Managed care contracting/capitation.

Both the general approach for entering into a managed care contract and the subject of capitation are presented. The general approach section outlines the criteria that a physician group should apply in analyzing the feasibility of entering into a managed care contract with any insurer. The physician group's contracting process should be iterative and refined over time. The capitation section addresses issues revolving around the assessment of a capitated contract. The example assumes a typical health maintenance organization-primary care group contract. Not analyzed in this article are the exciting opportunities presented through specialty carveout capitation. Managing the transition to a more competitive environment will be the major challenge facing group practices. Survival in the tightening healthcare market will depend on sound strategic decisions regarding the physician group's mission as well as its relationship to its hospital partners and other delivery systems. To support these strategic decisions, a solid knowledge base and a thorough understanding of the terms and provisions regarding the formulation of these new relationships are necessary. The budget methodology is a relatively straightforward approach to establishing a capitation. Careful consideration will have to be given to the method of allocating the capitation among providers. A special concern is the risk-sharing arrangement with primary care physicians.