Independent practice associations (IPAs) are developing new methods
of physician reimbursement to balance the objectives of encouraging individual
productivity and clinical cooperation. The economic literature on payment
incentives, derived from nonhealth industries, predicts that methods blending
elements of fee-for-service and capitation will outperform exclusive reliance
on either form of payment.
To identify emerging payment methods within IPA physician groups that
contract with managed care organizations.
Design and Setting
Case studies of 7 large IPAs in the San Francisco, Calif, metropolitan
region that served 826,000 health maintenance organization (HMO) patients
during the summer and fall of 1998.
Main Outcome Measure
Payment methods of IPAs for primary care physicians, specialists, and
physicians grouped by specialty department within the overall IPA structure.
All the IPAs contracted with multiple HMOs for the full range of primary
and specialty care physicians' services but paid member physicians using methods
that blended elements of fee-for-service and subcapitation. For primary care,
most IPAs used monthly capitation adjusted for patient age, sex, and selected
diagnoses, supplemented with fee-for-service payment for a wide range of visits
and procedures, including patient visits in subacute, skilled nursing facility,
emergency department, or home settings; for preventive care services; for
office procedures requiring expensive supplies; and, most importantly, for
borderline primary care procedures that either could be performed directly
or referred to specialty care. All the IPAs paid specialty departments on
a capitated basis and delegated to the departments responsibility for allocating
the budget among individuals. Allocation mechanisms for individual specialists
included adjusted fee-for-service, referral-based capitation, and blends of
Our results and case studies indicate that IPAs are developing payment
methods that blend elements of fee-for-service and capitation in innovative
ways for primary care and specialty physicians.