A Risky Proposition? Risk-bearing and Solvency in California’s Medical Groups

The growth of managed care has generated numerous changes in the American health care delivery system. Foremost of the changes affecting physicians in California has been the shift from practicing independently to affiliating with organized provider groups, such as medical groups and independent practice associations (IPAs). This reorganization has occurred in conjunction with the transfer of financial risk from health plans to provider groups through capitation payments. Capitating providers for the delivery of patient services means that providers receive a prepaid, fixed amount per managed care enrollee per month, regardless of the actual cost of delivering care. Capitated entities face the risk that if a patient requires services that cost more than the capitation amount, the provider is financially responsible for the difference. Conversely, capitated medical groups gain if they develop preventive, clinical, or administrative programs that reduce the cost of delivering care. The model for the capitated medical group is The Permanente Medical Group, which is paid on a per member per month basis by Kaiser Foundation Health Plan.