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Passing The Sniff Test (Capitation Prequel)

November 26, 2020 / 4 Comments / / by Chip Hart

Happy Thanksgiving!

I'm in the middle of two blockbuster blog posts - the Medical Decision Making tracker and a loooong post about capitation contracts being offered around the country - when I realized I should do a fast post about capitation to tide people over.  Why?  I've had a few more emails from practices, especially in California, who are getting some suspiciously bad capitation offers. 

Let's begin with the premise that you'd expect a capitated contract to generate the same revenue you'd generate from a Fee For Service contract.  We can debate the reality of that later, but we'll use it as our fast benchmark of smellability.

The fast math says you generate about $30/month from each of your patients.  How do I get that?

  1. 4 days a week x 50 weeks a year x 20 kids a day = 4000 visits
  2. 4000 visits x $140 visit = $560K
  3. $560K / 1500 active kids / 12 month = $31 / month

You can easily adjust your numbers using the figures above.  Or add up all your revenue from last year and divide by your active patient count (and then divide by 12 to get a monthly result).  Some of you will be in the $20s, some of you will be in the $40s, but most of you will be in the $30 range.

If they carve out vaccines from your capitation, that might lower your $30 rate to $20-something.  And if some procedures are carved out, too, a quick guess might peel off a few more dollars.

So...when a payor comes along and says, "We'll pay you $18 per patient, per month," does it make any sense for you?  Probably not.  How about when they offer $10 a month?  Or TWO DOLLARS a month?  

I'll have a longer capitation piece out shortly, but in the meantime, hold that capitation contract offer up to your nose.  Does it pass the sniff test?

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