The cost is based on the expected healthcare utilization costs for a group of patients for that year.
The PCP is usually contracted with ahealth maintenance organization (HMO)whose role it is to recruit patients.
This article explains how capitation works, including the different capitation models used in healthcare.
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It also lists the pros and cons of capitation and how it affects you as an individual.
How Does Capitation Work?
Capitation payments are calculated based on the local costs and average utilization of services in that area.
Other plans allow physicians to charge a fee for the “extra” service at a discounted rate.
Capitation by Risk Pool
Capitation can also be based on “risk pools.”
These are the groups of individuals whose medical costs are combined to calculate premiums.
The risk is based on an evaluation by a financial analyst known as an actuary.
Conceptually, larger risk pools have lower utilization costs because the risk is spread between many members.
If it does not, some or all of the money may be kept to pay the excess amount.
Projected profitability is ultimately based on how much healthcare the group is likely to need.
There are primary and secondary capitation payments:
Another form of capitation will reward PCPs for preventing illness.
This model is more common in PCPs who manage high-risk pools.
It alleviates the risk of excessive billing for procedures that may or may not be necessary.
The chief benefit to PCPs is the decreased costs of bookkeeping.
A contracted PCP does not need to maintain a larger billing staff.
It also doesn’t have to wait to be reimbursed for its services.
Alleviating these costs can allow a practice to treat more patients at a lower overall operating expense.
The main benefit to patients is the avoidance of unnecessary and often time-consuming procedures that may trigger highout-of-pocket expenses.
To increase profitability, a practice may institute policies that exclude procedures to which the patient may be entitled.
In this instance, the only person who truly suffers is the patient.
The capitation payment is based on local costs and the projected healthcare expenditure for that group or area.
