacerbations. Risk pools incentivize medical groups to do the right thing – profit by managing their patients; payment delegation incentivizes the RBOs to do the wrong thing – profit by underpaying legitimate claims.

9. Capitated medical groups say that if the plans have to take back the responsibility for paying emergency care provider claims, they will take back too much of the capitation payments to cover those claims. If the success of these medical groups is predicated on being able to derive unearned profits off the backs of ECPs by taking advantage of their EMTALA obligation, sidestepping fair payment regulations, and systematically down-coding, underpaying, and denying their claims: this would be an unsustainable business model in a fair market.

10. Several HMOs (like Kaiser) and RBOs have been paying ECP claims in CA appropriately, but this puts them at a competitive disadvantage compared to the for-profit HMOs and RBOs, and they are under significant pressure to follow in the path of easy unearned revenues and profits established by less principled payers.

If capitated ACOs end up being promoted through national health care reform legislation; you, too, may well experience these same vexing issues in your ED.

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  1. #1 by Accountable Care Organizations - February 25th, 2011 at 01:43

    Driving the right patient, with the right payer to the right service line to increase patient volume.

  2. #2 by Sally - May 6th, 2011 at 13:48

    We cannot blame the doctors and hospitals staff for securing fees from patients their under the policy and rules of the hospitals but hopefully there is a better and acceptable solution for health care issues.

  3. #3 by Princetown at the Landings - May 9th, 2011 at 03:31

    It is quite vexing to realize that we may never be able to provide the most suitable solution which can be hgihly agreeable both for the patients and the hospitals.After all, hospitals, when you get right down to the nitty gritty of it, are also forms of businesses trying to survive in the economy. Yet, o the other hand, each and every person should also be able to enjoy and receive adequate care and attention, especially in emergency situations.

  4. #4 by Ginny Corbett Photography - July 17th, 2011 at 02:12

    It’s unfortunate that all the anger and frustration are almost always directed at the nurses and staff who are the healthcare frontliners. After all, they really cannot do much but to adhere to the regulations of the entity they are earning their living from.

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