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How Rehab Therapists Can Take Advantage of Capitation Models

With capitation models returning under value-based care, rehab therapists should ready themselves to take advantage of efficiency-driven treatment.

Mike Willee
5 min read
March 9, 2023
image representing how rehab therapists can take advantage of capitation models
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Insurance companies and managed care organizations (MCOs) are always looking to cut their expenses wherever they can—and never more so than when we’re facing a potential recession. So it makes sense that they’d first look at their biggest expenditure—actual patient care—to see where they could save money.

In her most recent Founder Letter, WebPT co-founder and Chief Clinical Officer Dr. Heidi Jannenga shared her prediction that the looming financial crunch might see the return of the capitation model for rehab therapists. And while some veteran clinicians might have their own thoughts on what the reintroduction of capitation could mean, others might not know how this old-but-new-again model of reimbursement might impact their financial picture. So, we’re here to help with an easy-to-understand explainer on capitation models—and why rehab therapists don’t necessarily need to be worried about their revenue. 

What is capitation?

In short, a capitated payment model is one in which an insurance company or managed care organization pays a provider a lump-sum amount that covers a set of services provided to patients, rather than reimbursing for each service provided to those patients. The rate paid under capitation is based upon the services provided, the number of patients being treated, and the time spent providing those services to patients. Payers take those three considerations, along with factors like local costs and the average utilization of services in a given area, to determine a payment rate reflecting the average cost of treating a given patient which is then multiplied by the number of patients a given provider would see. Capitation rates are also adjusted to account for risk in a given patient population to prevent clinicians from avoiding more complex patients.  

In creating a capitation agreement with providers, payers will specify the range of services covered under that agreement, which will determine the actual amount paid per patient. Of course, there may be some back-and-forth on actual rates as part of the negotiation process, as with any payer contract.           

What are the benefits of capitation?

It’s not difficult to see the appeal of capitation for insurance companies and healthcare organizations: a fixed amount of spending per patient means cost certainty—which is something every business is looking for, health care or otherwise. It also incentivizes reducing waste and inefficiency in healthcare spending, something that has plagued the healthcare system for decades. And it emphasizes better outcomes—under the traditional fee-for-service model, there’s no disincentive against simply providing more treatment in the case of suboptimal outcomes. 

All that said, it would be hard to blame rehab therapists for being skeptical. Cost savings sounds like a byword for rationed care and less treatment for patients with greater needs. And capitation models put the financial risk on the shoulders of individual providers, rather than insurers or MCOs. But rehab therapy is particularly well suited for a future centered on value-based care, and in the case of capitation, there’s a pretty clear path to making it work to your advantage.


How capitation can work for rehab therapists. 

Payers are trying to cut down their own spending under capitation, yes—but that doesn’t mean that savvy clinicians can’t still provide exceptional care and come out ahead financially. One selling point of a capitation model for providers is that they’re getting that lump sum payment covering all the services and patients included within the agreement—regardless of whether they’re actually providing all those services to all their patients. That means providers that treat patients more effectively and prevent return visits are earning themselves a nice bonus for unnecessary services. 

Well, who better fits the bill of efficient, effective care than rehab therapists? It’s well-established that greater access to rehab therapy is proven to improve long-term outcomes, and is a more cost-effective treatment option than relying upon a primary care physician—all things that are music to the ears of any insurer or MCO. 

That doesn’t mean that a shift to capitation would be a seamless process, however; if you want to maximize your return on this new approach, you need to have a few things in place to make sure you’re ready for a leaner, meaner payment model.  

Get more efficient in your processes.

As previously noted, capitation incentivizes providers to improve their processes, and odds are most practices could stand to streamline their workflows regardless of pricing model. Fortunately, technology makes it easy to automate many of the tasks that front-office staff previously had to manage manually, including:

  • Scheduling;
  • Patient intake;
  • Insurance verification; and
  • Appointment reminders.

Moreover, clinicians can also get a bit better with their processes to save time spent on each patient. Implementing practices like point-of-care documentation can cut down on your paperwork burden at the end of the day. And having an EMR solution that allows you to integrate these tools, customize your workflows, and transfer all of that information to your billing software can save valuable time and have your practice running like a well-oiled machine.    

Get better at measuring outcomes. 

If you’re going to negotiate a capitation agreement, you’re going to need to know your own cost per case as well as your utilization and outcomes; otherwise, you’re relying upon the rate that an insurer or MCO is proposing based upon what they assume your costs to be. So, to make your case for a better per patient rate, you’ll need hard data to back that up.

Implementing outcomes tracking is vital to collecting the information on patient outcomes you’ll need to identify which treatment options you’re using most frequently—and which are producing the best, most cost-effective results. In addition to your clinical data, patient-reported outcomes measures (PROMs) will also help demonstrate the value of your care in improving the health and the lives of the people you’re treating. Better outcomes data is the evidence you need to make the case for rehab therapy in a value-based care world.   

Know your costs—and understand the risk. 

You’re also going to need a firm understanding of your clinic’s finances in order to feel comfortable shifting to a capitation model. One benefit of capitation contracts is that you, as a provider, have certainty when it comes to revenue—at least for patients under that contract. This makes it easy to gauge how it might impact overall earnings based upon previous billing. With that information, it’s easier to make an informed decision as to whether capitation payments match up with your expenses. 

You also need to make sure you’re comfortable with the financial risk you would be assuming. You might come out ahead financially on more than a few patients, but too many cases that require extra treatment can potentially wipe out those margins. 

Don’t lose sight of the patient experience. 

Often lost in the ongoing conversations about payment models and reimbursement rates are the actual patients involved. For insurance companies and MCOs, patients are most often a set of diagnoses and a dollar figure; you don’t want to inadvertently take the same approach in managing your patient load. 

One concern with the capitation model is that, in a clinic operating with both capitation and standard fee-for-service contracts, the latter patients could receive more and better care for the simple reason that they can potentially bring in more revenue. You can put patients at ease by continuing to take the time to talk with them about their concerns, maximize the one-on-one attention they receive, and build meaningful relationships that are foundational for better outcomes. Every patient should feel confident they’re getting the best treatment, no matter the contract.

Value-based care is here to stay—which means that we’ll start to see more alternative payment models as healthcare organizations look to scrap fee-for-service payments for something more cost-effective. That doesn’t mean that rehab therapists’ bottom lines have to suffer, though—just so long as they economize their own workflows while still providing the invaluable care they always have. 

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