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Capitation is a payment mechanism in which a provider is paid a fixed rate per person, per month, usually prospectively, to cover all care within a specified set of services and administrative costs without regard to the actual number of services provided. The per capita amount reflects the expected utilization of covered services across the population of patients. Rates are developed by using local costs and average utilization of service and therefore vary greatly depending on the region of service.
There are two kinds of capitation models—global capitation; when provider networks band together and receive single fixed monthly payer for all consumers enrolled in their health plan and partial/blended capitation; when insurers cap a subset of services while the other services a consumer receives are paid for on a fee-for-service basis.
In theory, capitation may help to decrease costs for consumers and perhaps improve the coordination of care. However, there are concerns that some forms of capitation, especially if coupled with aggressive utilization management, can inappropriately limit consumers’ access to services. Providers keep any portion of the capitation rate not spent on patient care – an incentive structure that must be monitored carefully lest providers ration their services leading to reduced quality of care for consumers.
Capitation represents one end of a continuum of bundling payments that runs from pure fee-for-service through various bundling methodologies to capitation. The pros and cons remain the same no matter what the size of the bundle. In all these cases, ensuring the suitability of the provider group to the payment method, as well as monitoring and/or paying based on quality are strategies that will be important to the success of the payment method.