What Are Capitation Payments?

Capitation payments are payments agreed upon in a capitated contract 𒀰by a health insurance company and a medical provider. They are fixed, pre-arranged monthly payments received by a ph♓ysician, clinic, or hospital per patient enrolled in a health plan, or per capita. The monthly payment is calculated one year in advance and remains fixed for that year, regardless of how often the patient needs services.

How Capitation Payment Plans Work

Rates for capitation payments are developed using local costs and average utilization of services, and therefore, can vary from one region of the country to another. Many plans establish risk pools as a percentage 𝔍of the capitation payment.

Money in this risk pool is withheld from the physician until the end of the fiscal year. If the health pꦗlan does well financially, the medical provider receives this money; if the health plan does poorly, the 🤪money is kept to pay the deficit expenses.

The amount of the capitation will be determined, in part, by the number of services provided and will vary from 澳洲幸运5开奖号码历史查询:health plan to health plan. Most capitation pay🍃ment plans for primary care services include basic areas of healthcare:

• Preventive, diagnostic, and treatment services
• Injections, immunizations, and medications administered in the office
• Outpatient laboratory tests that are done in the office or at a designated laboratory
• Health education and counseling services performed in the office
• Routine vision and hearing screening

There are two types of capitation relationships. The first is where the provider is paid directly by the insurer, also called a primary capitation. Then, a secondary capitation is where another provider (such as a lab or medical sp✱ecialist) is paid out of the provider’s funds. 

Another form of capitation may encourage 澳洲幸运5开奖号码历史查询:preventative health services. With capitations that encourage preventative care, the provider is rewardeཧd for providing preventive health care services. This incentivizes the doctor or provider to help 🐈avoid expensive medical services. 

Capitation is meant to help limit excessive costs and the performance of unnecessary services. But on the downside, it might also mean that patients get less facetime with the doctor. Providers may look to increase profitability under the capitation model b𒅌y cutting down on the time that patients see the doctor. 

Compared with the capitation alternative, fee-for-service (FFS), it’s supposed to be more cost-effective, hence the reason providers look to limit face time with doctors. FFS pays providers based on the number of services provided—unlike capitations that pay based on the number of participants in the group. Studies from many years suggest capitation is more cost-effective among groups that have a high amount of individuals with moderate health care needs.

At the same time, it’s been shown that capitation systems encourage doctors to reduce services. A Center for Studying Health System Change study found that 7% of doctors in a capitation system reduce services because there’s financial incentive to do so.

Advantages and Dis꧒advantages of Capitation Payments

Capitation payments have various advantages when it comes to the alternative—FFS. However, some p꧙roviders may still oꦿpt for FFS given its advantages over capitation.

Advantages of Capitation

The alternative ✤to capitation payments is FFS, where providers are paid based on the number of services provided. Perhaps the biggest benefit to capitation contracts is that they provide fixed payments to providers, dissuading the incentive to order more procedures than necessary, which can be an issue with FFS (i.e. capitation provides greater provider accountability).

As well, the fixed payments by capitation ☂offer greater financial certainty for providers. They can focus on face-to-face services and explore cost-effective care that provides the best treatment. Along those lines, providers have a greater incentive to encourage preventative c✤are.

Disadvantages of Capitation

On the downside, a capitation arrangement can lead providers to opt for less expensive drugs or procedures. That is, providers opt to not use name-brand products to save money. Capitation can also encourage providers to enroll large numbers of patients, which can lead to short visits for♎ patients and long wait times.

Financial risk for patients with major me🗹dical issues is borne by the provider in the case of capitation agreements. In higher population areasღ, the capitation rates might be on the low side. In those circumstances, the provider may supplement the capitation model with FFS.

Special Considerations

Capitation payments are defined, periodic, per-patient payments (usually monthly) for each individual enrolled in a capitated insurance plan. For example, a provider could be paid per month, per patient, despite how many times the patient comes in for treatment or how many services are needed. Capitation programs can cover individuals or families. Health maintenance organizations (HMOs) and independent practice associati𝓰ons (IPAs) often use capitation programs.

The payment varies depending on the capitation agreement, but generally, they are based on characteristics such as the age of the individual enrolled in the plan. Modifying the plan, according to specific characteristics for groups of patients, is one way to compensꦿate providers for the🎀 medical care expected for similar ailments within a group.

Health insurancཧe companies use capitation payments to control health care costs. Capitation payments control the use of healthcare re🍎sources by putting the physician at financial risk for patient services.

At the same time, in order to ensure that patients do not receive suboptimal care through the under-utilization of 澳洲幸运5开奖号码历史查询:health care services, insurance companies measure rates of resource utilizat𓄧ion in physician practices. These reports are publicly available and can be linked to financial rewards, such as bonuses.

Example of a Capitation Payment

A capitation example would be an IPA—a type of HMO—that has 5,000 patients. The IPA needs to secure insurance coverage for its patients for the upcoming year. Th꧒us, it w🎃ould enter into a capitation contract with a physician. 

The physician would be paid a fixed payment to treat all 5,0🐟00 patients. For example, say the capitation fee is $400 per year perꦯ patient. The physician would collect $2 million per year from the IPA. In return, the physician would be expected to cover all expenses related to treating those 5,000 patients.

The idea is that not all patients will use $400 in services over the course of the year. Some may use $2,000, but others may only use $100✃ or none at all. Overall, the doctor is assuming that (on average) the patients from this IPA will use less than $400 each in services.

The capitation payment amount is expected on how much each patient is expected to use the service. Patients, such as those with preexisting conditions, are likely to have higher expected medical needs and costs. It’s in the IPA or HMO's best interest to try and estimate as best as possible the potential utilization of services. 

Capitation FAQs

Bottom Line

Capitation payments are payments made to health care providers for providing services to patients. These payments ar🦋e fixed and generally paid monthly (based on yearly contracts—i.e. capitation contracts).

This system helps doctors reduce bookkeeping, accounting, and other operating costs. Capitation also benefits the HMO or IPA by ensuring that ♒providers don’t unde🍬rtake more services than necessary. The idea is that it reduces the potential for excessive billing.