The payments which are used by managed care organizations to control and manage health care costs are known as Capitation Payments. These payments control use of health care resources by putting the physician at financial risk for services given to patients. Similarly, managed care organizations measure the rates of resource utilization in the physician practices in order to ensure that patients don’t get suboptimal care through under-utilization of health care services. These reports are made available to the public as a measure of health care quality, and can be associated to financial benefits, like bonuses.

The term “Capitation” is believed to be a fixed amount of money per patient per unit of time paid in advance to the physician for the delivery of healthcare services. The real or actual amount of money paid is evaluated by the ranges of services that are given, the number of sufferers involved, and the period of time during which the services are given. The charges of capitation are developed utilizing local costs and average utilization of services and hence can differ from one region of the country to another. A risk pool is developed as a percentage of the capitation payment in many plans. In this risk pool, money is withheld from the physician until the end of the fiscal year. The money is paid to the physician if the health plan does well financially; if the health plan does poorly, the money is kept to pay the deficit expenses.

When a capitation agreement is signed by the primary care physician, a list of particular services that must be given to patients is included in the agreement. The amount of the capitation will be verified in part by the number of services given and will differ from health plan to health plan, but for primary care physicians, most capitation payment services involve the following:

• Injections, immunizations, and medications administered in the office
• Preventive, diagnostic, and treatment services
• Health education and counseling services conducted in the office
• Outpatient laboratory tests done either in the office or at a designated laboratory
• Routine vision and hearing screening

It is not uncommon for major groups or physicians engaged in primary care network models to also get an extra capitation payment for diagnostic test referrals and subspecialty care. This additional money will be used by primary care physicians to pay for these referrals. This puts the primary care provider at greater financial risk obviously if the overall cost of referrals exceeds the capitation payment, but the potential financial rewards are also higher if diagnostic referrals and subspecialty services are controlled. Alternatively, few plans pay for test and subspecialty referrals through fee-for-service arrangements but are more generally paid through contractually agreed-upon fee schedules that are discounted 10 percent to 30 percent, in contrast to the local usual and customary fees.