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Group Learns to Cope After Losing Capitated Contract

Martin Sipkoff

November 15, 2001
Cover Story

Many of the nation’s largest health plans are moving away from prepaid, capitated payments to fee-for-service reimbursements. That may be good news for physicians who complain that capitation payments are too low to allow them to make a profit, but the loss of capitated contracts may not be good for physicians who have come to rely on prepayments as a steady and reliable stream of income.

One multispecialty medical group experiencing financial difficulties from the loss of capitation is Physician Associates of Florida, in Orlando. PAF offers family practice, internal medicine, obstetrics and gynecology, and pediatric services. The problems it faced as revenue declined and the solutions it put in place offer important lessons for physician groups nationwide.

Corporate Transition
“Some groups with a substantial amount of their income in capitated contracts want to stay with capitation,” says David Gans, director for practice management resources for the Medical Group Management Association (MGMA) in Englewood, Colo. “Capitation can be very profitable for groups providing quality, cost-effective care, and it has the added benefit of predictable revenue.”

PAF’s troubles began in 1998 when Prudential Insurance Co. of America, in Roseland, N.J., sold its Prudential HealthCare unit to Aetna Inc. in Hartford, Conn. The loss of the capitated contract with Prudential has been devastating to the lifestyle and damaging to the income of PAF’s 80 physicians, says Dennis Buhring, PAF’s chief operating officer.

The group’s relationship with Prudential began in 1983. By 1998, its contract covered 130,000 commercial HMO members and 9,000 managed Medicare members. “All our services were exclusive to that one payer,” Buhring says. “We were known in the community as the PruCare docs.”

The relationship was lucrative, Buhring says. He cannot disclose the ....

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