What is a Capitated Contract?

A capitated contract refers to a health insurance policy that pays a healthcare provider a fixed fee for each patient he or she treats and is under the plan. It is part of an insurance program known as Managed Care Organization (HMO) that pays a predetermined amount of money to health service providers for all patients they serve. Another name for a capitated contract is capitation agreement or managed care.

How Does a Capitated Contract Work?

When it comes to the capitated contract, the issuing of payments by the insurer to the health provider is the same for every patient. The amount to be paid is regardless of how much healthcare each patient receives. In other words, the healthcare provider will get a fixed allowance monthly to attend to a patient, without considering how frequent he or she will have to attend to that patient. The agreement states that a health practitioner will receive the same fee for each patient without putting into consideration the number of times he or she will have to attend to the patient. Insurance companies have always covered the costs of services the healthcare providers render to patients. However, insurance is establishing new healthcare plans that pay for value rather than volume. The current plans incorporate things such as consumer health outcomes, costs, and consumer experience. The development of the capitated contract was to improve cost control, incentives for efficiency, and medical service provision. The theory gives the service providers motivation to focus on health testing without putting into consideration the registered members health costs. However, with the capitation contract, there is a possibility that the majority of people will not enroll in a health care plan, meaning that they will never make use of the services. The capitation plan should be able to naturally balance out those members who frequently use the healthcare plan with those that use little or dont use it every month.

What Services Does Capitated Contract Cover?

The hospital, service providers, or health system has the responsibility of taking care of the enrolled members health, regardless of the cost all these help to keep the members healthy without having to rely on costly health specialists for treatment. There is a list of specified services in the contract that patients are supposed to receive once a primary healthcare provider signs a capitation contract. When preparing the agreement, it is the number of services the care provider will offer to patients that will partly determine the amount of capitation. However, this varies from one health care plan to the other. Capitation payment plans cover the following primary care services:

• Diagnostic, treatment and preventive services
• Immunization, medications administered in the office, and immunization
• Laboratory tests for outpatients done in a designated laboratory or the office
• Counseling services offered from the office and health education
• Routine hearing and vision screening

How Does A capitated Contract Work (Example) 

Lets assume that ABC Company issues a capitated contract to make a monthly payment of $100 to Dr. Eddie for every patient he attends in XYZ town. So, if ABC Company has 300 patients, then it means that Dr. Eddie will get $30,000 every month, regardless of the number of times he will have to see each patient. 

Why Capitated Contract Matters 

Under a capitated contract, the healthcare provider gets a flat-rate payment, meaning that he or she will be in a position to predict the amount of money he will get every month. The frequency of care does not influence the amount to be paid to the service provider when it comes to a capitated contract. What this means is that profit per patient who is sick and requires a lot of care will be lower. However, where patients are well and need minimal healthcare, the benefits can be very high. A Capitated contract can be a better deal to healthcare providers, for they make the process of billing much easier and straightforward. It also enables service providers to come up with accurate estimates of how much money they are likely to make monthly. Also, capitated contracts are standard healthcare billing alternatives where service providers submit a bill to the insurance companies for all the services they have rendered. The usual method is usually time-consuming and tedious than the capitated contracts streamlined billing.

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