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What is capitation?

Capitation is a predetermined amount of money healthcare providers are paid per patient, per unit of time in advance of delivering healthcare services. The amount of money provided is based on the range of services provided, the period of time the services are provided, and the number of patients involved.

Capitation rates are determined using local costs and average service utilization, meaning rates can vary based on location.

When a provider signs a capitation agreement, they agree to provide a list of specified services, which often include:

Capitation payments are provided on a monthly basis, but they are calculated one year in advance and remain fixed for that year, no matter how often patients require services.

How does capitation help healthcare?

Capitation helps to limit unnecessary services and excessive costs. It is an alternative to fee-for-service, where providers are paid for the service provided, not the number of patients. With capitation, providers have greater financial security and are dissuaded from ordering more procedures than necessary.

With capitation, however, a patient may spend less time with a provider if the provider chooses to increase profits by decreasing the time spent with patients. However, with greater financial security, providers can also focus on quality face-to-face services and encourage preventive care.