The transition from a fee-for-service model to value-based care has spurred healthcare leaders to reevaluate and realign their current payment models to meet organizational goals. In this blog, we’ll explore how capitated payments and reimbursement works as part of a larger strategy to provide quality care and reduce healthcare expenses.

What are Capitation Payments?

A capitation payment model works by paying healthcare providers a fixed amount for each patient  they deliver care to, per unit of time. The payments are made by a health insurance company or health maintenance organization (HMO) to a physician, clinic, or hospital, and are calculated in advance and remain fixed for the duration of the contract, regardless of the quantity of services delivered.

Capitation Model: How it Works in Practice

Here’s an example of how a healthcare capitation model works. An insurer enters a one-year capitation contract with a healthcare provider to secure coverage for its members. The healthcare provider would be paid a fixed amount to provide care services for all of the insurer’s members, say 3,000 of them. 

If the annual capitation fee comes up to $500 per person, then the insurer would pay out $1.5 million to the healthcare provider to cover all treatment expenses for the 3,000 members. Generally, not each of the members would fully utilize this allocation while others may even exceed this amount.

The predetermined fee is calculated based on how much cost each member is expected to incur for care delivery over a year’s span. Therefore, it’s up to the healthcare provider and insurer to predict the resources and utilization that will be used under this capitation payment model to better manage spend.

Some of the services that capitated payments could be used for include:

  • Preventive, diagnostic, and treatment services
  • Injections, immunizations, and medications administered in the office
  • Outpatient laboratory tests done either in the office or at a designated laboratory
  • Health education and counseling services performed in the office
  • Routine vision and hearing screening

Capitation vs. Fee-for-Service Model

The main difference between a healthcare capitation program and a fee-for-service model is in the way that payment is made. In capitated payments, healthcare providers are paid based on how many patients they see over a period of time. In fee-for-service, however, healthcare providers are paid based on the quantity of services, screenings, tests, or procedures carried out during the course of treatment. Historical fee-for-service information provides the basis for defining capitation models.

Pros & Cons of a Capitation Payment Model

Here’s a list of advantages and disadvantages when considering whether to adopt a capitation payment model over other payment methods.

Advantages of Capitated Payments Disadvantages of Capitated Payments
Ensures healthcare providers delivers necessary and quality care for better patient outcomes Potentially leads to using cheaper pharmaceuticals and services instead of established name-brands to cut costs
Reduces financial uncertainty and bookkeeping overhead so healthcare providers can focus on efficiency and cost-control measures May cause large enrollment of patients and subsequently longer wait times and shorter physician interaction for patients
Allows healthcare providers to focus on in-person services and preventative care programs Could result in low capitation rates in high population areas depending on the capitation rate schedule


How Telehealth Helps with Your Capitation Reimbursement - Strategies for Capitation Success

Opting for a capitation payment model places a greater emphasis on waste cutting, which simply means eliminating inefficient care and processes that are contributing to healthcare spend. Telehealth and remote patient monitoring (RPM) solutions have proven results when it comes to cost savings and improving quality of care.

A 2014 study suggested that new capitation-based payment models when used with telehealth can maximize clinical outcomes and minimize costs. The areas of improvement cited include videoconferencing for outpatient visits and home telemonitoring.

Learn More About Capitation Reimbursement with One of Our Experts Today

A capitation payment model alongside value-based care could help healthcare providers and insurers achieve their respective organizational goals. Talk to one of our experts to see how telehealth fits in with this strategy.

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