DEFINITION
Capitation payments are fixed payments to a medical provider from a state or a health plan.
Capitation payments are fixed payments to a medical provider from a state or a health plan. These payments are paid monthly for each member enrolled in the health care plan. No matter how many times the member visits the provider during the year, the payment amount doesn’t change.
Definition and Examples of Capitation Payments
A capitation payment is a fixed amount of money paid in advance to a medical provider by a state or health plan for an agreed amount of time.1
- Alternate name: Capitation fee, capitation rate
- Acronym: PMPM (per member, per month)
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.
How Capitation Payments Works
Capitation payments are common in health maintenance organizations (HMOs) and Medicaid-managed care organizations (MCOs). The primary care provider receives a certain amount of money for each member enrolled in the health care plan, and the provider agrees to take care of their covered medical needs for this amount.
The specific amount of the payment is defined in the capitation agreement. This number is based on local medical costs, so it may vary from region to region. Capitation rates can also be based on gender, age, and other factors.
The provider receives payment for each member every month they’re enrolled.
What Do Capitation Payments Cover?
The capitation agreement includes a list of covered services that the provider must give to each member as part of the capitation fee. While the exact services vary from agreement to agreement, here are a few commonly covered services:1
- Preventive care and diagnostic services
- Routine injections and vaccines
- Outpatient tests in a designated lab or the office
- Routine vision and hearing screens
- In-office counseling and health education services
Some medical treatments fall outside of the scope of the capitation agreement. These “carve-out services” are handled differently in billing, based on the terms of the contract. Common carve-out services include:5
- Behavioral/mental health
- Dental care
- Vision
- Pharmacy
Health care providers often “carve out” services they aren’t experienced at managing. These services also protect public health care providers, which often specialize in carved-out care.