Profit Analysis in a Capitated Environment
Posted on June 20, 2009 - Filed Under Finance
As a review of profit analysis, consider how the analysis is changed when a provider operates in a capitated environment. In addition to solidifying concepts presented in previous sections, this section provides insights into the basic differences between fee-for-service reimbursement and capitation.
To begin, assume that the purchaser of services from Atlanta Clinic is the Alliance, a local business coalition. As in previous illustrations, assume the Alliance is paying the clinic $7,500,000 to provide services for an expected 75,000 visits, but now the amount is capitated. Although projected total
revenues remain the same as the previous base case (see Table 5.4), they are qualitatively quite different. The $7,500,000 that the Alliance is paying is not explicitly related to the amount of services provided by the clinic but to the size of the covered employee group. In essence, Atlanta Clinic is no longer merely
selling healthcare services as it had in the fee-for-service or discounted fee-forservice environment. Now, the clinic is taking on the insurance function in that it is responsible for the health status (utilization) of the covered population and must bear the attendant risks. If the total costs of services delivered by the clinic exceed the premium revenue (paid monthly on a per member basis), the clinic will suffer the financial consequences. However, if the clinic can efficiently manage the healthcare of the served population, it will be the economic beneficiary.
Taken From : HEALTHCARE FINANCE
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