Evaluating and negotiating a profitable capitation contract.

Evaluating the financial terms of capitation contracts and negotiating their nonfinancial provisions are becoming increasingly important responsibilities for healthcare financial managers. To evaluate the financial terms of a contract, financial managers must understand both incremental and replacement pricing strategies. They also must understand when strategic positioning objectives make a capitated plan attractive despite limited financial rewards. Before a contract is accepted, financial managers can take steps to increase its potential profitability by negotiating the nonfinancial provisions that can help control contract expenses. These provisions are related to services to be provided, payment terms, withholds and risk pools, access to data, provision of eligibility data, utilization review and quality assurance procedures, filing of grievances, contract renewal terms, and contract termination.