Four techniques for managing the risk of capitation contracts.

Organizations that provide managed care must manage four major cost drivers if they are to achieve financial success under capitation. These cost drivers-number of lives covered, service frequency, service intensity, and cost per unit of service-represent risk factors that can be minimized using several insurance risk management strategies: bearing risk, sharing risk, transferring risk, and undertaking risk-reduction activities. No one strategy will be sufficient to ensure success under capitation; contracting organizations, therefore, should use a portfolio of strategies to manage risk.