Capitated Contract – Definition

Cite this article as:"Capitated Contract – Definition," in The Business Professor, updated January 10, 2020, last accessed August 12, 2020, https://thebusinessprofessor.com/lesson/capitated-contract-definition/.

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Capitated Contract Definition

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.

A Little More About What is a Capitated Contract

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 don’t 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 member’s 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)

Let’s 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 contract’s streamlined billing.

References for Capitated Contracts

http://www.businessdictionary.com/definition/capitated-contract.html

https://www.investopedia.com/terms/c/capitated-contract.asp

https://investinganswers.com/financial-dictionary/insurance/capitated-contract-6148

https://www.acponline.org/about-acp/about-internal-medicine/career-paths/residency-career-counseling/guidance/understanding-capitation

https://www.cms.gov/Medicare-Medicaid-Coordination/Medicare-and-Medicaid-Coordination/Medicare-Medicaid-Coordination-Office/FinancialAlignmentInitiative/CapitatedModel.html

Academic Research on Capitated Contracts

Impact of payment method on behaviour of primary care physicians: a systematic review, Gosden, T., Forland, F., Kristiansen, I. S., Sutton, M., Leese, B., Giuffrida, A., … & Pedersen, L. (2001). Impact of payment method on behaviour of primary care physicians: a systematic review. Journal of health services research & policy, 6(1), 44-55. There is some evidence to suggest that how a primary care physician is paid does affect his/her behaviour but the generalisability of these studies is unknown. Most policy changes in the area of payment systems are inadequately informed by research. Future changes to doctor payment systems need to be rigorously evaluated.

Practice styles and preferences of ASCRS members—2000 survey, Leaming, D. V. (2001). Practice styles and preferences of ASCRS members—2000 survey. Journal of Cataract & Refractive Surgery, 27(6), 948-955. A survey of the practice styles and preferences of members of the american society of cataract and refractive surgery with a united states zip code was performed in august 2000. approximately 26% (1400) of 5342 questionnaires mailed were returned prior to the november cutoff date. three profile questions were used to cross-tabulate: age of the ophthalmologist, geographic location, and volume of cataract surgery per month. Current data were compared with data in previous surveys.

Trends: Physician Earnings at Risk: An Examination of Capitated Contracts, Simon, C. J., & Emmons, D. W. (1997). Trends: Physician Earnings at Risk: An Examination of Capitated Contracts. Health Affairs, 16(3), 120-126. What physicians don’t know about managed care capitated contracts could put them—and their patients—at risk.

Practice styles and preferences of ASCRS members—2001 survey, Leaming, D. V. (2002). Practice styles and preferences of ASCRS members—2001 survey. Journal of Cataract & Refractive Surgery, 28(9), 1681-1688. A survey of the practice styles and preferences of members of the American Society of Cataract and Refractive Surgery (ASCRS) with a United States ZIP code was performed in August 2001. Approximately 20% (1130) of the 5686 questionnaires mailed were returned before the November cutoff date. The response rate was undoubtedly negatively affected by the September 11 attack on the World Trade Center in New York. Three profile questions were used to cross-tabulate: age of the ophthalmologist, geographic location, and volume of cataract surgery per month. Data in this survey were compared with those in previous surveys of ASCRS members.

Impact of integrated community nursing services on hospital utilization and costs in a Medicare risk plan, Burns, L. R., Lamb, G. S., & Wholey, D. R. (1996). Impact of integrated community nursing services on hospital utilization and costs in a Medicare risk plan. Inquiry, 30-41.

Capitated contracting roles and relationships in healthcare, Bazzoli, G. J., Miller, R. H., & Burns, L. R. (2000). Capitated contracting roles and relationships in healthcare. Journal of Healthcare Management, 45(3), 170-187.

Community-level changes in behavioral health care following capitated contracting, Heflinger, C. A., & Northrup, D. A. (2000). Community-level changes in behavioral health care following capitated contracting. Children and Youth Services Review, 22(2), 175-193. As capitated managed care contracts are becoming more prevalent in the delivery of behavioral health services, it is important to review community experiences with these contracts. A survey of all community agencies in one area that provided or interacted with behavioral health services for children and adolescents was administered during the implementation of a clinically-managed demonstration and again four years later after the transition to a capitated managed care contract. The following changes were reported under the capitated contract: 1. a) problems in service delivery experienced by the target population increased; 2. b) quality of behavioral health and related services available decreased; 3. (c) service system performance decreased, 4. (d) the extent to which goals of an effective behavioral health service system were being attained was also rated as significantly decreased; and 5. (e) coordination of services for the target population and collaboration among providers declined.

What happens when capitated behavioral health comes to town? The transition from the Fort Bragg demonstration to a capitated managed behavioral health contract, Heflinger, C. A., & Northrup, D. A. (2000). What happens when capitated behavioral health comes to town? The transition from the Fort Bragg demonstration to a capitated managed behavioral health contract. The journal of behavioral health services & research, 27(4), 390-405. Capitated managed care contracts for behavioral health services are becoming more prevalent across the country in both public and private sectors. This study followed the transition from a demonstration project for child mental health services to a capitated managed behavioral health care contract with a for-profit managed care company. The focus of the study was on the impact—at both the service system and the individual consumer level—pertaining to the start-up and maintenance of a capitated managed behavioral health program. A case study using multiple methods and multiple sources of information incorporated a program fidelity framework that examined micro to macro levels of program implementation. The findings of this study include the following: access to services decreased, the lengths of stay and average daily census in the more intensive levels of treatment declined, difficult-to-treat children were shifted to the public sector, and ratings of service system performance and coordination fell.

Practice styles and preferences of ASCRS members—2002 survey, Leaming, D. V. (2003). Practice styles and preferences of ASCRS members—2002 survey. Journal of Cataract & Refractive Surgery, 29(7), 1412-1420. A survey of the practice styles and preferences of members of the American Society of Cataract and Refractive Surgery (ASCRS) with a United States ZIP code was performed in August 2002. Approximately 18% (1056) of the 5816 questionnaires mailed were returned. Three profile questions were used to cross-tabulate: age of the respondent, geographic location, and volume of cataract surgery per month. The refractive surgical questions were cross-tabulated for the volume of laser in situ keratomileusis (LASIK). Data in this survey were compared with those in previous surveys of ASCRS members.

Capitated contracting of integrated health provider organizations, Bazzoli, G. J., Dynan, L., & Burns, L. R. (1999). Capitated contracting of integrated health provider organizations. Inquiry, 426-444.

Practice styles and preferences of ASCRS members—1999 survey, Leaming, D. V. (2000). Practice styles and preferences of ASCRS members—1999 survey. Journal of Cataract & Refractive Surgery, 26(6), 913-921. A survey of the practice styles and preferences of members of the american society of cataract and refractive surgery with united states zip codes was performed in september 1999. approximately 27% (1342) of 4932 questionnaires mailed were returned before the november cutoff. three profile questions were used to cross-tabulate age of the ophthalmologist, geographic location, and volume of cataract surgery per month. Current data were compared with data of previous surveys.

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