Chapter 3.E.3: Capitation Payment

Most states do not regulate physician incentives very aggressively, or at all. Texas is one notable exception.  There, the Texas Attorney General settled a suit against Aetna, which agreed to a wide range of restrictions and changes in various managed care practices and policies, including physician incentives.  A news article can be found here and a copy of the agreement can be found here. For a thorough analysis, see Brant S. Mittlerand Andre Hampton, The Princess and the Pea: the assurance of voluntary compliance between the Texas Attorney General and Aetna's Texas HMOs and its impact on financial risk shifting by managed care, 83 B.U. L. Rev. 553-590 (2003).

This graph illustrates the problem of risk selection created by the highly skewed distribution of health care costs across the population. It shows, for instance, that 70% of people account for only 10% of health care expenditures, and that the top 10% of people account for 69% of expenditures. (The graph is taken from John V. Jacobi, Consumer-Directed Health Care and the Chronically Ill, 38 U. Mich. J. L. Reform 531 (2005) and based on Marc L. Berk and Alan C. Monheit.  See Marc L. Berk and Alan C. Monheit, "The Concentration of Health Care Expenditures Revisited," Health Affairs, 20 (March/April 2001), 9, 12.) 

This website explains how risk adjustment works, and how it can be manipulated.