What is capitation in the context of managed care?

Capitation in the context of managed care refers to a payment arrangement where a healthcare provider is compensated with a flat monthly fee for each patient enrolled in their care, regardless of the number of services provided. This means that the provider receives a set amount to cover all necessary care for each patient within that payment period, which encourages the provider to focus on preventative care and efficient management of resources to maintain overall patient health.

This model can help reduce healthcare costs by incentivizing providers to offer proactive care and keep patients healthy, as their compensation is not based on the quantity of services rendered but rather on the overall management of patient health. Capitation shifts the financial risk from insurers to providers, because if a provider can manage costs effectively and keep patients well, they can operate profitably within the capitation framework.