How Capitation Can Improve Healthcare Value and Reduce Cost

Donald H. Crane, JD

As efforts to repeal and replace the Affordable Care Act seem to have died, the movement toward value-based healthcare is very much alive. Meanwhile, healthcare leaders observe the continued prevalence of high costs and ask: Is there any solution?

Capitation Is the Destination

America's Physician Groups (APG) is a national professional association composed of physician groups dedicated to coordinated, accountable care. It is the nation’s largest trade association that explicitly promotes capitation as the payment model for its members, all of whom accept various forms of risk-based capitation or other population-based payment.

Simply put, capitation is when a group of physicians is paid in advance to take care of a population of patients for a period of time. Groups accepting population-based payment are in the forefront of national healthcare reform and represent the care model and payment methodologies adopted by federal legislation for the entire nation.

The Model for the Future

The California Regional Health Care Cost & Quality Atlas combines data from Medicare, Medi-Cal, and 10 major health plans to offer a comprehensive comparison of capitated-integrated care vs. the fragmented fee-for-service model. According to the Atlas, compiled via collaboration between nonprofit, nonpartisan organizations including the California Health Care Foundation, HMOs (capitated-integrated) outperform PPOs (fee-for-service) on both quality and cost. For example, Medicare Advantage outperforms Original Medicare fee-for service (FFS) on clinical quality, hospital utilization, and cost.1

According to the Atlas, as compared to fee-for-service, the capitated-integrated model:

  • Scores 14 points higher in quality.2
  • Delivers 9% lower total cost of care.3
  • Brings $4,450 less total cost of care per member per year for members in Medicare Advantage.4

These statistics prompt questions, including:

  • Is it ethical for employers and governments to knowingly provide lower quality products?
  • Are we experimenting too much? With models we know are flawed? When we could imitate an existing successful model?
  • What if we knew capitated-integrated care was safer, too?

APG Initiatives

In response to these questions, APG has undertaken a variety of initiatives, including:

  1. Medicare Advantage Alternative Payment Models (APMs): APG has urged the Centers for Medicare and Medicaid Services (CMS) to recognize the excellence of coordinated care as delivered by sophisticated groups within Medicare Advantage, and give credit to those groups as they move into MACRA. The Center for Medicare and Medicaid Innovation (CMMI) will launch a pilot program based on our request.
  2. Third option: To lower costs, APG proposes that CMS should give direct contracts to qualifying groups offering coordinated care.
  3. The antidote to single payer: By implementing the capitated-integrated model of care across the nation, we could reap enough savings to subsidize those we need to subsidize to rapidly achieve universal coverage.

Donald H. Crane, JD, is the President and CEO of America’s Physician Groups.

The opinions expressed here do not necessarily reflect the views of The Doctors Company. We provide a platform for diverse perspectives and healthcare information, and the opinions expressed are solely those of the author.


1Integrated Healthcare Association, California Health Care Foundation, California Health and Human Services. California Regional Health Care Cost & Quality Atlas, 2nd ed. 2018. Accessed August 2, 2018.




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