Capitation (healthcare)

Capitation is a payment arrangement for health care service providers such as doctors or nurse practitioners. It pays a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care. The amount of remuneration is based on the average expected health care utilization of that patient, with greater payment for patients with significant medical history. There are different types of capitation, including per member per month (PMPM) and per visit.

Overview

Capitation payments control use of health care resources by putting the physician at financial risk for services provided to patients. At the same time, providers retain the insurance risk within reasonable limits. This type of payment model is usually an element of Managed care where the aim is to control health care costs.

Types of Capitation

Per Member Per Month (PMPM)

In a PMPM capitation model, a fixed amount of money is paid per patient, per month, regardless of the amount of care the patient requires. This model is commonly used in Health Maintenance Organizations (HMOs).

Per Visit

In a per visit capitation model, a fixed amount of money is paid per patient visit, regardless of the complexity or length of the visit. This model is less common than PMPM.

Advantages and Disadvantages

Capitation has several advantages, including predictable costs and the ability to budget health care expenses. However, it also has several disadvantages, such as the potential for under-provision of care and the lack of incentive to provide preventive care.

See Also

• Fee-for-service
• Health Maintenance Organization
• Managed care