Where is the financial safety net for managed care physicians?

OBJECTIVE: Empiric research on mechanisms by which managed care physicians attempt to mitigate financial risk is lacking. We assumed the perspective of a managed care plan in investigating the relationship between risk sharing and the match between a physician's capitation payments and costs of care. DESIGN: The study design was a family of payment simulations using 2 years of managed care claims data. METHODS: Claims from a cohort of 82,525 managed care patients were used, with year 1 data determining a capitation rate for year 2 primary care services. The net provider payment in year 2 was examined under scenarios that might modify financial outcomes, including stop-loss insurance, age- and gender-adjustment of capitation, and risk pooling within independent practice associations. RESULTS: The size of a provider's patient panel was positively correlated with net per capita payment (r = 0.22; P < 0.0001 without risk modification strategies). The variance of the ratio of net to total revenue was utilized as a proxy for the degree of risk assumed in caring for a panel of capitated enrollees. Risk modification strategies reduced this variance measure, with risk pooling producing the largest effect, especially for providers of panels of fewer than 135 patients. In contrast, age- and gender-adjustment of capitation payments had little effect on reimbursement outcomes. CONCLUSIONS: Short of increasing the pool of capitated patients, risk modification strategies appear limited in their ability to produce more equitable reimbursement to providers with small patient panels. With many providers assuming substantial risk in pursuing managed care contracts, these dynamics may favor organizational forms of medical practice that facilitate large patient panels within a single plan.