Capitated payment plans-projected to provide more than 70% of hospitals' total revenues by 1999-could jeopardize hospitals' long-term financial position if they're not priced right, said Fitch Investors Service.
Fitch released its one-page analysis of the impact of capitation last week. In it, the New York-based credit-rating agency warned that capitation will add risk for hospitals, particularly as they switch to a capitated system for Medicare patients. The agency's estimate that 70% of hospitals' revenues will be capitated before the turn of the century is based on current trends, said Edward C. Merrigan, Fitch's vice president of healthcare and higher education.
Fitch believes hospitals must be able to accommodate capitated arrangements, which are based on predetermined group rates, for their long-term viability. The shift from fee-for-service-based payments to fixed, population-based payments won't immediately threaten credit ratings but adds long-term risk, the agency said.
Medicare will eventually establish a capitated system that pays a preset price for the bulk of medical services because the current, fee-for-service-based system is a "huge drain on federal revenues," Fitch said.
Currently, Medicare serves 2.6 million of the nation's 36.6 million beneficiaries through capitated contracts. Mr. Merrigan thinks that effort will be modified and expanded as healthcare reform momentum builds and Medicare's financial resources dry up.
Because Medicare accounts for almost half of all hospital revenues, the switch to capitation "will profoundly affect the hospital industry," the agency said.
To bid on such contracts, hospitals will need sophisticated information systems, accurate actuarial assumptions and precise cost assessments, Fitch said. Inaccurate bids could prove catastrophic. "Hospitals submitting low-ball bids in order to sign on plans will be at risk if patient use exceeds preset per-member-per-month fees," the agency said.-