In this article
Defining encounter data and the population-based payment model it supports
The link between encounter data and provider payment
This is part one of a two-part series on improving encounter data accuracy and completeness in California. In this post, we define encounter data and how it differs from claims data, highlighting its connection with provider financial risk-sharing and health plan revenue.
Almost three quarters of Californians with health insurance are enrolled in capitated models of care, like Medi-Cal managed care entities, commercial health maintenance organizations (HMOs), or Medicare Advantage. This care model, which uses per-member-per-month payments to finance the care of an assigned patient population, represents an alternative to fee-for-service. Capitated care models show promise for improving healthcare access, quality, equity, and affordability by taking a population-based approach to health management and encouraging integrated care. But the administrative data on how managed care patients across California navigate and access care — known as encounter data — is often lacking in completeness and accuracy compared to its fee-for-service counterpart, claims data.
A statewide initiative worked to address these data challenges. As the Encounter Data Governance Entity, IHA led efforts to monitor, implement, and align encounter data improvement across California - work that continues by our partners at the California Medical Association.
Before we get into the importance of improving encounter data, let’s look at what encounter data is.
Defining encounter data and the population-based payment model it supports
Capitation is a per-member-per-month lump sum payment that is calculated to cover the healthcare needs of an assigned patient population. We refer to healthcare entities as sharing financial risk when they are paid capitation, whether it is full capitation — where the payment amount is calculated to cover the full spectrum of care for the assigned population — or partial capitation, which usually is set to cover specific types of services, like services provided by hospitals or services provided by physicians and their care teams. Because capitated healthcare entities receive a flat, population-based payment rather than fee-for-service payments linked to a fee schedule, they submit encounters rather than claims. The encounter data is then often used to hold providers (or the health plans they contract with) accountable for quality performance, to inform care coordination and population health management, and to inform rate development.
Typically, clinicians generate encounter data directly into the patient’s medical record — the same way claims are generated. The data may then go to the provider organization’s billing staff before passing through to a clearinghouse, which can be tasked with aggregating, securely transmitting, validating, and tracking claims and encounters across multiple providers. From there, the encounter data goes to the managed care plan. Finally, it is submitted to the payer.
Encounter data may or may not go through multiple parties before arriving at the managed care plan, as the illustration shows; exact steps in the flow of encounter data depend on the contracting arrangement.
The link between encounter data and provider payment
The capitated models of care that use encounter data are especially prevalent in California. In 2022, 10.3 million Californians were enrolled in a commercial HMO plan, where a provider organization often receives a flat per patient per month fee for managing the care of their assigned population. Capitation payments to providers are prevalent in California’s Medicare Advantage market as well.
For providers and hospitals serving Californians with Medi-Cal, encounter data is one of the important inputs for determining payment. Finally, encounter data may be used to determine a patient’s cost-sharing within managed care-based insurance, thereby impacting a provider’s revenue at the point of service.
Additionally, encounter data is used to calculate provider performance scores, including quality, access, equity, utilization, and risk adjustment. With the growing emphasis on alternative payment models in all lines of business, a provider’s performance scores can increasingly impact their revenue through quality bonuses or other incentive designs that take quality performance into account.
Encounter data and health plan revenue are also connected
Just like encounter data can be used to inform capitation rates paid to providers, it’s also used to determine capitation rates paid to managed care plans. It’s a central source of information for DHCS’ Medi-Cal managed care plan rate development process. In Medicare Advantage, CMS uses encounter data in rate development through risk adjustment.
Finally, in the commercial line of business, claims and encounter data are used to allocate payments across health plans based on the risk scores of plan enrollees. Introduced as part of the Affordable Care Act to help stabilize premiums in the commercial market, Covered California oversaw the transfer of about $1.2 billion between plans in 2024. The magnitude of these payment transfers highlights the importance of accurate encounter data for California’s commercial insurers.
The encounter data wake-up call
Wherever there is a population-based payment like capitation in place, encounter data is the means to capture actual health status, services rendered, and disease acuity information for financial modeling, quality performance, and rate development purposes. In this way, encounter data serves the same administrative purpose for capitated care models that claims data serves for fee-for-service.
Understanding the distinction is key to addressing the encounter data challenges our healthcare system has faced. Over the past few years, meaningful progress has been made. IHA’s work as the Encounter Data Governance Entity helped advance standardization efforts and produced practical resources to help provider organizations improve encounter data quality. That work continues to be carried forward by our partners at the California Medical Association.
