Capitation is a healthcare payment model in which a physician or practice receives a fixed per-member-per-month payment for each enrolled patient — regardless of how many services that patient uses — shifting financial risk from payers to providers.
Under capitation, a payer pays a practice a fixed monthly fee — the capitation rate — for each assigned patient, in exchange for providing all covered services that patient may require during the month; the practice is paid whether or not the patient visits, and bears financial risk if a patient's care is more expensive than the capitation rate implies. Capitation rates are set based on expected utilization within a patient population, adjusted for age, gender, and health status, and negotiated between the practice and the payer; if actual utilization is lower than expected, the practice profits; if higher, the practice absorbs the excess cost. This structure is fundamentally different from fee-for-service, where payment is triggered by each individual service rendered; under capitation, high-volume low-complexity service delivery may be profitable while complex, high-utilization patients are costly. Analytics requirements under capitation differ from fee-for-service: rather than tracking revenue per visit, capitated practices must monitor panel size, utilization rates, and per-member costs to understand profitability by patient cohort. Capitation arrangements are most common in HMO-style managed care plans and some value-based care contracts with Medicare Advantage payers.
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