Capitation

In some managed care arrangements, a per-member, monthly payment to a provider that covers contracted services, which is paid in advance of the delivery of care. Essentially, a provider agrees to provide specified services to the plan members for this fixed, predetermined payment for a specified length of time (typically, a year), regardless of how many times the member uses the service. If a provider spends more money to provide health care for a person than the contracted price per person (e.g., ordering certain tests), the provider loses money. If the participating provider does not see many of the persons under the contract and does not spend the allotted money on care per person, then the provider makes money. In other words, there is a certain incentive not to treat that must be weighed against an incentive to treat in order to keep the patient healthy in order that the patient will utilize less health care in the long run.

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