How to prepare for a capitation payment model

November 28, 2018
Owen Dahl

How do you post charges, payments, and adjustments in value-based payment models?

The dynamic, ever-changing value-based payment model creates a more complex world for the revenue cycle team.  

Value-based care raises many reporting questions. How and when do/can you record adjustments? How about payments offered in an explanation of benefit (EOB) that does not include a summary? How do you assign payments to the correct provider when the compensation model is based on work relative value units (wRVU)? What does changing when adjustments are posted mean in terms of reporting and tracking the effectiveness of the revenue cycle program?

First things first. Do you have or are any of your payers suggesting they will be shifting to a capitation payment model? If so, lots of technical discussion between the practice and the payer should occur about payment timing and reporting. You might feel like you don’t know where to start, so begin by analyzing the payer’s current EOB format and a sample of what the capitation EOB would look. This will reveal details about what to expect in terms of patient and transaction detail.

You then need to reach out to your practice management system (PMS) vendor. It’s essential you ask them what tools they have and how they process the entire transaction. Their answers could be a huge help in determining your best approach to addressing the charge posting and EOB processing.

Then, you’ll want to shift gears to the internal processing of these value-based transactions. Your current approach to managing your charges, payments, and adjustment (CPA) is to take action when services are provided and when EOB’s are received. Each patient account is accessed, charges are entered, claims are submitted, and EOB’s are posted with payment and adjustment amounts. Further actions are taken as necessary, e.g., appeal, statements, or close out the transaction. Daily or monthly reports are updated with each step. The accounts receivable balance is tracked until the transaction amount is zero. That workflow doesn’t apply in a capitation care model.

In a capitation world, payments are based upon the number of patients assigned in your panel and are processed monthly. Your practice needs to ask a key question: Do you write off, in other words use capitation code, when the charge is posted by track each provider’s activity rather than dealing with the charges at a later time? 

If you do, then when payments are received, rather than post to the patients account, the amount is posted to a capitation account per provided (if the EOB identifies what amount is for which provider). Again, your PMS vendor may already have an ideal option that you could apply to your workflow.

This change however, will have a ripple effect in your reporting since payments and adjustments are taken at the time of charge posting. Your accounts receivable balance will therefore be reduced, and the traditional reporting will reflect an improved collection percentage. Here’s something to consider: Do you then change your charge posting process for all transactions and take adjustments at that point?

Before making any changes, make sure you understand and have a consistent process for handling copays and deductibles. The payer should help with a standard, e.g., $10 copay for each visit that will make tracking and collections a little easier. If there are a variety of copay plans, you may have to set up different “payers” in your master file even for a single payer, e.g., payer A $5, payer A $10, and so forth. 

There is also the question of carve outs for when you have negotiated a fee-for-service arrangement for certain procedures according to Current Procedural Terminology codes. These would be handled in a more traditional way. Therefore, you may have a patient with a $5 copay for an office visit as well as a carve out procedure.

I know I may be confusing you rather than giving you all the answers. However, serious discussions and analysis should occur now, so you are ready to proceed when the optional payment models are presented.

I recommend you take these four steps today OR sooner rather than later:

  • Determine how you accept capitation payments.
  • Learn the payer process and know how the payer will inform you of the patient panel and EOB.
  • Seek advice from your PMS on handling these types of transactions.
  • Identify what changes need to be made in your internal processing and reporting.

There is no one right way to proceed. If you think through these key points, you will be prepared to handle the various payment methodologies you are, or will soon be, facing.