MEMORANDUM ASSIGNMENT HELP To: CFO From: XYZ Date: May 25, 2016 Sub: Capitation in healthcare.
Possible Issues and Management Structure Recently, there have been some rumors in the community and also the several articles in the newspaper represent that the state may reduce its Medicaid budget including those eligible to enroll in government-funded health plans. CFO of the hospital should consider this aspect, while developing the financial plan for the next year because it may influence the financial position of hospital. 
CFO will develop the financial plans on the basis of assumption about what will happen in the physical world. This means, it is based on practical knowledge of the business environment. Reduction in state Medicaid budget may decline revenue of the hospital, so management will require controlling the expenses and reducing the cost of operations (Nevitt & Fabozzi, 2000). It will use the cost structure to control the expenses and reduce the cost of operations. CFO can use the trend analysis concept in financial planning.
Trend analysis related to the study of changes in future that may include the technology, rules or regulation and customer behavior. It predicts the future by looking into the changes that may occur in future. Trend analysis in a financial planning process allows the business for the analysis of future trends and events and relates them with the fiscal impact and budget adoption. It is utilized in forecasting the future events in the financial planning for next years (Nugus, 2009). On the basis of future trends and events, it will monitor and manage firm’s productivity through concerning operational needs, industrial standards, competitive compensation and human spirit. Healthcare Capitation Capitation is a payment of health care service provider that is paid by them for a specified group of people. In a capitation model, physician or hospital may pay a physician per member per month (PMPM) capitation payment for enrolled patients. It relates to a form of healthcare payment system and the amounts of capitation payment are based on the average expected health care utilization ofpatents in medical history (Wachter & Hollander, 2005). The fee paid by the hospital and health care provider is usually fixed as in the contract between the hospital and the state government or insurance company. Capitation system is beneficial for the physician, hospital, or other health care providers because it decreases the costs of bookkeeping. Hospital does not require pay huge staffs for billing people. Under a capitation system, hospital operates at full capacity because the enrolled patients are bounded to use the services of particular hospital. It reduces hospital’s total costs for care of patients (Buchbinder & Shanks, 2011).
Through this system, hospital improves its internal system then avoids capitation failure situation that reduces the risks and uncertainty from business. Capitation payment is used by hospital to control health care costs and to effectively use the health care resources. It is a fixed amount of per patient per unit that is paid in advance to the hospitals for the delivery of health care services of enrolled people. The actual amount of capitation is determined by the range of services provided by hospital, the number of people enrolled and the period of time during the services are provided by hospital. Age, gender, illness, and regional differences of enrolled patients are also considered during the calculation of actual amount of capitation (Bernstein & Hartsell, 2004). Generally, capitation plans include the preventive, diagnostic, and treatment services. Capitation payment model can raise numerous issues for the hospital. Hospital should carefully analyze these issues to determine the likely financial impact of the capitation contract on business.
Hospital faces several challenges by working with capitation such as ensuring that they receive accurate and timely capitation payment and maintaining the complete patient enrolment data and a detailed explanation of any capitation deduction. The main challenge of working with capitation is managing risk against potential reward. Capitation is difficult because most groups do not have the qualities to manage care for population, good management, solid information and access of capital (Frank & Kibbe, 2000). Appropriate capitation amount are hard to set and sometimes, they are underfunded that create challenges for hospital to manage risk against potential reward. Over the last few years, capitation contracting has declined in most markets and the employee’s healthcare premiums have increased dramatically. Capitation has become less popular because patients prefer the quality indicators more than other benefits. In 2000, the capitation health care delivered system was grown because hospitals provide cost effective care services in capitation contract.
In recent time, patients are more educated about health care and are more focused on the quality of services provided by hospital. Development of patient centered health care system contributed to decrease enrolment in health maintenance organization (HMO), thus the market of capitation payment system is decreasing (Breslin, 2003). In recent years, the concept of centered health care system has increased in the US health care system that impacts on the market of capitation contract system. Capitation contracting is bounded the patients, while the patient centered care system provided option to patients to move freely and choose health care provider that reduced the demand of capitation model.
References Bernstein, B.E. & Hartsell, T.L. (2004). The Portable Lawyer for Mental Health Professionals: An A-Z Guide to Protecting Your Clients, Your Practice, and Yourself (2nd ed.). USA: John Wiley & Sons. Breslin, P.T. (2003). Service Line Planning: The Key to Aligning Strategy and Facility Master Planning. Retrieved from: http://www.noblis.org/NewsPublications/Publications/TechnicalPublications/TheHealthcareReview/Documents/Bristol_Review_Apr03.pdf Buchbinder, S. & Shanks, N. (2011). Introduction to Health Care Management (2nd ed.). USA: Jones & Bartlett Publishers. Frank, C.R. & Kibbe, I.D. (2000). Physician Empowerment Through Capitation. USA: Jones & Bartlett Learning. Nevitt, P.K. & Fabozzi, F.J. (2000). Project Financing (7th ed.). England: Euromoney Books. Nugus, S. (2009). Financial Planning Using Excel: Forecasting, Planning and Budgeting Techniques (2nd ed. ). Great Britain: Butterworth-Heinemann. Wachter, R.M. & Hollander, H. (2005). Hospital Medicine (2nd ed.). Lippincott Williams & Wilkins.
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