Capitation is a payment model in which healthcare providers receive a fixed, per-member-per-month (PMPM) payment for each patient enrolled in their panel, regardless of the number or type of services delivered. This prospective payment approach shifts financial risk from the payer to the provider, incentivizing efficient resource utilization and preventive care rather than high-volume service delivery.
Capitation payments are typically risk-adjusted based on patient demographics, health status, and historical utilization patterns. Providers receive higher PMPM rates for patients with complex chronic conditions and lower rates for healthier individuals. Common capitation arrangements include primary care capitation, where the payment covers office visits and basic preventive services, and global capitation, where the payment encompasses the full continuum of care including specialty referrals, hospitalizations, and ancillary services.
The capitation model is foundational to managed care and is widely used in Medicare Advantage, Medicaid managed care, and commercial HMO products. Health systems operating under capitation invest heavily in care management, utilization review, and patient engagement to manage total cost of care. While capitation can drive efficiency and coordinated care, critics note the potential for underutilization if financial incentives are not balanced with robust quality measurement and regulatory oversight.