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Effect of capitation remuneration on insurance benefits: part 1.

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Effect of capitation remuneration on insurance benefits: part 1.
OMA Insurance
11/1/2011
In the first of a two-part series, OMA Insurance Services outlines how family physicians who have OMA Group Disability Income and/or Professional Overhead Expense Insurance, and who work in a Family Health Network, Family Health Organization, or other capitation arrangement, are compensated by their insurance provider if they are disabled and cannot work.

This month's column provides an overview of how members working in a Family Health Network (FHN), Family Health Organization (FHO), or other capitation arrangement are compensated by their insurance provider in the event of a disability.

Sun Life Financial has prepared the following outline that describes how claims are administered for family physicians with OMA Group Disability Income (DI) and/or Professional Overhead Expense (POE) Insurance.

Capitation is a funding arrangement encompassing a group of medical professionals. The FHN/FHO Agreement requires that the Group, not each physician, provide the services to the rostered patients.

Members of a FHN/FHO are fully entitled to receive disability benefits under the OMA plan. The amount of their entitlement depends upon the type of claim (total or partial disability) and the type of contract under which they are insured (DI or POE). Regardless, the overriding principle is to provide income replacement or reimbursement to all eligible members who suffer a financial loss as a consequence of medical incapacity.

Total Disability

For Disability Income, a physician who becomes totally disabled* will receive full benefits, regardless of any other (financial) consideration under the FHN/FHO. This outcome is a result of contract wording, which directs that full benefits be paid when the insured member is a) unable to perform the essential duties of his or her regular occupation, or b) unable to perform the essential duties of his or her regular occupation, and not engaged in any other gainful occupation.

Residual (Partial) Disability

Members may also be entitled to residual (partial) disability benefits when they are not totally disabled but suffer a loss of income of at least 20% as a result of sickness or illness. Revenue normally given to the partially disabled physician under the terms of the capitation agreement would instead reimburse locums and other physicians in the FHN/FHO, as well as meet the disabled physician's ongoing practice expense obligations.

Once all these expenses are accounted for, any remaining revenue would be used to help determine the residually disabled physician's net earnings. It is this bottom-line figure that would be used to determine the physician's loss (when compared against his or her pre-disability net after-tax income). By going through these steps to determine the amount of revenue and expenses incurred, the residually disabled physician participating in a FHN/FHO would be treated in exactly the same manner as his or her colleagues who are not part of a network.

Professional Overhead Expense

The amount a physician may receive from a POE contract might be reduced based on his or her participation in a FHN/FHO.

Professional Overhead Expense coverage is different from Disability Income in that it is a reimbursement policy; that is, it is designed to provide the disabled physician with reimbursement for ongoing business expenses for which the physician remains responsible, therefore:

  • Capitation monies payable to a disabled physician would be first applied to the disabled physician's expense obligations, including any responsibility for payments to a locum; and after all the fixed and variable expenses are paid, if there were a surplus derived from the Agreement, such surplus would be applied against the doctor's other expenses.
  • However, after all the fixed and variable expenses are paid, if there were a shortfall derived from the Agreement, the POE contract would provide reimbursement up to the maximum coverage level.
  • Additional allowable expenses (e.g., automobile expenses, fees, dues, etc.) are also payable under the terms of the POE contract.

* "Total disability" or "totally disabled" shall mean that the insured member is unable to perform the essential duties of his or her regular occupation as a result of sickness or injury, is under the regular care of a physician, and is not engaged in any other gainful occupation.