Various Capitation Models Are Available for Oncology Networks

ORLANDO—Payers have an obligation to provide the best possible oncology care, and the obligation is fulfilled "as a direct result of having a managed network," said Christine Ngo, capitation network manager for Blue Cross Blue Shield of Florida/Health Options, Inc., Jacksonville. Further, she said, "the most successful way we have found to develop a managed network is through capitation."

A Payer's Dream Network

Blue Cross Blue Shield of Florida/Health Options, Inc. began the process of developing a capitated managed oncology network by brainstorming about a "dream world" network, Christine Ngo said in her presentation (see article).

Although recognizing the probable unfeasibility of such a "dream world" due to individual market variations, the company identified the three most desirable characteristics of their dream network:

Unlimited access for the plan's patients to any oncologist, radiation oncologist, and hospital in the network. Those participating would be the best physicians available and the most respected in their fields.

Various levels of capitation are available, depending on the needs and desires of both the payer and the oncology network. Speaking at a managed oncology care conference organized by International Business Communications, Ms. Ngo described five possible reimbursement methods.

Discounted fee-for-service (paying for each service performed, but at a discounted rate). With this method, the payment structure is usually already in place, so the status quo is not disturbed. On the other hand, without a utilization management mechanism, the potential for overutilization exists.

Even so, Ms. Ngo said, this is often a good interim step for a payer to use with a new managed oncology network if the validity of the available data is in question or the organizations can't agree upon a rate. The payer, for instance, might start with this method for 6 to 12 months while both sides collect data to help them determine a fair capitated rate.

Capitation with fee-for-service carve-outs, in which professional services such as office visits are capitated but all other services--inpatient admissions, chemotherapy, etc--are paid fee-for-service.

"The rationale for this approach is similar to that of straight fee-for-service," Ms. Ngo said. "This method works well in a market new to capitation or when the data are unsure. Remember, though, that utilization is not being managed for those services that continue to be paid fee-for-service."

Full professional capitation, in which all services, except inpatient admissions, are capitated. This method poses a financial risk for physicians because inpatient lengths of stay are difficult to predict. However, the risk can be lessened by including a stop-loss provision specifying that costs over an agreed-upon amount will be shared.

Global capitation, in which all services, including inpatient admissions, are capitated. This is especially risky for physicians because of potential high-cost cases and the uncertainty of the level of utilization. Another stumbling block, Ms. Ngo pointed out, is that hospitals may balk at receiving payments directly from physicians.

Case rate payment, in which a lump sum payment is made for a particular diagnosis. For example, a doctor treating a stage II breast cancer patient would be paid a flat fee for that patient's entire treatment, no matter what it involved. If the treatment ultimately cost less than that amount, the doctor would keep the extra money, but if the costs exceeded the payment, he or she would have to absorb the loss.

"This, in my opinion, is the most sophisticated method and the most managed alternative," Ms. Ngo said. "It is usually not a good alternative, though, until the network is firmly established, and benchmarks and average costs have been determined."

Direct or Third-Party Contracting

Payers can contract with managed oncology networks either directly or through a third-party administrator, she said. Contracting through a third-party administrator offers the advantages of sophisticated data collection and analysis methodologies as well as certain economies of scale if the third-party administrator operates in different locations around the country.

Ms. Ngo pointed out, however, that some physicians are resistant to dealing with a third party. Contracting directly with a group of oncologists eliminates the intermediary and can be the best choice when the physicians are a cohesive group.