Healthcare Finance

Running Head : HEALTHCARE FINANCE

Healthcare Finance : Capitation

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Healthcare Finance : Capitation

Introduction

In recent years , the healthcare industry has seen significant growth in managed care , particularly in the area of capitation . This growth has spurred a significant number of mergers , acquisitions , consolidations and affiliations between physicians , hospitals , and healthcare networks Hospitals have organized themselves into medical delivery systems by purchasing physician groups in an effort to increase market share and enhance their ability to contract with managed care organizations . A defense strategy

to counteract the pressure of rate reduction is being imposed by the health plans . These delivery systems vary in form and design from local networks , to regional networks , to statewide networks to national networks

A study conducted by Gloria Burns in April 2000 concluded that the number of Health Maintenance Organizations (HMOs ) in an area is an important determinant of physician-hospital integration (cited in Burns Dynam , and Wholey , 2000 . One explanation is that a greater number of managed care HMOs in an area fosters increased competition and prompts the HMOs and the hospitals to develop contracting relationships Researchers found that alliances were most likely to appear in markets in the upper two quartiles of HMO numbers (when the HMO counts in a market exceed four (Burns , Dynam , and Wholey , 2000 . The Medical Group Management Association 's survey of multispecialty groups showed that the median size of physician groups that reported receiving most of their income from capitation was three times the size of physician groups that reported having no capitation (Trespacz , 1999

Overview

Managed care and capitation strive to shift risk from insurance plans to providers of care as well as to reduce cost through lower reimbursement rates and resource utilization control . The bigger an insurance plan the better its ability to extract lower rates from providers and to be selective in its choice of providers as well . The provider industry , in turn , sought integration to gain more power in heading off this phenomenon . The bigger and the more integrated a provider is , the better rates it can extract and the more business it can capture from insurance plans . Although , managed care was not the cause of all mergers and acquisitions , it was a definitely a major force behind many of the mergers and acquisitions as a strategy to enhance the bargaining power of providers and insurance plans as well

In 1995 the number of hospital purchases increased 44 percent from the previous year . The next busiest sector was physician groups , which jumped 58 .5 percent to 103 announced deals . The number of hospitals involved in merger and acquisition activity increased to 768 , according to Modem Healthcare 's third-annual list of mergers and acquisitions (Japsen , 1996 . Nearly two in five of the nation 's 5 ,200 nonfederal hospitals have been involved in merger and acquisition activity in the past several years . The 1996 list consists of 235 deals that were either finalized or pending . Most notable are the multiple acquisitions Columbia HC A has made...