What does the term 'Capitation' refer to in HMO policies?

Capitation refers to a payment arrangement commonly used in Health Maintenance Organizations (HMOs) where a provider or a group of providers is paid a fixed amount for each enrolled patient, or member, assigned to them during a specific period, regardless of the number of services provided to the patient. This means that the provider receives a set fee per patient rather than being reimbursed for each specific service, which incentivizes the provider to offer preventive care and manage overall patient health efficiently.

In this context, the structure of capitation supports a focus on patient wellness and cost control, as it encourages healthcare providers to deliver necessary services without over-utilizing resources. Since the payment is made per patient rather than per service, providers may tend to focus on keeping patients healthy and preventing illness to avoid incurring higher costs associated with more frequent treatments or emergency care interventions.