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Capitation Payments

Capitation Payments

What Are Capitation Payments?

Capitation payments are payments settled upon in a capitated contract by a health care coverage company and a medical provider. They are fixed, pre-arranged regularly scheduled payments received by a physician, facility, or hospital per patient enrolled in a wellbeing plan, or per capita. The regularly scheduled payment is calculated one year in advance and stays fixed for that year, paying little mind to how frequently the patient necessities services.

How Capitation Payment Plans Work

Rates for capitation payments are developed utilizing nearby costs and average utilization of services, and subsequently, can shift starting with one region of the country then onto the next. Many plans lay out risk pools as a percentage of the capitation payment.

Money in this risk pool is kept from the physician for the rest of the fiscal year. Assuming the wellbeing plan truly does well financially, the medical provider receives this money; on the off chance that the wellbeing plan does ineffectively, the money is kept to pay the deficit expenses.

The amount of the capitation not entirely settled, in part, by the number of services gave and will differ from wellbeing plan to wellbeing plan. Most capitation payment plans for primary care services incorporate fundamental areas of healthcare:

  • Preventive, demonstrative, and treatment services
  • Infusions, vaccinations, and drugs administered in the office
  • Short term research facility tests that are finished in the office or at a designated lab
  • Wellbeing education and counseling services performed in the office
  • Routine vision and hearing screening

There are two types of capitation connections. The first is where the provider is paid straight by the insurer, likewise called a primary capitation. Then, a secondary capitation is where another provider (like a lab or medical specialist) is paid out of the provider's funds.

One more form of capitation might encourage preventative wellbeing services. With capitations that encourage preventative care, the provider is compensated for giving preventive medical care services. This boosts the doctor or provider to assist with keeping away from costly medical services.

Capitation agreements will give a rundown of specific remembered services for the contract.

Capitation is meant to assist with limiting unreasonable costs and the performance of superfluous services. In any case, on the downside, it could likewise mean that patients get less facetime with the doctor. Providers might hope to increase profitability under the capitation model by cutting down on the time that patients see the doctor.

Compared with the capitation alternative, fee-for-service (FFS), it should be more cost-compelling, subsequently the explanation providers hope to limit face time with doctors. FFS pays providers in light of the number of services gave — dissimilar to capitations that pay in view of the number of participants in the group. Studies from numerous years recommend capitation is more cost-compelling among groups that have a high amount of individuals with moderate medical care needs.

Simultaneously, 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 since there's financial incentive to do as such.

Advantages and Disadvantages of Capitation Payments

Capitation payments enjoy different benefits with regards to the alternative — FFS. Notwithstanding, a few providers might in any case opt for FFS given its advantages over capitation.

Advantages of Capitation

The alternative to capitation payments is FFS, where providers are paid in light of the number of services gave. Maybe the greatest benefit to capitation contracts is that they give fixed payments to providers, preventing the incentive to order a greater number of procedures than needed, which can be an issue with FFS (for example capitation gives greater provider accountability).

Too, the fixed payments by capitation offer greater financial certainty for providers. They can zero in on face-to-face services and investigate cost-compelling care that gives the best treatment. Along those lines, providers have a greater incentive to encourage preventative care.

Disadvantages of Capitation

On the downside, a capitation arrangement can lead providers to opt for more affordable medications or procedures. That is, providers opt to not utilize name-brand products to set aside cash. Capitation can likewise encourage providers to enlist large numbers of patients, which can lead to short visits for patients and long stand by times.

Financial risk for patients with major medical issues is borne by the provider on account of capitation agreements. In higher population areas, the capitation rates may be on the low side. In those conditions, the provider might supplement the capitation model with FFS.


    • Dissuades providers from unnecessary services 
  • Promotes efficiency and cost-control 
  • Reduces bookkeeping overhead
  • Allows providers to focus on face-to-face services, preventative care


    • May cause providers to use cheaper drugs/services
  • Encourages providing fewer services
  • High population areas means low capitation rates 
  • Can lead to long wait times and short visits  
## Special Considerations

Capitation payments are defined, periodic, per-patient payments (typically month to month) for every individual enrolled in a capitated insurance plan. For instance, a provider could be paid each month, per patient, notwithstanding how frequently the patient comes in for treatment or the number of services that are required. Capitation programs can cover individuals or families. Health maintenance organizations (HMOs) and independent practice associations (IPAs) frequently use capitation programs.

The payment shifts relying upon the capitation agreement, however generally, they depend on attributes like the age of the individual enrolled in the plan. Changing the plan, as indicated by specific qualities for groups of patients, is one method for remunerating providers for the medical care expected for comparative diseases inside a group.

Medical coverage companies use capitation payments to control medical services costs. Capitation payments control the utilization of healthcare resources by putting the physician at financial risk for patient services.

Simultaneously, to guarantee that patients don't receive suboptimal care through the under-utilization of medical care services, insurance companies measure rates of resource utilization in physician practices. These reports are publicly accessible and can be linked to financial rewards, for example, bonuses.

One major drawback of capitation is that it boosts physicians to spend less time with patients — for example spending a couple of moments on arrangements.

Illustration of a Capitation Payment

A capitation model 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 impending year. Consequently, it would go into a capitation contract with a physician.

The physician would be paid a fixed payment to treat every one of the 5,000 patients. For instance, say the capitation fee is $400 each year per patient. The physician would collect $2 million every year from the IPA. In return, the physician would be expected to cover all expenses connected with treating those 5,000 patients.

The thought is that not all patients will utilize $400 in services throughout the span of the year. Some might utilize $2,000, yet others may just utilize $100 or none by any stretch of the imagination. Overall, the doctor is expecting to be that (on average) the patients from this IPA will utilize under $400 each in services.

The capitation payment amount is expected on how much every patient is expected to utilize the service. Patients, like those with preexisting conditions, are probably going to have higher expected medical requirements and costs. It's in the IPA or HMO's best interest to try and estimate as best as conceivable the expected utilization of services.

Caput (and that means head) is the Latin word that capitation is derived from. Capitation is the headcount for a group (like IPA or HMO) that the fees depend on.

Capitation FAQs

Primary concern

Capitation payments are payments made to medical care providers for offering types of assistance to patients. These payments are fixed and generally paid month to month (in light of yearly contracts — for example capitation contracts).

This system assists doctors with lessening bookkeeping, accounting, and other operating costs. Capitation additionally benefits the HMO or IPA by guaranteeing that providers don't attempt a bigger number of services than needed. The thought is that it reduces the potential for extreme billing.


  • Capitation payments are intended to lower the high costs of healthcare.
  • It is utilized by physician associations or insurers to pay hospitals or doctors per enrolled patient for a specific amount of time.
  • Rates for capitation payments are developed utilizing nearby costs and average utilization of services
  • HMOs and IPAs will generally benefit from operating in a healthcare capitation payment system.
  • Capitation payments are fixed payment amounts among insurers and medical providers as part of the capitation medical services payment system.


What Are Capitation Fees?

Capitation fee, or capitation rate, is the fixed amount paid from an insurer to a provider. This is the amount that is paid (generally month to month) to cover the cost of services performed for a patient. Capitation fees can be lower in higher population areas.

What Is the Difference Between Capitation and Fee-For-Service?

Capitation is a model that pays a fixed amount to providers in light of the number of patients they have or see. Meanwhile, fee-for-service (FFS) pays in light of the procedures or services that providers perform. Both these systems are utilized in the U.S. healthcare system.

What Is a Capitation Agreement?

A capitation agreement is a genuine contract between the HMO or IPA and the medical provider or doctor. This agreement spreads out the subtleties and expectations between the two, including the fixed amount of money (fee) to be paid to the medical services provider.