Capitation

Capitation is a payment arrangement in health care in which a provider or group is paid a fixed amount per enrolled patient over a defined period, typically per member per month (PMPM), regardless of how many or which services the patient uses. This model is common in managed care, integrated delivery systems, and some national health programs, and it shifts financial risk from payers to providers.

Capitation payments are often adjusted for patient risk and complexity via risk adjustment factors, age, gender, chronic conditions; to ensure fair compensation. Rates can be global (per member for all primary and specialty services) or partial (per member for selected services). Mechanisms such as stop-loss insurance or risk corridors may protect providers from excessive costs. Some capitation plans combine a base capitation with fee-for-service adjustments for high-quantity or high-severity cases; quality metrics may trigger bonuses or clawbacks.

Advantages include predictable budgeting, incentives for preventive care and care coordination, and potential efficiency gains. Disadvantages include the risk of undertreatment or skimping on necessary services, particularly for high-risk patients, and the need for substantial data, administrative capacity, and governance to monitor quality and utilization. Providers may bundle services and emphasize cost-effective care.

Historically, capitation has been used in HMOs and public primary care funding. It emerged in the late 20th century as a way to control costs and promote coordinated care. In many systems, capitation is complemented by other payment methods and quality requirements.