what is capitation in medical billing

Capitation is a payment arrangement for healthcare services in which an entity, such as a physician or group of physicians, receives a fixed, pre-arranged monthly payment for each person attributed to them, regardless of the volume of services that person seeks. Capitation payments are made to healthcare providers for providing services to patients, and they are fixed and generally paid monthly based on yearly contracts. Capitation payments control the use of healthcare resources by putting the financial risk on the healthcare provider rather than the insurer. Capitation payments are used in various payment models designed to tackle the rising cost of medical services and provide the best care. Capitation payments are expected to cover all the services that may be provided to the patient under the healthcare insurance plan. Capitation is a model that pays a fixed amount to providers based on the number of patients they have or see, while fee-for-service (FFS) pays based on the procedures or services that providers perform. The capitation model discourages healthcare providers from delivering more or conducting unnecessary procedures, thus alleviating the risk of excessive medical billing. Capitation also boasts innovative and preventive service delivery methods like telemedicine, which increase patient trust and satisfaction. Charging patients based on quality rather than quantity inspires healthcare providers to provide comprehensive and value-based care. Capitation further simplifies medical billing and coding, which are associated with each visit and procedure.