Reimbursement Assessment
Brochure PDF

Specialty Capitation -
Rate Setting, Evaluation and Implementation

PMPM Contracting for Specialty Physicians -

A Strategic Plan for Successful Negotiations

Specialists are looking for standardized formulas for per member per month (PMPM) capitation rates to help them formulate bids for managed care contracts. Many specialists have learned that it can be a bad business move to assume substantial risk through capitated agreements until they have accumulated ample experience to take such risks. Specialists have found that using information extracted from various trade groups is not the most reliable way to assess their reimbursement methodologies because the available information encompasses only national statistics that fit "rule of thumb" formulas. Area-specific age-sex adjustments and other demographic indicators need to be factored into the formula.

Specialists can breathe a collective sigh of relief, however, when negotiating risk-sharing agreements with independent practice associations (IPAs), medical groups and health maintenance organizations (HMOs), according to Susan Charkin, MPH, executive director of Healthcents, a health care consulting firm in Marina, Calif. She assures specialists that they can effectively negotiate reimbursements for their clinical talents.

Charkin represents a growing number of industry experts helping specialists who feel pressured by IPAs, medical groups and HMOs to move in a new direction. She recommends that specialists start by understanding the influence of regulatory and legal requirements on managed care organizations in contracting for specialty services. "Specialty services have an impact on managed care dollars in significant ways", says Charkin. For example, 32 percent of every HMO dollar spent on medical services is spent for physician services, and of that 32 percent, 60 percent is for specialty medical care.

"Specialty services, or the lack thereof, also can have a strong impact on an HMOs ability to do business in a particular geographic area," Charkin says. Depending on the state, an HMO cannot conduct business in a particular area unless it is licensed by a state agency, such as the department of insurance or the department of corporations. In this licensing process, an HMO must demonstrate, via contractual relationships with local hospitals, IPAs, medical groups and ancillary providers, a sufficient capacity to provide locally based tertiary, ancillary and primary care and specialty physician services. Once it is licensed by the state, the HMO can then sell its commercial and Medicare products only to members in that geographical area.

Join a Group

After specialists develop an understanding of their overall importance to HMOs in terms of managed care dollars and licensing requirements, how do these facts help them to develop sound contractual arrangements? Elsa Rivera, a Healthcents practice management consultant, recommends that specialists either join or organize a single or multispecialty group in their area. ``It's the power in numbers' theory," she says. ``Specialists should focus on collecting as many of the specialties in their area to position themselves with contracting power with the local medical groups." The specialists should obtain the services of an attorney whose practice concentrates on health care issues, Rivera says. The attorney can help the specialty care provider group form an appropriate business structure and ensure that it adheres to all local, state and federal laws and antitrust regulations.

Hire a Contracting Consultant

At this point, a contracting consultant should be hired to represent the specialty group in contract negotiations with key managed care players in the community, Charkin says. Many physicians have minimal business experience and even less experienced in contract negotiations.

Before hiring a consultant, specialists should be sure that the consultant has ample experience in handling negotiations among specialists and IPAs and medical groups, Charkin advises. The consultant should be able to capitalize on knowledge of the group's specialty and local IPA and hospital politics. The consultant also should have access to key players in the region. Specialists should expect the contracting consultant to work cohesively with each specialists and the group to ``create and negotiate the ultimate capitation rate," Charkin says.

Many California-based IPAs and medical groups historically have attempted to dictate local standards for capitation by offering reimbursement via a ``take it or leave it" route, Charkin notes. Specialist have responded by non-negotiation; that is, by ``jumping into" capitated agreements to have access to their existing and potential patients.

In response to this trend, Charkin and Rivera offer the following advice:

  • Do your own homework first - get to know the intricacies of your patient population.
  • * Obtain your own local demographic information - including average length of stay and outcomes by diagnosis-related group - for easy comparison with data provided by the local IPA or medical group.

Hold Firm

Specialists should hold firm, Charkin says. "The bottom line is that there are no hard-core cap rates or magical formulas. Every region is individual in its needs and providers."

Specialists should negotiate based on their own need for an adequate reimbursement structure. Specialists also should remember that:

  • HMOs need to maintain adequate specialty services levels to maintain their state licenses; and
  • no agreement is worth signing if it is going to lose money in the long run.


Healthcents is a full-service consulting group that specializes in provider contracting and reimbursement analysis. Susan Charkin can be reached at Healthcents, (800) 497-4970; fax (831) 455-2695; email: charkin@healthcents.com