What Is Capitation in Medical Billing?

what is capitation in medical billing

Whether you recently started a medical clinic or have been managing one for years, you know that medical billing is a necessary yet often confusing process. From juggling the different types of fees and charges to working with the insurance companies, you have to take on many different tasks in order to make sure your practice manages revenue properly while caring for your patients. 

While navigating the world of medical billing, you may have come across the term “capitation.” So what is capitation in medical billing? Capitation payments are payments of a fixed amount that you, the medical provider, and the insurance company agree on. Usually, these are pre-arranged payments that a physician, hospital, or clinic receives when a patient enrolls in a healthcare plan, but there is more to know about capitation for your medical practice.

As Florida’s trusted medical billing company, our PracticeForces team can help you better understand how capitation works and how to use it to give your patients even better care. 


How Do Capitated Payments Work?

Your medical practice and insurance companies agree to a fixed amount for capitation payments. Typically, you calculate this a year ahead, and that number stays fixed for the specified year, no matter how often a patient needs your services. 

How do the insurance companies calculate healthcare capitation rates? First, they consider the local costs with the average usage of certain healthcare services. As such, this number varies with the location of your practice. 

In addition, many healthcare plans use risk pools, making them a percentage of the capitated payment. Essentially, a risk pool refers to the money withheld from a medical provider until the fiscal year comes to an end. The medical provider will only receive this money if the patient’s health plan does well financially; otherwise, that money goes toward paying any deficit expenses. 


What Capitation Covers

So what is capitation in medical billing, and what does it cover?

The capitation payment amount also depends on how many services a medical provider will provide, and this fluctuates with different health plans. Typically, these payments cover the following services:

  • Routine hearing and vision screenings
  • Injections, medications, and immunizations given in the medical office
  • Any counseling and health education services the provider offers and performs in office
  • Outpatient laboratory tests a provider completes in office or at a specific lab


The Types of Capitation Relationships

When it comes to capitation payments, you can have one of two types of relationships:

  1. You, the provider, receive payments directly from the insurer. This is a primary capitation relationship. 
  2. Other providers, like medical specialists, receive payment from the provider’s funds. This is a secondary capitation relationship. 

Most agreements come in the form of a capitated contract, which outlines exactly what payments you can expect, what they cover, and for what period of time. 


Reach Out to PracticeForces Today

If you still find yourself asking, “What is capitation in medical billing?” you’re not alone. Our PracticeForces team can help answer all your questions while exploring the advantages and challenges of medical billing. If you’re ready to learn more, call (727) 270-8511.

Parul Garg, CEO and co-founder of PracticeForces, has significantly contributed to the growth of over 1,000 U.S. medical practices through her expertise in medical billing and coding since the company’s inception in 2003. With a background in Computer Science and an MBA in Human Resources, her leadership and AAPC-certified coding skills have been pivotal in managing the company’s operations effectively.

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