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Capitation

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Per patient payments, or capitation payments, are fixed, monthly payments received by the medical office for the patient. This amount stays the same regardless of how many visits the patient has or the cost of incurred expenses and even when they don't receive care at all.

State Medicaid programs are an example of a payer that makes per patient payments. Physicians are paid a set amount for each Medicaid patient they offer services to. This is the most effective way to cut health care costs while promoting preventative care.

Capitation is considered as "prepaid" medical care and substantially reduces costs for the medical office by forcing physicians to consider the costs of treatment. However, prepayment provides benefits that other payment methods cannot offer such as:

  • Lower overhead costs
  • No delays in payments
  • Consistent cash flow

One negative aspect would be that the medical office would not benefit from treating patients with complex diagnosis because the prepaid amount includes all treatment. In other words, getting paid in the blind for future treatments could be beneficial or possibly detrimental to the cost-effectiveness of a medical office.

Capitation provides a certain benefit to the health care system as it significantly improves or increases the focus on preventative care services.

Compare Other Payment Methods

  1. Per Diem/Visit: Payments made to the medical office for each day or visit is a per diem or per visit payment. Per diem payments are made base on a predetermined amount regardless of the amount of time spent by the physician providing treatment or the array of services that the patient may receive during the visit.

    Hospital inpatient visits and nursing facilities are some examples of events that may be eligible to receive per diem payments according to the contract an insurance payer has with the facility.

    Per visit payments are normally paid in a clinic, home health, physical therapy or an outpatient setting.

  2. Per Episode: Per episode payments are made for all services rendered during one episode of care. Also referred to as case rates, episode payments are usually made for emergency room visits, ambulatory surgical procedures or hospital inpatient visits. When used in hospital inpatient visits, the payment is usually made based on DRGs (Diagnosis Related Groups).

    DRGs are assigned a classification based on a combination of ICD-9 diagnosis codes, CPT and HCPCS procedure codes, complications or conditions present on admission, discharge status, age and sex. DRGs payments are also based on a certain time period which is an average number of days necessary for adequate treatment.

  3. Fee-For-Service: The most common method of payment is the fee-for-service model. In a fee-for-service, the medical office is paid a set amount for each type or unit of service rendered. An office visit, lab tests, xray, or other service are individually paid according to the fee schedule.

    This payment method allows the medical office to receive the maximum reimbursement for each episode of care.

Example
  • Dr. House is paid $50.00 per month per patient enrolled in the HMO plan
  • 250 HMO patients select Dr. House as their Primary Care Physician (PCP)
  • Dr. House gets a pre-paid, monthly payment of $12,500.00
  • Dr. House must provide quality medical care for all 250 patients
  • If the services provided to these patients exceed $12,500.00 per month, Dr. House is responsible for covering the costs associated with these services
  • If the services provided to these patients do not exceed $12,500.00, Dr. House has successfully managed the services provided and the related costs
The amounts listed above are used only for the purposes of this example. Contact the HMO provider services representative in your area to find out specific details about the capitation rates for your specific practice or physician.
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