What Is HMO Capitation?

A health maintenance organization (HMO) may contract with a physician, or group of physicians, and provide a payment, known as capitation, for medical care of the HMO's members. A capitation payment is fixed regardless of the type or amount of services received by the patient.

Fixed Rate Payment

Under a fixed-rate capitation arrangement, medical providers are paid a fixed rate to provide medical services for each person enrolled in the plan. By accepting the fixed rate, the health care provider becomes responsible for providing all requisite health care services for an individual.

Fixed Rate Based on Age and Gender

Under this type of arrangement, a provider receives a fee based on the patient’s age and gender. The plan may provide a larger payment for individuals age 65 and older, who may require more health care services.

Fixed Percentage

Under this type of arrangement, health care providers receive a fixed percentage of the premium shares paid by members or their employers. Providers are exposed to greater risk under this type of arrangement, as an insurer could unexpectedly lower its premium rates.

Benefits

Health care providers may benefit economically by entering into such capitation arrangements; income from a capitation agreement is more predictable than other types of reimbursement methods.

Risks

By accepting a capitation arrangement, the health care provider is also taking a significant financial risk. The capitation amount may not pay for the cost of the patient’s complete medical needs, and the provider may lose money.

References

• Managed Care Resources: Managed Care Contracting-Reimbursement Models; Ira H. Rosenberg & Michael Backus
• Managed Care Magazine: The Smart Way to Take the Capitation Plunge; Gary Grubb, MBA