What does the term “capitation” refer to in healthcare payment models?

The term "capitation" refers to a payment model in which healthcare providers receive a predetermined, fixed amount of money per patient, regardless of the amount of care that patient requires during a specified period. This amount is typically paid on a monthly basis. This model incentivizes providers to offer efficient and preventive care, as their income is not directly tied to the volume of services rendered, but rather to the overall health and wellbeing of the patients they are responsible for. This can lead to a focus on effective care management and coordination, ensuring that patients receive necessary services without unnecessary tests or procedures.

In contrast, a fee-for-service arrangement would involve providers charging for each individual service or procedure performed, which can lead to a different set of incentives. An insurance premium refers to the regular payment made to an insurance company for coverage, while a billing process for out-of-network services pertains to how providers bill for services rendered outside of a patient's insurance network. Neither of these scenarios accurately describes the capitation payment model.