FFS pays providers based on the number of services provided—unlike capitations that pay based on the number of participants in the group. Studies from many years suggest capitation is more cost-effective among groups that have a high amount of individuals with moderate health care needs. Rates for capitation payments are developed using local costs and average utilization of services, and therefore, can vary from one region of the country to another.
Is capitation the same as value-based care?
Other plans allow physicians to charge a fee for the “extra” service at a discounted rate. This article explains how capitation works, including the different capitation models used in healthcare. It also lists the pros and cons of capitation and how it affects you as an individual. Learn about capitation payments in finance including their definition, how they work, and calculation methods.
- A capitation agreement is a contractual arrangement between a healthcare payer (such as an insurance company or government agency) and a healthcare provider or organization.
- Public health care providers, who typically specialize in specialized treatment, are likewise protected by these services.
- Earlier during the COVID-19 pandemic, some primary care practices had challenges keeping their doors open.
- Therefore, providers must manage resources efficiently, control costs, and optimize patient outcomes to ensure financial sustainability under capitation arrangements.
The types of capitation models in healthcare
Finally, Arora and Jain noted ways organizations can mitigate financial risk under this alternative payment model. The experts said that organizations should set aside payments for expensive items, like specialty drugs and devices, in order to ensure they are able to cover those costs if complications occur in care delivery. With fee-for-service billing, a patient goes into a clinic and the doctor bills for all services performed.
A capitation agreement is a contractual arrangement between a healthcare payer (such as an insurance company or government agency) and a healthcare provider or organization. This agreement defines the terms and conditions under which the healthcare provider receives fixed payments, known as capitation payments, for each enrolled individual within a specified population. The agreement outlines the financial and service-related aspects of the capitation arrangement.
Capitation is a method of payment in which a physician or hospital is paid an annual fixed fee upfront to provide primary healthcare services to a group of patients for that year. The capitation payment is based on local costs and the projected healthcare expenditure for that group or area. Secondary care capitation models form a relationship between PCPs and secondary providers. Under this reimbursement model, secondary providers are given capitated payments based on the PCP’s enrolled membership.
Definition and Examples of Capitation Payments
This fixed payment model allows providers to deliver patient-centered care in areas that lack primary care access. Compared to traditional fee-for-service models, which pay physicians for the volume of services provided, capitation models pay physicians a fixed amount per patient, per unit of time, whether or not the individual seeks care. Capitation payments are paid prior to care delivery and are determined by the range of services provided, as well as average utilization of those services and local cost of care. Capitation payments are frequently made in health maintenance organizations (HMOs) and Medicaid-managed care organizations (MCOs). In exchange for receiving a specific sum for each member who enrolls in the health insurance plan, the primary care physician commits to caring for the member’s covered medical needs. Capitation payments, as opposed to a fee-for-service billing method for medical services, can help reduce waste and stop healthcare costs from rising.
Pro: Capitation payments offer greater financial certainty for providers
Capitation payments are common in health maintenance organizations what is capitation in medical billing (HMOs) and Medicaid-managed care organizations (MCOs). The primary care provider receives a certain amount of money for each member enrolled in the health care plan, and the provider agrees to take care of their covered medical needs for this amount. Some health care plans and states make capitation agreements with medical providers. As part of this agreement, the medical practice receives a certain amount of money each month for each enrolled member, which is the capitation payment. Capitation payments are payments agreed upon in a capitated contract by a health insurance company and a medical provider.
Capitation fee, or capitation rate, is the fixed amount paid from an insurer to a provider. This is the amount that is paid (generally monthly) to cover the cost of services performed for a patient. The capitation payment amount is expected on how much each patient is expected to use the service. Patients, such as those with preexisting conditions, are likely to have higher expected medical needs and costs. It’s in the IPA or HMO’s best interest to try and estimate as best as possible the potential utilization of services.
A 2017 Health Affairs study uncovered that Maryland’s all-payer global capitation model reduced Medicare hospital costs by $429 million. Maryland hospitals also reduced potentially preventable complications by 48 percent and improved the all-cause readmission rate by 57 percent after implementing the payment model. The provision of unknown services is routinely “carved out” by healthcare professionals. Public health care providers, who typically specialize in specialized treatment, are likewise protected by these services. The doctor agrees to give each member all necessary medical treatment in exchange for a capitation fee. The payment is still made even if a member doesn’t need the provider’s services throughout the allotted period.
Services that make up secondary care include radiology, diagnostic imaging, physical therapy, and other services that are not provided by a PCP. Several healthcare organizations and governments enter into capitation decisions with medical providers. In accordance with this system, the medical practice gets paid a predetermined sum each month for each registered member, known as the capitation payment. Capitation in medical billing describes a set payment made to a doctor by the government or a health plan. No matter how frequently the member visits the provider during the year, the payment amount is fixed. These funds can be used to pay for specialists and to help cover any deficits.
It’s important to note that the calculation methods can vary between different managed care organizations and across different regions or countries. Healthcare providers and managed care organizations often collaborate closely to determine the most appropriate and fair method for calculating capitation payments. With capitations that encourage preventative care, the provider is rewarded for providing preventive health care services. This incentivizes the doctor or provider to help avoid expensive medical services. Often, payers establish risk pools made up of a percentage of the capitation payment that is withheld from physicians until the end of the year.
Health insurance companies use capitation payments to control health care costs. Capitation payments control the use of healthcare resources by putting the physician at financial risk for patient services. Earlier during the COVID-19 pandemic, some primary care practices had challenges keeping their doors open. By participating in CMS Innovation Center models that provided pre-payments, health care practices received more stable funding, which helped them keep doors open and continue serving patients. Understanding capitation payments allows us to appreciate the complexities of healthcare finance and how payment models shape the delivery of care. As the healthcare industry continues to evolve, it is crucial for both providers and patients to be aware of these financial mechanisms that underpin our healthcare systems.
Another example is Medicare Advantage (MA) plans, where private insurance companies receive capitated payments from the Centers for Medicare and Medicaid Services (CMS) to provide Medicare benefits to enrolled beneficiaries. Additionally, some primary care practices may participate in capitation arrangements with commercial insurers or employer-sponsored health plans. Capitation in healthcare refers to a payment model where healthcare providers receive a fixed amount of compensation per enrolled patient over a specific period, typically on a monthly or yearly basis. Under this capitated model in healthcare, providers are responsible for delivering all necessary medical services to patients within their assigned population, regardless of the actual number or complexity of services rendered.
The earliest forms of capitation were used in the 19th century by industrial employers who paid physicians a set salary to care for their employees. Capitation is a type of healthcare payment system in which a physician or hospital is paid a fixed amount per patient for a prescribed period by an insurer or physician association. The cost is based on the expected healthcare utilization costs for a group of patients for that year.