Capitation could help CMS save money

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Wednesday, July 31, 2002

The fact that the federal government is proposing the roll-out of competitive bidding across the nation is no surprise. The government is looking for ways to cut costs that keep rising every year. In less than 10 years, the baby boomers are going to start retiring in droves, and the Medicare population is going to escalate as it has never before.

Costs have to decrease if the baby boomers are ever to see any medical care in their retirement years. So what to do? Where's the model that provides the cost-savings to the government without compromising the quality of care enjoyed by beneficiaries today, or the ability of small companies to turn a reasonable profit?

We think we've found one.

For years, All-Med Services of Florida has been working in a risk environment with managed care companies. Today, 75% of All-Med's annual revenue is generated under capitated agreements with managed care organizations. Because capitation is a type of prospective reimbursement ("prepayment") that pays providers a fixed dollar amount to cover the costs of healthcare services for a set of patients for a specified period of time - in other words, because we're guaranteed cash flow - our administrative costs have been reduced drastically.

We have no such thing as days sales outstanding/accounts receivable because there is no billing function. In a capitated environment, you don't bill. You capture utilization. We capture it at 100% of Medicare allowable and when we receive our capitation check, which is based on membership, we post that check and see what the return is on Medicare. It will go as low as 55% and as high as 65%, averaging about 60% of the Medicare allowable throughout the year.

And we are making money.

Using the large membership that we service under these capitated agreements, All-Med has been able to achieve "buying power" with most of the leading manufacturers recognized in the industry. Through these relationships, we have been able to provide our patients with high quality equipment while still remaining cost effective. It works. I have not bought the cheapest equipment in the industry. I will not. An HMO patient for whom I get paid on a per member per month basis gets the same quality of care as a Medicare fee for service. There is no difference. In some cases, they get more than Medicare.

We have further improved our efficiencies within the operations by developing a Utilization Management Department that has proven to be a key factor in recycling rental equipment to reduce unnecessary costs associated with purchasing new equipment.

Recently, the Florida Agency for Health Care Administration ("AHCA") evaluated every company that placed bids in the state's incipient competitive bidding program. Although 75% of All-Med's business is capitated - a recipe for disaster, according to some - we have managed to achieve the highest technical score in the state. We beat the national providers of HME, and we beat the boutique providers who pride themselves on their ability to provide intimate service.

Capitation does not necessarily imply any sacrifice in service, and there is a collateral benefit, one the government is especially interested in: Move to a capitated model, and providers will only provide what's medically necessary, thus reducing and in most cases eliminating the constant battle with fraud and abuse. There needs to be a fine line; you don't want people under-utilizing and jeopardizing patient care, so there has to be some monitoring, and some quality assurance indicators in place and advocacy on both sides - on the federal side and the provider side where these patient issues are addressed.

The DME industry can give back, but you can't give something for nothing. What's distressing about all this competitive bidding talk is that there's so little give back on the government's side. To make any restructured reimbursement model work, the government has to reduce the administrative burden. The government has to stop talking about paper reduction but finally do something and eliminate it.

Pay us at risk, just like the HMOs, and I guarantee you we can save them 35% off their Medicare expenditures today while still showing a healthy profit.

Raul Rodriguez is president of All-Med Services.

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