Q&A: When to accept a capitation offer

A: Taking capitated contracts, or discount-contracts with risk-withholds, involves risk, which can result in higher or lower income. You should not take risk if you cannot manage it or if you cannot survive the failure.

The margin of error is smaller and consequences greater than many physicians realize. For example, a five percent reimbursement reduction (for example, loss of bonus) can result in approximately a 35 percent loss of after-expense, after-tax net income.

Determine the impact on your practice of the loss of 30 percent of your patients, even though some likely will switch plans to stay with you, reducing your losses. If your patient wait list usually is at least two weeks long for non-urgent appointments, then the impact may be negligible because the change will reduce your wait list only by one-third, and your day-to-day productivity with remaining patients will remain the same. If your patient wait list usually is shorter than 2 weeks in length, however, then loss of the patients may be financially disastrous.

Medical Economics Consultant Keith Borglum, CHBC (left), of Professional Management and Marketing, has been a licensed practice broker, appraiser, author, and management consultant to physicians for more than 25 years, is based in Santa Rosa, California, and practices nationally. Send your practice management questions to mepractice@advanstar.com
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