Physician Reimbursement for Services to HMO-sponsored Patients

When the University of California, San Diego (UCSD) School of Medicine faculty and UCSD Medical Center became participants in a capitated health care program, it became necessary to reevaluate the method of reimbursement for physicians' services. In developing a new formula, the faculty established specific objectives for the program and agreed to a plan that was not fixed to predetermined unit value for physicians' services but rather was a function of residual capitated income after program expenses. The formula prescribed that 50% of capitation income available for physicians' reimbursement would go to primary care physicians who were paid based on the number of patients in their panels and 50% to specialty physicians based on their clinical activity. This scheme and an aggressive utilization review process were associated with a rate of hospitalization and physicians' reimbursement that met or exceeded anticipated results during the first 2 years of operation.