As a result, providers have an incentive to improve population health outcomes and reduce unnecessary utilization of healthcare services. By providing a fixed payment upfront, healthcare providers have an incentive to manage their costs while also providing appropriate care for their patients. This can lead to better patient outcomes and cost savings for the healthcare provider and the payer. These models are commonly used by health maintenance organizations (HMOs), accountable care organizations (ACOs), and some other types of managed care organizations. Capitation is a payment model in the healthcare industry where a provider or facility receives a fixed amount per patient, regardless of the types and quantity of services rendered. This model incentivizes healthcare providers to focus on preventative care and efficient resource management, as their reimbursement is not tied to service volume.

What is a Capitation Payment?

Potential for underutilization of services as providers may aim to minimize costs. This model encourages providers to invest more in preventive care measures, regular check-ups, and patient education. It fosters a closer patient-doctor relationship, where the goal is overall wellness rather than reactionary treatment. Under the capitated model, CMS is collecting a variety of measures that examine plan performance and the quality of care provided to enrollees. Research published today in JAMA Health Forum Shows primary care physicians faced an average of 57 quality measures. The authors argue that many may interfere with care improvement and contribute to physician burnout.

These reports are made available to the public as ameasure of health care quality, and can be linked to financialrewards, such as bonuses. Capitation payments are often utilized in managed care organizations, such as health maintenance organizations (HMOs) or accountable care organizations (ACOs). These organizations negotiate contracts with healthcare providers, agreeing to pay them a set capitated amount per patient, usually on a monthly or quarterly basis.

That’s because they assume more of the financial risk if the cost of services exceeds capitation payments. These funds can be used to pay for specialists and to help cover any deficits. Any surplus from the risk pool is split between the health plan and the providers at the end of the contract term. In addition, many healthcare plans use risk pools, making them a percentage of the capitated payment.

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1. Capitation payments are those agreed upon by contract with an HMO or a business entity of independent physicians called an independent practice association (IPA).
2. Doctors can concentrate on identifying the root cause of health issues and eliminating them.
3. The provider receives payment for each member every month they’re enrolled.
4. The main benefit to patients is the avoidance of unnecessary and often time-consuming procedures that may trigger high out-of-pocket expenses.

A Center for Studying Health System Change study found that 7% of doctors in a capitation system reduce services because there’s financial incentive to do so. RevenueXL is a provider of healthcare solutions with 15+ years of expertise in process knowledge, cutting edge technology and a team of experts in various facets of practice management. If the HMO in this example has 500 patients, the PCP/medical group will be paid a guaranteed amount of $22,500 per month (or $270,000 per year) with $30,000 what is capitation in medical billing in the “risk pool”.

Some health care plans and states make capitation agreements with medical providers. As part of this agreement, the medical practice receives a certain amount of money each month for each enrolled member, which is the capitation payment. The HMO signs a contract with the PCP and recruits the patients to be registered for medical care with the PCP. For every unit of time a patient spends receiving medical attention, capitation ensures a fixed amount of money is paid in advance to the physician to cover for health care services.

What Is Capitation in Medical Billing?

Capitated care shifts the role of managing the amount, form, and cost of care to the providers. This is a departure from the traditional fee-for-service model which utilizes a set fee for each service. This can allow providers to invest in quality improvements to increase their efficiency, and give them the opportunity for financial rewards while sharing in the risk of potential losses. A doctor who engages this type of contract undertakes a certain amount of risk, since it is possible that the cost of serving these patients will exceed their $20,000 capitated payments. In theory, this system should encourage doctors to emphasize preventive medicine practices, that can prevent greater expenses down the road. With fee-for-service billing, a patient goes into a clinic and the doctor bills for all services performed.

Patient visits have become more complicated due to different rules with varied health plans as far as what services the physician can provide, which medications are approved, and what authorizations are required. Attempting to adhere to these requirements, and manage quality measures by manually collecting and analyzing necessary data elements could be difficult. The use of EHR can be beneficial to assist in identifying services, patient populations, and a better understanding of the costs and approved reimbursements.

Capitation payments control the use of healthcare resources by putting the physician at financial risk for patient services. Capitation payment is a model of reimbursement in which the providers receive a fixed amount of money per patient. This is paid in advance, for a defined time, whether the member seeks care or not.