Capitation is a payment arrangement for health care service providers. It pays a physician or group of physicians a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care. These providers generally are contracted with a type of health maintenance organization (HMO) known as an independent practice association (IPA), which enlists the providers to care for HMO-enrolled patients. State-run Medicaid contracts are also being converted to capitation.

The amount of remuneration is based on the average expected health care utilization of that patient, with greater payment for patients with significant medical history. Rates are also affected by age, race, sex, type of employment, and geographical location, as these factors typically influence the cost of providing care.

There are several different types of capitation, ranging from relatively modest per member per month (pmpm) case management payments to primary care physicians, to pmpm payments covering all professional services, to pmpm payments covering the total risk for all services: professional, facility, pharmaceutical, clinical laboratory, durable medical equipments, etc. There are innumerable variations on these basic capitation types, depending on the particular services the parties decide to “carve out” and handle on either a fee-for-service basis or by delegation to a separate benefit management company.

Under capitation, physicians are given incentive to consider the cost of treatment. Pure capitation pays a set fee per patient, regardless of their degree of infirmity, and gives physicians an incentive to avoid the most costly patients. Providers who work under these plans focus on preventive health care, as there is greater financial reward in prevention of illness than in treatment of the ill. Such plans avert providers from the use of expensive treatment options.

Follow the 2014 lead of Oregon’s Medicaid reforms involving a capitation payment model, other states are also forming accountable care organizations that use the capitation model. For clinical laboratories and pathology groups, the expansion of enrollment in Medicaid creates opportunities for labs to provide more testing.

On the other hand, it still remains to be seen if capitated and bundled payments associated with these innovative Medicaid programs further erode the finances of the clinical laboratories and anatomic pathology groups that provide services to the Medicaid beneficiaries enrolled in these programs.