Get your Practice Analysis done free of cost. Please call 888-720-8884

Capitation Payment in Healthcare

Capitation Payment in Healthcare

According to capitated contract payments agreed by a health insurance company and a medical provider is called Capitation payment in healthcare. This payment is fixed, pre-arranged monthly payments received by a physician, clinic or hospital per patient enrolled in a health plan, or per capita. The United States of America currently ranks highest among developed nations in per-capita healthcare spending. This concerning information came out of a 2019 paper in Health Affairs by a team from the Johns Hopkins Bloomberg School of Public Health Research.

According to the study’s lead author, Gerard F. Anderson, PhD, the U.S. “remains the most expensive because of the prices the U.S pays for health services.”

The Capitation Payment is the same for each patient during that period, regardless whether they seek medical services and treatment or not. In the capitation model, providers are paid for each enrolled patient, or per member per month (PMPM).  This is called the capitated rate or capitation premium, which is sometimes referred to as the “cap”.

The components of capitation are:

  • The advance payment of a flat fee
  • For the delivery of a specific set of services in a given period
  • For an agreed-upon number of enrolled members
  • Whether or not patients seek care during that period

Capitation Agreement

Capitation agreements or contracts are entered into by the healthcare provider and the payer to establish rates and other details. These agreements may also include a list of services that will be provided by the health plan to the patient, such as preventive services, medications and immunizations, lab tests, routine screenings, and other diagnostic and treatment services.

Types of Capitation Agreements


This type of agreement happens when a managed care organization such as an HMO pays a physician (or physician group) directly for care to be provided to the HMO’s members.


This type is created when an HMO arranges a contract involving primary care physicians and a “secondary” healthcare service provider such as a diagnostic or imaging service provider or a specialist, among others.


This type can be taken to mean a couple of different arrangements.

It can mean “a fixed payment made to health care professionals or organizations for the care their patients may require during a contract period regardless of how many services are provided to patients and that can be adjusted to account for severity of illness.”  This is how it is defined by the American Academy of Family Physicians (AAFP).  This definition is similar to the basic definition of capitation.

Benefits of Capitation

Capitation offers several benefits to payers, physicians and patients.

  • In the capitation system, healthcare providers are usually paid in advance; they do not have to wait for the billing cycle to be completed before they are paid. This means that from the outset they have an idea of the cash flow coming in and can plan accordingly.
  • Healthcare providers won’t need to spend as much money and time on billing and accounting staff.
  • Payers benefit because the costs of medical services can be kept under control.
  • Patients may see an improvement in their overall health in situations where providers offer preventative care and wellness programs as part of their services. Prevention and wellness initiatives are seen as a means for providers to control costs because they can potentially decrease the volume of services needed by patients.
  • Patients can avoid the inconvenience and cost of medically unnecessary procedures since providers are encouraged to be conscientious about providing appropriate services and treatment rather than increasing the number of these services and treatments as a means to increase fees

Three main aims of healthcare framework designed by IHI and embraced by CMS aspires for best care for patients, good health for all people, and lowest expense of healthcare.

Medisys Data Solutions Inc. provides best value comprehensive solutions to medical practices, including Medical Billing, Medical Coding, and Credentialing. We at Medisys increase medical practices overall income with error free billing and coding.

Share this post