How Healthcare Capitation Payment Systems Work

Being Paid per Patient

Capitation is one form of a healthcare system.
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Capitation refers to a form of a healthcare payment system. In a capitation model, a health care provider or individual hospital is paid by the insurer (or another payer) a fixed amount per patient during a given period of time. The term capitation comes from the Latin word for head, caput. The definition of capitation is that a head count is taken and payment is based on that count without regard for actual usage of healthcare services.

Capitation System Example

An example of a capitation model would be an insurer or payer who would negotiate to pay a doctor $500 per year per person in a group. For 1,000 people, the insurer would pay the doctor $500,000 and the doctor would be expected to supply all services necessary to those 1,000 different people.

If one individual person (patient) used $2,000 worth of health care services, then that doctor would end up losing $1,500 on that particular patient. On the other hand, if another particular patient used only $10 worth of health care services, then the doctor would make a profit of $490 on that particular patient. Of course, in such a system, the main goal for the doctor is to keep as much of that capitated amount as possible.

A contrast to a capitation system would be a health care system where the provider is paid a fee for each service delivered. If a patient needed a CT scan, the insurer would pay for the CT scan, having nothing to do with how many other services or payments need to be made.

Benefits of a Capitation System

The chief benefit of a capitation payment system for a doctor or insurer is the decreased costs of bookkeeping. A doctor does not have to pay a larger staff of billing personnel, nor does he have to wait to be reimbursed for any specific services. The doctor's actual cost to care for his patients may decrease.

The benefit to the insurer or payer is that the system decreases incentives to provide more care than is necessary. This reduces what they have to pay the provider, as well as reducing their accounting costs.

One benefit is that a patient is less likely to be given unnecessary care that would be unlikely to improve their health or condition but would increase their personal health care costs if they had to pay a co-pay. More care is not always better care.

Drawbacks of a Capitation System

The detriment is that the doctor begins to make decisions about what care he will or won't provide because he will make more money by providing less care, a form of healthcare rationing. The more care that a doctor provides to a patient, the larger the patient's health care bill will be. However, the doctor gets paid the same overall, regardless of how much or little work he does on a patient. Thus, the system includes the built-in incentive for the doctor to see as many patients as possible, rather than focus extra individual attention on a patient.