Capitation

What is capitation? Have you heard the term?

Capitation is a payment arrangement used frequently in healthcare, where a provider (such as a doctor or hospital) receives a fixed amount of money per patient for a specific period of time, regardless of the number of services or treatments provided. 

From an outpatient doctor’s perspective, it works like this:

The doctor receives a set amount of money per patient, usually paid monthly. This rate is usually agreed upon between the provider and an insurance company. This money is paid regardless of how much contact the doctor and patient have in that month. 

The main rationale is that it incentivizes the doctors to practice more efficiently and emphasize preventative services more, which ultimately saves money.  To oversimplify, the providers receive a fixed amount of money to provide care for the patient over a period of time.  What that care actually involves is dependent on practice styles.

For example, your doctor may receive $100 per month to care for you for a year.  If you never come in and never call, the doctor gets $1200 for doing nothing.  Whereas, if you come in every month or call frequently, the cost of your care is probably more than $1200, and the doctor “loses” money on you.  There are expenses that are incurred to interact with patients, especially in the office – most notably support staff time and rent.

These are the two extremes of the spectrum and the vast majority of the patients fall in the middle.

Another, more traditional payment model is called Fee-For-Service.  Historically, this is the way medical professionals (and most other businesses) billed their patients(customers).  The patient had an appointment, the doctor was paid for it.  More appointments meant more income, generally.  Capitation is the opposite where an in-office appointment can be considered a “loss” of revenue, owing to the doctor and staff time.

The Fee-For Service model often motivated doctors to “bring everyone in” for a visit as this was the main way to generate income.  While there are certain advantages to in-person care, many issues can be addressed just as well or even better without an in-person visit.  These include mental health, some chronic diseases or other conditions where keeping patients at home is better for health or social reasons.  Capitation necessitates the clinician to decide what form(s) of interaction is best for the patient and the practice.

Considerations:

1. Patients generally have no say in whether or not their care is paid by Capitation. 
2. Health systems (including doctors) may have some choice about whether or not to engage with an insurance company that pays them in a capitated model.
3. A main advantage for the doctor is the predictable amount of money that comes in over a period of time.
4. There does not appear to be significant differences in patient satisfaction, care or outcomes based on what type of payment arrangement they have with their doctors.
5. In reality, most payment plans are a blend of Fee-For-Service and Capitation. 
6. Not all patients generate the same monthly dollars.  Factors that include how “complex” one is medically and how current one is with preventive measures influence provider payments.