Capitation Formulae for Integrated Health Systems (Executive Summary only)

by Brian Hutchison, Jeremiah Hurley, et al. | Jun 01, 2000
Full Report (Executive Summary only)

Executive Summary

This policy synthesis was commissioned by the Canadian Health Services Research Foundation (CHSRF) on behalf of the Ontario Health Services Restructuring Commission and the Ministries of Health of the four Western provinces. In keeping with the terms of reference provided by CHSRF, this report presents a review of Canadian and international experience with capitation funding mechanisms and makes recommendations for capitation formula development and implementation for integrated health systems in Canada.

The terms of reference required that we consider capitation formulae for funding health services in a variety of contexts: both enrolled and geographically-defined populations; coverage ranging from primary care only to a broad array of health services; and competition among capitation-funded organizations and between capitation-funded organizations and organizations funded on some other basis.

"We defined a set of desirable characteristics of funding mechanisms designed to allocate health care resources among populations in keeping with relative needs: validity, acceptability, resistance to manipulation, flexibility, avoidance of perverse incentives and feasibility. ”

In preparing this policy synthesis, our approach was to identify jurisdictions that illustrate contexts potentially relevant to the Canadian situation, to identify policymakers and, in some cases, researchers associated with the development and implementation of capitation in those jurisdictions, and to review the relevant academic and ‘grey’ literature related to these experiences.

We defined a set of desirable characteristics of funding mechanisms designed to allocate health care resources among populations in keeping with relative needs: validity, acceptability, resistance to manipulation, flexibility, avoidance of perverse incentives, and feasibility. These characteristics were used as criteria against which alternative approaches were assessed.

The development and implementation of health care capitation formulae require policy choices with respect to the following:

  • needs adjustment versus risk adjustment;
  • the process for formula development;
  • generic versus program-specific formulae;
  • adjusters included in the capitation formula;
  • management of outside-use (for enrolled populations) and cross-boundary flows (for geographically-defined populations);
  • mechanisms to reduce incentives for creamskimming or risk avoidance where there is competition among capitated providers or between capitated and fee-for-service providers; and
  • strategies to counter the incentive to underservice.