Capitation and informatics.

Capitation requires that providers attend to the populations they serve, in addition to the individuals they treat. They need to process information about the populations for whom they receive capitated payments, information management usually associated with the work of HMOs and insurers; member services, provider credentialing, contracting and profiling, claims adjudication and processing, utilization review, case management, referral tracking, precertification of services, premium billing, funds management, tracking of incurred but not reported claims, marketing, and financial reporting. Employers are also demanding that health plans collect and report data about their operations according to the HEDIS 2.5 guidelines. In turn, providers who receive capitation from health plans are expected to collect data on their capitated populations to help the health plans complete the HEDIS reports. A small, but growing number of states mandate that all licensed HMOs report their outcomes according to the HEDIS methodology.

Member Services

Timely and accurate information on the identity of health plan members is important for both payers and providers. Because members may come and go from the health plan, providers need to know day by day who is eligible for care and who is not. In the past, providers telephoned health plan membership to confirm the eligibility and benefits of every member of a capitated group that they were asked to treat, consuming considerable resources. Now, happily, wide-area communication networks allow health plans to download changes in their membership roles to databases accessible by providers with personal computers and modems to allow them to check the eligibility and benefits of members automatically. Health plans must maintain the databases in accurate and current form, or they risk alienating providers. Providers usually suffer the losses if they cannot obtain payment for services rendered to former health plan members who were not eligible for benefits at the time of care.

A health plan's member services department helps members with any difficulties they may have with the health plan or its providers. It is necessary to have a function of the health plan designed to help members use the plan well, because the plan restricts their access to physicians and other health care services and requires authorization of services. Both the restriction of providers and the authorization systems take some getting used to and skill to use well.

Member services is responsible for collecting data systematically on member satisfaction and on the incidence and prevalence of medical and administrative problems for members. Structured and standardized surveys are the principal means available to member services to measure the satisfaction of members and to estimate how many have had problems. Automation of member services tracking systems aids in retrospective analysis of trends in member satisfaction with the health plan and helps member services complete a timely evaluation and resolution of every recorded problem. Automation of complaints from members, including an automatic alerting system for actions that are due (or overdue) by member services reduces the likelihood that members' complaints or problems will "drop between the cracks."

Kongstvedt lists a number of categories for a member contact tracking system.*

* Enrollment issues (selecting or changing PCPs, lost or stolen ID cards, changes in enrollment status).

* Benefit issues (questions about the services of physicians, hospitals, emergency departments, and home health agencies and complaints about levels of benefits).

* Claims issues (in-network and out-of-network claims, denial of claims).

* Plan policies and procedures (primarily about the authorization system).

* Plan administration (rude or unhelpful employees of the health plan).

* Access to care (inability to get an appointment in an appropriate length of time, distance to providers).

* Physician issues (unpleasantness or unhelpfulness).

* Perceived appropriateness and quality of care (inappropriate denial of care, lack of follow-up, delays in diagnosis and treatment).

* Medical office facility issues (unpleasant, dirty, unsafe, or poorly equipped offices).

* Institutional case issues (poorly equipped, unpleasant, unsafe facilities).

Of utmost importance is an automated information system for logging all contacts with members, including software that helps member services complete structured interviews with members to determine the nature of their complaints and what to do about them.

Financial Accounting and Capitation

Withholds are used in at least 60 percent of HMOs, usually for primary care physicians, to pay for overruns in costs in specialists' and hospitals' charges to the health plan. Physicians need to be aggregated into large risk pools of 50 to 100 physicians, covering thousands of patients, if they are to avoid financial ruin under global capitation from the random distribution of patients with very expensive ailments. For primary care capitation, the financial risks are not so great, and the risk pools do not need to be so large. Nevertheless, capitation withholds and risk pools all require much more sophisticated accounting than is needed by indemnity insurance to pay for fee-for-service medicine. Providers who receive capitation and then subcontract some of the risk to other clinical specialists must be able to account for the flow of payments from the health plan to themselves and to the various clinical groups accepting subcapitations. Accounting must track payments as they are under capitation and as they might have been under fee-for-service, because most clinicians involved in capitation still account for care by fees-for-service and want to know what they would have made under the "normal" payment structure.

The health plan that capitates providers needs to maintain stop-loss insurance and have in its contract with providers specific details of the level of costs for any individual patient and of the aggregate costs of all patients over which costs will no longer be charged against the risk pool. The aggregate level may rise as a physician takes more patients under capitation.

In a similar way, physicians sharing a risk pool for primary care capitation need incentives to minimize the costs of care. In addition to keeping excess funds from primary care capitation, they should share some of the excess funds in the risk pools. In order to accurately distribute funds to physicians, accounting functions in health plan information systems need to be much more sophisticated than those for fee-for-service payments.

Problems with capitation generally relate to chance, with sicker patients than expected associated with one physician or with one group of physicians sharing capitation. Physicians often wonder how they can make any money seeing these patients, not recognizing that the capitation payments include payments for members of the health plan assigned to them whom they do not see frequently, if at all. Health plans need to keep encounter records (claims data) from all providers to show providers which members they have treated as patients and for which members they received capitation payments but did not treat or treated briefly and infrequently.

Patients sometimes perceive that they receive short shrift from physicians with incentives to withhold treatment to save money. Health plans must track the encounters of members seeing each physician and survey members for their satisfaction with the physicians they selected or who were assigned to them to identify cases of neglect or negligent treatment by physicians. Health plans can predict the numbers of office visits, consultations, hospitalizations, immunizations, and other services by a primary care physician and use their databases of claims to ascertain which physicians are ordering fewer services than expected.

Administration of Claims and Benefits

Claims processing is the heart and soul of a health plan and a central business activity of any provider organization that tries to manage capitation. Capitated provider organizations that do not process claims are utterly dependent on insurers until they acquire the ability to preprocess claims before sending them to the insurer for final adjudication and payment. The organization that owns claims data has an enormous advantage. Providers who assemble and organize resources for claims preprocessing are much closer to the goal of becoming independent of insurance entities and striking out on their own to contract directly with employers.

On the other hand, claims processing is not simple. It is capital intensive, with robust claims systems (necessary for the variety of contracting terms now in vogue with point-of-service plans) costing $500,000 to $1 million or more for hardware and software, and staff intensive, with claims adjudicators hired for every 5,000 to 8,000 health plan members. Nevertheless, direct contracting requires that providers manage the claims processing task. Electronic processing of claims and electronic access to claims data by other departments of the health plan, including member services, provider services, and utilization management, is essential to do business most efficiently.

Another principal activity of claims processing is to identify other insurers that are liable for some, or all, of individual claims. Effective coordination of benefits can save health plans as much as $5-6 per member per month. Insurers, or third-party administrators, processing claims for beneficiaries of indemnity insurance usually require that information about other insurance coverage be completed on the claim forms, or the claims will be pended until those items are complete.

On the other hand, many health plans do not require that members submit claims. In fact, it is a marketing advantage that health plans tout to members. In that case, providers submit claims but usually do not have information about other insurance coverage. Health plans that do not require members to submit claims must be aggressive, and creative, in soliciting information about other insurance sources. Claims departments must also deal with such issues as workers' compensation and subrogation in cases of injury to members by third parties, where other sources of income can offset some, or all, of the costs the health plan would otherwise bear.

Fraud and abuse are frequent bedfellows of claims processing activities, because so much money flows through claims departments and a small percentage of fraudulent claims may amount to a considerable sum of money. Claims processing operations must be particularly vigilant about controlling who has clearance to authorize services, who can create records of providers to whom payments will be made, and who produces and signs checks to providers.

Medical Records

Under fee-for-service payment arrangements, providers need to schedule patients, keep records of their clinical findings and of the services they render, and send bills, in the form of claims, to patients and/or their payers. While all of these activities can be performed manually, most organizations larger than a single physician's practice use computers and software to maintain financial records. Larger organizations may also use computers for scheduling patients, paying employees and suppliers, and maintaining financial statements. The larger the provider organization, the more likely the presence of automated scheduling and financial systems for preparing bills for services and calculating funds flows, including payroll and bookkeeping. But few, if any, provider organizations keep the claims they have submitted to patients and payers for payment in electronic form. Few providers keep more than a minimal set of clinical records about their patients in electronic form.

Under fee for service, once a clinical transaction occurs and financial accounts for it are settled, neither provider nor payer has a financial incentive to incur the costs of maintaining electronic records of the transaction. They print their records to paper and free the computer space for current accounting. Every provider organization counts its medical records among its most important possessions. But almost all of those records are on paper, where they may be adequate for retrieving information on individual patients, but are totally inadequate for timely health services research studies of the quality and costs of care rendered to populations of patients over time. I predict major investments by both payers and providers in electronic collection of summary claims and clinical data to use in quality improvement and cost reduction studies. Large insurers that are acquiring medical groups all are investing heavily in automated medical record systems, as is Kaiser Permanente.

Authorization Systems

Authorization requirements usually affect primary care physicians who want to admit patients to hospitals or send patients to other physicians for consultations. The authorization process is used to review clinical plans for medical necessity, according to guidelines accepted by the plan; to channel care to the most appropriate locations, which often means outpatient treatment for services previously performed in hospitals; to provide timely alerts that patients are approved and scheduled for services that will require concurrent review; and to help the financial department of the health plan anticipate incurred but not reported claims. In tightly controlled health plans, all services not performed by primary care physicians require authorization for payment. In PPOs, where control is not so strict and providers are paid on a fee-for-service basis, authorization requirements may be limited to prior approval for elective hospitalization, elective surgical procedures, and major diagnostic studies.

For providers to understand that the health plan is serious about maintaining the discipline of prior approval, they must know that their claims for payment, or their capitation payments, will be flagged without adequate prior approval and reduced by some specific amount. The claims processing system must be able to identify services for which prior approval is required and whether or not approval was obtained. Cross-referencing of claims data with utilization management data must be electronic and automatic. The more powerful the automated information system and the more capable it is of dealing with many unusual circumstances electronically, the faster the processing of financial transactions with providers and the lower the cost of claims adjudication. Ideally, the health plan would have an information system for claims and capitation payment so sophisticated that all transactions could be adjudicated automatically and not pended for human inspection and adjudication. There is no such ideal system on the market.

Health plans need authorization systems that allow them to define types of authorization, including prospective authorizations for elective procedures; concurrent authorizations, usually in the case of urgent treatment, such as same-day elective admission to the hospital; and retrospective authorization. Health plans with large numbers of claims pended for review, denied payment because of lack of prior authorization, or given authorization retrospectively have inadequate utilization management programs. Many times, emergency situations warrant treatment before authorization, but large numbers of such services indicate that the authorization process is too cumbersome, too unfamiliar, or too often ignored by providers and/or members. Because timing is important in obtaining authorization, the system must have adequate numbers of telephone lines, adequate numbers of nurses staffing the computers and telephones, and adequate training of members and participating physicians about the need to use the authorization system and the mechanics of how to use it.

Authorization systems can be based on paper authorization forms, on telephone contact, or on electronic communication between providers and the health plan, with providers entering data directly into the authorization system from personal computers. Paper-based systems only work when the authorization system is controlled by primary care physicians who mail forms to the health plan to inform claims processing which claims should be paid in full. When patients choose to make their own referrals and do not engage primary care physicians in those decision or obtain approval, their claims should be paid at less than the full amount. Keeping track of which claims are approved by PCPs retrospectively may give a health plan insight into which PCPs are active with their patients or not available to their patients.

Telephone-based authorization systems can be a terrible bottleneck and frustration for both members and providers if there are not enough telephone lines and nurses to handle incoming calls. One advantage of telephone authorization systems is that data are collected correctly and more promptly than in paper-based systems. The disadvantage is frustration providers and members feel from having to get approval for services that are almost always approved once they are explained. Nurses staffing a utilization review center need a fast, easy-to-use information system that allows them to navigate through benefits and membership files and retrieve the criteria for approval of any procedure in seconds, so conversation with callers is not interrupted waiting for data to show up on their computer screens.

Authorization systems implemented electronically are more costly, in terms of computer equipment and software at the health plan and at providers' offices. Unlike paper systems, however, electronic systems can track every message reliably, with an audit trail indicating when a message was composed and sent and when and where received. Electronic messages do not get lost in the mail. It is feasible for an electronic system to interact with the provider, suggesting additional data be collected or questions answered. The rule-based logic of an automated authorization system is complex, but fairly well-defined for most common elective procedures.

The data elements that any authorization system needs to collect include the member's name, birth date, plan ID number, eligibility status, and primary physician; the referral provider; the date of referral service; diagnoses involved in the treatment decision (in standard ICD-9CM codes); the number of visits to a subspecialist that are approved; and the anticipated discharge date. Nurses using algorithms to estimate the appropriateness of a procedure for which authorization is being requested may ask providers more detailed questions about clinical findings or treatment plans.

The health plan must keep accurate records of the locations and qualifications of providers and the terms of the contracts they have signed with the health plan. Payers want a broad distribution of well-qualified physicians and accredited hospitals available to their beneficiaries. They want to know what proportion of physicians are board-certified and how many physicians work in each zip code where beneficiaries work and live. They want to know what the average driving time is between beneficiaries and providers. They want to know that providers will accept payment from the health plan as payment in full. They want to know what proportion of physicians, by specialty, have closed their practices to new patients. These requirements are a challenge to information system designers for the health plan. The characteristics of participating physicians and facilities, like those of plan members, change too often for publication of accurate paper records. Instead, health plans are beginning to compete for business with employers and providers by offering electronic communications between them.

Performance Statistics on Physicians

Unfortunately, most health plans treat physicians more as adversaries than as partners and do not share plan member data in a way that will help physicians change their practice styles. For example, health plans can share with physicians members' responses on satisfaction surveys. They can survey members using health risk assessments and help physicians anticipate risk factors for chronic disease in members assigned to them. Health plans can profile physicians' use of common medical treatments for common ailments and teach them ways of using resources more economically and for better patient outcomes. Most health plans send scant comparative reports to physicians, and few, if any, offer analytical staff to ferret out of those data the trends of interest to physicians. I believe that health plans will make those investments as they begin to narrow their provider panels and cultivate more of a partnership with selected providers, abandoning the adversarial relationship. The relationship between health plan and providers will become both symbiotic and educational, with the health plan holding most of the data about the processes of care in the community and about the outcomes of health plan members and learning to share those data with contracting providers in order to make them more successful.

Accreditation Activities and Reporting

Employers increasingly want evidence of accreditation before they will consider offering a health plan to employees. A growing minority of states require health plans to pass regular accreditation or face the prospect of losing their licenses. The data collection and reporting requirements of health plans are probably foreign to most physicians and hospital administrators, but they will become important to those who participate in the creation of a health plan.

Health plans face complex and challenging information processing requirements. They are responsible for the total costs of care for populations of people over time and must prove their value to purchasers and regulators not only with competitive prices but also with detailed measures of processes and outcomes that their information systems (manual or automatic) must help them produce. Health plans will succeed if they can gamer the loyalty and commitment to excellent practice habits of participating providers. Health plans will be more likely to accomplish that goal if they freely and openly share comparative satisfaction, outcomes, and financial data about members with contracting providers, showing them, especially physicians, how they compare to their peers in key measures of clinical quality, productivity, and member satisfaction. The more a health plan uses data to try to help participating providers perform better, the stronger the health plan will grow in the long run.

* Many of the ideas for this article were gleaned from Peter Kongsvedt's excellent book The Managed Health Care Handbook, Second Edition, Gaithersburg, Md.: Aspen Publications, 1993.

Marshall Ruffin, MD, MBA, MPH, FACPE, is President and CEO of The Informatics Institute. Until he started the Institute, he was Clinical Information Officer, INOVA Health Systems, Falls Church, Va. He continues to consult to the Informatics Department of that organization.