Capitation

A payment model where a payer pays a provider a fixed amount per member per month regardless of whether the member receives any services during that period.

Capitation flips the traditional fee-for-service model on its head. Instead of getting paid every time you see a patient, you receive a fixed monthly payment for each member assigned to your panel. If the member comes in five times in a month, you get the same payment as if they come in zero times. The capitation amount is called the PMPM (per member per month) rate. It varies based on the type of services covered, the member's age and risk profile, and the geographic area. A primary care capitation rate might be $15 to $30 PMPM. A specialty capitation rate depends on the specialty and covered services. Capitation is most common in HMO arrangements and in Medicaid managed care. Under capitation, you take on financial risk. If your assigned members are relatively healthy and use few services, you do well. If they are sicker than average and need more services, you may provide care that costs more than the capitation payment covers. For credentialing, capitation arrangements add a contracting layer on top of the standard credentialing process. After you are credentialed, you negotiate the capitation rate and the scope of services covered. The contract specifies which services are included in the capitation payment and which are carved out and paid fee-for-service. Capitation changes how you think about your practice. Under fee-for-service, more visits equal more revenue. Under capitation, efficiency is rewarded. Keeping patients healthy and out of the office is financially beneficial. This alignment is one reason payers and policymakers favor capitation, but it also creates pressure to underserve patients, which is why quality metrics are usually tied to capitated contracts. If you are offered a capitation contract, model the economics carefully. Look at the average utilization rates for the population, your cost per visit, and the PMPM rate. Make sure the math works before you sign. Some capitation contracts look attractive at first but lose money when the assigned population turns out to be sicker than projected.