Capitation is a payment system in healthcare where a doctor or a healthcare provider, also known as the Primary Care Physician (PCP), is paid a fixed amount for a patient for a period of time. The money is usually paid by a Health Maintenance Organization (HMO) or an association of doctors. With capitation, the PCP is paid a particular amount for each of the registered patients, whether or not the patient seeks medical care.

The HMO signs a contract with the PCP and recruits the patients to be registered for medical care with the PCP. For every unit of time a patient spends receiving medical attention, capitation ensures a fixed amount of money is paid in advance to the physician to cover for health care services. This sum is determined by the services provided, the period of time within which the services are provided and the number of patients that get access to health care services.

In most cases, capitation payment plans cover the following services:

  • Injections, immunizations and medications
  • Health education and counselling services
  • Diagnostics
  • Preventive measures and treatments
  • Vision and hearing screenings
  • Laboratory tests

Why does Capitation Matter?

One of the most important advantages of capitation is that it is more cost-effective to manage and maintain. Capitation only keeps track of the number of patients enrolled for the service and does not take too much time to collate data. The system is straightforward and there is no need to file complex paperwork or several forms. There isn’t even a need to use complicated billing codes.

With capitation, it is easier and more realistic to predict and manage the cash flow. The structure of capitation allows the HMO and primary care provider to better budget and disburses funds to the physician when due while keeping a record of when and how money is sent out. Capitation also ensures that money is disbursed to every select member, whether or not they use health care services.

Due to the budgeting system of capitation, doctors focus more on preventative care. The reason is simple; it is cheaper than having to treat full-blown and complex health conditions that can max out the capitation. This means doctors focus more on keeping the patient healthy and not just in a constant state of fighting diseases. For the patient, the old saying prevention is better than cure applies. Capitation helps reduce the cost of treatments over time because patients are helped to live healthier and fuller lives.

Capitation eliminates the need for unnecessary interventions because doctors are always trying to keep the costs of healthcare minimal. Tests and treatments are limited to what is necessary instead of exhaustive check-ups. Doctors can concentrate on identifying the root cause of health issues and eliminating them. This way, capitation not only saves the patient’s time and ensures he or she is properly taken it also eliminates the possibility of being excessively billed for health care services.

With the advantages of capitation, there are also pitfalls. One of such downsides is that physicians are restricted in decision making. Instead of carrying out what a doctor would consider complete checks, the doctor may be forced to run specific diagnostics. The problem then is how to decide which diagnostics are more important than the others? Medical care is sometimes about educated guesswork and in order for practitioners to make informed decisions, it is often important for them to run "exhaustive" tests and get more information. This problem of capitation may invariably put the patient at more risk because the root cause may go undetected until its too late.