Assessing and Addressing Financial Risk in Capitated Primary Care Contracts

Authors

• Michael R. Wieck DBA, Indiana University SoutheastFollow
• Laurence Smith, University of Missouri-St. LouisFollow
• Steven R. Stout DBA, University of Missouri-St. LouisFollow

Abstract

We employ multivariate statistical modeling and Monte Carlo simulation to study systematic and unsystematic financial risk faced by physician groups under capitated contracts with Medicare Advantage Organizations (MAOs). We use mixed methods and a standard reimbursement formula for risk-sharing contracts with primary care physicians (PCPs). We find that diversifying risk simply by increasing the size of a practice is insufficient to mitigate risks of large negative cash flows from capitation contracts and can result in financial failure. However, if use of costly medical services by patients is reduced from levels typically experienced under traditional Medicare to the levels of patients in the care of physicians with heavy involvement under capitated compensation, medical practices can be consistently profitable under capitation contracts. Even small practices can operate sustainably with similar efficiencies if provisions like stop-loss and upside-only protections are arranged.

Recommended Citation

Wieck, Michael R. DBA; Smith, Laurence; and Stout, Steven R. DBA (2026) "Assessing and Addressing Financial Risk in Capitated Primary Care Contracts," Engaged Management ReView: Vol. 10 : Iss. 1 , Article 1.
Available at: https://doi.org/10.28953/2375-8643.1164

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