Managing capitated high-risk enrollees

By Gerald T. Reardon, Ph.D. & David M. Zimba, CHE

The pace of managed care is racing at new levels. Federal, state, and local initiatives are pressing forward with this transition in an effort to curb spiraling health care costs. Some believe that managed care has finally brought the rate of medical care inflation back to within expected limits. In addition, many payers see significant opportunities to improve financial performance through the alignment of incentives and the transfer of risk to providers. Pennsylvania is just beginning to see this change. As a result, physicians are increasingly faced with new market requirements to sign capitated risk contracts.

However, many physicians are signing capitated contracts without fully understanding the implications of performance. These contracts typically mandate that physicians provide care to a defined population at a predetermined per-member per-month fee schedule. Many of the fee schedules are based on the average patient. While the physicians concentrate on maintaining current volumes, many enter into contracts hoping that this average is a reflection of the population they are assigned, currently care for, or will soon attract. However, this is not always, if not rarely, the case. Most physicians recognize that the minority of any population accounts for the majority of health care costs. This is most evident for Medicare patients. While medical costs are significant for all ages, the costs associated with the care of Medicare patients are tremendous. For Medicare in general, it has been estimated that approximately ten percent of the individuals drive seventy percent of the program’s total expenses. For individuals in this minority, average annual claims approach $28,000. Assuming many individuals in the Pennsylvania marketplace will enroll in a Medicare managed care product, physicians must have an effective method of identifying and managing this active and potentially costly minority.

Identifying High-Risk Enrollees

As physicians enter a marketplace which requires them to accept the financial risk and responsibility for the care of an enrollee, it will become increasingly important to identify patients who may have the preponderance to use a significant amount of health care services. One effective tool is the use of a self-administered survey of a physician’s enrolled population. Though self-administered surveys are traditionally used to measure the degree of health, the frequency of diseases, and the allocation of health care resources, it may also be argued that this same survey could be used to collect the information necessary to proactively manage high-risk enrollees.

The critical task that should now be implemented by physicians through a self-administered survey is the identification and measurement of demographic or medical variables that can be used to predict future hospitalization by patients covered by a risk contract. The hospital component, by far, represents the most significant expenditures in health care. Controlling this component will yield the greatest opportunity under risk contracting arrangements. In addition, accurate identification and measurement will lead physicians to make proactive health care decisions.

To collect this information, physicians should develop or utilize an augmented form of a current population-based screening instrument. The survey should consist of a series of questions with categorical data options. Prior research in a variety of clinical settings has shown that information derived from this type of activity is more accurate when compared to other data sources, such as the medical record. Once completed by the patient, the data could be compiled, summarized and used by the at-risk physician to assist in clinical programming.

In order for such a survey to be successful, it should have several important features. It should be short, since the length of a survey will determine how likely it is to be completed. Since patients have varied reading skills, the survey should be kept as simple as possible. Finally, the survey should be directed at needs which are not only important, but for which physician-driven interventions are likely to be effective.

Two instruments have proven effective in gathering this information. The first is the famous public domain option Short Form-36 (SF-36). This epidemiological tool was principally designed to assess the health of populations. While at first glance it would appear to meet the challenge of screening, closer examination reveals that it is very long and not designed to identify individuals at risk of hospitalization.

The second survey, the probability of repeated hospitalizations (PRA), has shown greater promise of selecting individuals—specifically community dwelling elders—at risk for repeated inpatient admissions. This instrument focuses on eight risk factors that were identified as important determinants of hospitalizations, death and hospital charges. The PRA derives a score using a mathematical formula that assigns various weights to positive or negative responses to survey questions. This tool is very attractive for several reasons. First, it is short and therefore likely to be completed. Second, the questions have been field tested, and are designed to fit the educational level of most patients. Third, the survey is limited to identifying patients at special risk for hospital admission. Lastly, the tool summarizes the risk factors into a composite score that arrays individual enrollees from high to low risk, theoretically allowing the neediest individuals to be approached first. This latter feature is important, since physicians under capitated contracts should provide the most attention to high risk patients.

Although the science of screening for risk of hospitalization for individuals that fall into other age or demographic groups is less well-defined, there are a variety of commercial products that are being tested or offered. Physicians must recognize, however, that the needs in a younger population are intuitively different. For example, in the Medicaid population, the identification of the young, single and pregnant woman may be an equally or more important determinant of hospitalization or the use of health care resources.

Following the At-Risk Patient

No test in medicine is completely accurate. Clinicians are often confronted by false positive or false negative results. Since screening tests will always have some degree of inaccuracy, a positive test result should prompt further investigation. Individuals accurately identified as high risk should undergo a further level of evaluation to determine the patients’ access to current resources. Most patients have varying levels of access to health care services due to physical, geographic or financial considerations. Patients with limited access will typically require a higher level of case management to ensure that these patients are attending to their medical needs appropriately and adequately. Depending on a physician’s resources, this could be accomplished by a telephone interview with the patient, an interview with the people that live with the patient, or, if enough risk is present, by a face-to-face home visit interview with the patient.

These interviews present an opportunity to obtain additional data which may impact subsequent case management decisions. Information gathered in this phase should include obtaining additional medical information, assessing the patients’ activities of daily living, determining the likely presence or absence of co-morbid psychiatric diseases, measuring the patients’ level of social support and gathering information about preferences for end-of-life care. The answers obtained from this process will allow the physician to define the most logical method of managing a specific patient’s care. This process may identify patients requiring expedited access to the primary care clinic and more face-to-face time with a physician. In some instances, this information could be used to negotiate higher fees or diminished financial penalties for extraordinary services (i.e. the use of outpatient geriatric assessment clinics).

Applying Case Management

Ultimately, the information gathered from the self-administered survey will assist the physician in identifying high risk patients that must be directed by a progressive case management program. Without such monitoring, the physician in most instances will not be able to effectively manage the financial consequences of the risk contract.

Case management must begin on the day of enrollment, not the day of hospital admission.

Case management can be defined as the allocation and coordination of care resources for individual patients in a way that maximizes their well-being and decreases the likelihood of a poor health outcome. Case management is often centered around one-on-one patient care, typically with frequent contact by an assigned case manager for a patient who has been identified as being at special risk. Today, most practitioners are familiar with traditional case management and have been effective in planning and directing health care for patients who present complex or costly medical care. However, most case management is conducted after the patient has entered the health care system, often via a hospitalization. This reactive strategy has been typically reserved for patients who have already generated significant costs.

While case management at this point is effective and important in terms of helping the patient and minimizing future costs, it is in many instances too late. Under a risk contract, a patient should be proactively engaged in case management well before this time.

An effective case management program will be primary care driven and linked with a formal case management philosophy which maintains a high level of responsiveness to case management recommendations. The program should also be responsive to the social, emotional and environmental needs of these patients. Case management should integrate the activities of physicians and non-physician personnel (i.e., advanced practice nursing, social services, etc.). Although specific expertise targeted to perform this important function is evolving, case management should be prepared to proactively manage patients quickly and seamlessly throughout the complete continuum of care. In addition, the physician should use resources available through other formal case management programs sponsored by health systems or payers. Services may include wellness programs, demand management initiatives or disease state management offerings. While a group of patients at high risk may be identified for specific individual intervention, patients at lower risk can be directed toward these latter options.


For many physicians, effectively performing under a risk contract is routinely secondary to the acquisition of the contract. Many physicians sign contracts hoping to maintain their current market share. However, it is clearly equally important for both the payer and the physician to financially succeed under the contracted terms. Therefore, it is important that physicians appropriately screen their enrolled population in order to proactively manage patient care. Case management performed after the patients has become ill and entered the health care system will ultimately prove detrimental to the performance under a risk contract. Using population-based health screening tool to provide important patient-related information will significantly aid proactive case management strategies.

Gerard T. Reardon, Ph.D. is a Director in the Healthcare Consulting Practice of Arthur Andersen LLP. He specializes in the area of Complete Continuum Care Management. David M. Zimba, CHE is a Manager in the Healthcare Consulting Practice of Arthur Andersen LLP. He specializes in the areas of Health System Integration and Operational Improvement.

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