Why Healthcare Is So Expensive: Everything You Need to Know About Capitation

Do a quick Google on health care in the United States, and you’ll see one thing plastered all over the media: how expensive it is. There’s no doubt that health care in this country is extremely expensive especially compared to the rest of the developed world.

One of the ways that the economy attempts to deal with these rising insurance costs is capitation. If you’re familiar with the industry, then you’ve probably heard this term before.

In this article, we’ll take an in-depth view of exactly what capitation is so that you know everything you need to about this payment strategy.

What is Capitation?

Let’s understand exactly what is capitation. The word means, in essence, pre-payment. Under a capitation payment system, a doctor or a hospital is pre-paid for all services by either a medical insurance company or a physicians’ association group.

This pre-payment means that patient visits aren’t a factor in expense. Instead, no matter how much a specific patient goes or does not go to the doctor, the doctor still receives a pre-paid amount that does not change.

For instance, let’s say that a health insurance provider pays two million dollars to a hospital in exchange for treatment for one thousand patients. This is an average payment of two thousand dollars per patient.

This would be an example of a capitated payment — even if none of those patients visit the hospital for the entire year, the hospital still receives two million dollars. Conversely, if all of the patients went every single week, the hospital still receives only two million dollars and the patients’ premiums don’t change.

Now let’s move on to analyzing the pros and cons of this system.

Benefits of Capitation

The benefits of capitation are realized on both sides of the equation, on the provider side as well as on the patient side. The provider doesn’t have to do any complicated bookkeeping because of how straightforward the income is. This saves them costs.

In addition, it also serves to keep the costs of materials used in treatment down since the hospital cannot pass those costs on to the patient. Patients will also be able to avoid unnecessary tests and procedures that the hospital may have otherwise recommended if they were paid per visit.

Negatives of Capitation

There are great pros to capitation, but there are of course some cons as well. The primary negative to discuss is that it incentivizes the provider to get patients in and out as fast as possible. Each patient will probably receive less individualized time, which can hurt them in the long run if they have a very complicated condition.

Putting it Together

There you have it — all you need to know about capitation. Capitation is an effective way to keep costs down in a health care system that steadily becomes more and more expensive. The only question is, are the cons worth the benefits?

For more lifestyle advice, be sure to check out the rest of the articles on the website!