Predicting financial risk under capitation.

Abstract

As managed care proliferates, providers must understand the types of financial risks they face when providing care under capitation. There are two basic types of financial risk (which arises from uncertainties about revenues and costs): objective risk and subjective risk. Objective risk exists when financial managers can anticipate, with reasonable confidence, the expected range of revenue and cost variation. Subjective risk exists when financial managers cannot accurately predict the range of revenue and cost variation. Providers moving from a prospective payment system to a capitated system will find that objective financial risk potentially is reduced. However, subjective financial risk under capitation can be significant. To minimize subjective risk, healthcare executives must have access to data about the population covered by the capitation contract, must have sufficient numbers of covered lives, must reduce costs involved with providing healthcare services, and must reduce the volume of patients treated--for example, by implementing disease and injury prevention programs.