Developing a Capitated
Health Insurance Product
Monday, Aug. 8, 3: 30-5 p.m.
With hospitals gearing up for an increase in capitated business, presenters at one American Hospital Association convention session will highlight the key issues in developing an insurance product or a panel of providers who accept risk.
"As a provider panel, you can either decide to become an insurer or to contract with an insurer," explained Michael Anthony, partner and chairman of the health law department at McDermott, Will & Emery in Chicago, who will moderate the session.
The participants will "discuss the roles and responsibilities of the insurer and the provider under each scenario," he said.
Topics of discussion include:
What capacity does an organization need to build to deliver a capitated health insurance product (under which providers receive a fixed payment or fee per head)?
How are products rated, priced and marketed to groups and individuals?
What systems and structures are needed to support this product?
Dan S. Wilford, president of Memorial Healthcare System in Houston-which has developed a provider panel that contracts with HMOs and insurers-"has not taken the step to become an insurer," Mr. Anthony said.
Mr. Wilford will discuss "issues in negotiating as a provider panel for a capitated rate and developing a provider panel that accepts capitation," Mr. Anthony said.
Kevin Hickey, vice president at Aetna Health Plans in Chicago, said he will focus on the design and delivery of a capitated product. From the point of view of the product-development process, he will discuss what elements need to be identified and how they're put together "and synched up," he said.
The key consideration is, "What does the product need to have as basic elements in order to be successfully marketed?" Mr. Hickey said (See related story, p. 44).
A capitated product could be an HMO "or any other product where there is essentially full risk being assumed by the provider," such as carve-out programs for mental health, cardiovascular services, obstetrics/gynecology packages and the like, he said.
In considering market segmentation, Mr. Hickey will focus on operations management, network management, quality management and "how these elements need to be tied together, how one positions that product with respect to the targeted market segment," he said.
Gordon Trapnell, president of Actuarial Research Corp., Falls Church, Va., will present an actuarial perspective on developing a capitated product and becoming an insurance company. He will discuss "the financial risk in being a provider panel and tack onto that the additional risk there would be in taking on the insurance product," Mr. Anthony said.
"I'll try to knit together the strands that the others present," said Mr. Trapnell. He said he will do this by illustrating the implications of what the other panelists say they plan to do.
"I'll look for ways to illustrate what it really means, falling back on the elementary principles of accepting risks and setting up an insurance organization. Once you take capitation to deliver services, you're in the insurance business. That puts certain exigencies on you and forces you to think from a perspective that is foreign to a hospital," he said.
"If you take the risk, by which you accept a premium or a capitation payment or something that has an inflexible element to it, you're responsible for taking care of health needs which are variables," though they are predictable to some extent, he said.
Even if a provider system keeps its affiliation with an HMO, "then you're giving some control over to them, and that's another risk you can add," he said.
Some insurance commissioners are looking askance at providers taking increased risk "because this is not the perspective they've had in their careers," Mr. Trapnell said.