The HMO has proposed moving to a captivated reimbursement model. Looking at thre
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Question
The HMO has proposed moving to a captivated reimbursement model. Looking at three constructed profit and loss statements below:
a. What do the Profit and Loss statements show?
b. What are the opportunities and what are the risks of being reimbursed on a capitated basis?
c. What is your recommendation for either accepting or rejecting the HMO capitation proposal?
Scenario 2 Remains Same
Scenario 3 Increased By 15%
Initial Wellness Care Clinic Cost and Volume Metrics HMO Beneficiaries 15,000 # of Clinic Visits 45,000 Revenue per Visit $100 Variable Cost per Visit $30 Fixed Cost $2,750,000 Additional Fixed Cost $300,000 Capitation Revenue Per Beneficiary $300Explanation / Answer
A> Profit and loss statments shown are shoiwng comparative postition of net profit & loss of the operations in different scenario.
1st Scenario - Clinical visit reduced by 25%
In this case, Initial Wellness Care clinic will make a net loss of $687,500 in the existing system and with Capitation they will make a net profit of 437,500.
2nd Scenario - Same status
In this case Net porfit is of $100,000 in either case
3rd Scenario - Clinical visit increaed by 15%
In this case Net profit is of $572,500 in existing structure and net loss of $102,500 in capitation payment base.
B. Opportunities and Risk of being reimbursed in Capitated basis
Opportunites -1. This can encourage waste reduction at all levels and give them the freedom to make the treatment decisions they think are best.
2. Savings from waste reduction can be used to fund the operations of care delivery.
3. In case of reduced business to HMO, they will still get the same revenue and hence positive profit as the reevenue will be fixed on per person basis and cost would remain fixed.
Risk 1. This types of payment systm should ensure adjustment for risk which needs to be done at all levels.
2. Quality measures needs to be inplace to ensure that providers dont withhold neccesary care.
3. In case of increase in visits, the capitation pay structure will result in loss as the revenue will stay same but the cost (variabel and fixed) will go up and will result in net loss.
C. HMO Capitation proposal may turn the existing clinical visits operation in to net loss if the total visits are increased .
With an increase in clinical visits operatrions varible cost and additional capital investment in Capitation business will be required and this will not result in net revenue increase. To overcome this situation, in Capitation pay structure the number of visits per person should be rstricted to a maximum per period and and additrional amount shoudl be charged over and above capitation fee for every visit above fixed limit. HMOs recomendation should be accepted as this will protect the financial status in case of decrease in visits. At the time same time a protection (limits in vists per period) shoudl be placed if visits increases so that variable cost of each visit should not eat up the net profit.
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