Document Type



Doctor of Business Administration


Business Administration

Date of Defense


Graduate Advisor

L. Douglas Smith, Ph.D.


Stephen R. Moehrle, Ph.D.

Ekin K. Pellegrini, Ph.D.


The Centers for Medicare and Medicaid Services is seeking to move medical providers from a fee-for-service reimbursement model to a value-based reimbursement model. In this dissertation, we studied the financial rewards and risks that accompany capitation contracts. We employed Poisson regression to estimate health-care utilization of beneficiaries under the care of primary care providers with varying levels of capitation. Then, we calculated capitation contract results for primary care practices using Monte Carlo simulations. We used three methods to predict medical payments for beneficiaries: (1) empirical probability distributions of annual medical payments, (2) theoretical probability distributions of annual medical payments, and (3) accumulated costs from simulating individual medical services received. We found that Medicare Advantage beneficiaries under the care of primary care physicians who were engaged in capitation contracts experienced significantly fewer visits in inpatient, outpatient, carrier, home health, and skilled nursing facility health-care venues. Their visit counts were 48.2%, 57.6%, 35.0%, 74.3%, and 66.2% fewer for the respective venues, compared with a group of Traditional Medicare beneficiaries. Reducing health-care service utilization was the greatest determinant of achieving positive financial rewards under capitation. Stop-loss provisions were, however, essential to protect practices from extreme costs that occurred for a few very sick patients. We found that, with appropriate contract provisions and proven reductions in healthcare utilization, primary care practices could have been protected from the financial failures of prior capitation attempts. Upside-only contracts also protected small practices from financial failure while providing strong financial incentives to reduce health care utilization.