Capitation

What Does Capitation Mean?

Capitation is a health insurance payment system where healthcare professionals are paid a fixed amount per month for each insured individual under their care, regardless of how frequently those individuals seek health services.

Insuranceopedia Explains Capitation

The purpose of capitation is to reduce the cost of health services by determining a fixed monthly payment in advance for a year. This payment amount is established through a contract between the insurance company and the medical provider.

Because capitation locks in a provider’s per-patient revenue ahead of time, the operating costs of running a practice (rent, staff, equipment, malpractice coverage) become the main variable that determines profitability, which is why running a medical office requires careful planning around predictable expenses.

To prevent underpayment of the medical provider, individuals are classified according to risk. For example, those with conditions like diabetes, who require regular treatment, may be placed in a higher-risk pool. Risk pool assignments can also be influenced by factors such as age. Practices with a high share of capitated patients often look closely at what insuring the physicians themselves will run them, since physician insurance costs come out of that fixed monthly payment rather than being billed separately.