Insurance companies that are working in the healthcare industry always tend to lower the costs and increase the profits. This is normal since they all work for a paycheck aside from providing care for their clients.

In this search for more profits, there are lots of options and possibilities. Insurance companies find various ways to do their job better. They always come up with new and more improved strategies and payment methods that will make everyone happier.

When it comes to paying the healthcare facility, one of the options is the capitated payment which is the opposite of the fee-for-service system, which is the most commonly practiced solution. The capitated payment is completely different than the other one by its ways.

What is a capitation payment?

By definition, the capitated payment is being agreed upon between the healthcare provider and the insurance company. It is being arranged before anything happens to the patients. They are fixed and paid monthly.

However, the contract is made per year. When the provider of the service and the insurance company agree on the terms, they both agree that the medical provider will provide any service that the patient need, no matter how much it may cost in reality.

The provider gets the fixed sum every month for a year no matter if any patient was in their facilities every day during the entire 365 days, or haven’t shown once. Both parties agree on these payments, and they are both aware that one party might see no profit out of this deal.

These contracts are usually done for more patients at once. More patients are covered with it. Statistics show that even though one patient might be in the hospital all the time, another one won’t set foot there, so both together are considered a part of the average going to the physicians.

What are the pros of the capitation payment?

The best thing about it, for both parties, is that there’s way less paperwork. Also, there’s almost no need for thinking about whether some patient deserves a treatment, how much the insurance is going to cover for it, or anything for that matter.

The insurance professionals don’t have to go to the place for finding out if someone’s being overcharged or fraud is happening. Everything’s arranged previously and everyone’s happy with the terms. The insurance company will pay in advance, and the medical provider will do what they are paid for.

For the insurance company, this is a great way to make sure the medical provider isn’t forcing unnecessary tests, procedures, and treatments. Both the insurance and the patients lose from this type of work that doctors often like to do. See more about this here.

The doctors always say that it’s better to be sure about something and run all the tests, instead of miss something while treating their patients. However, clients lose time and resources, the insurance company loses money, and the only one that’s happy is the healthcare facility.

This way, the doctors won’t just write bills from their sleeve and bill the company as they wish. No one can prove that the patients didn’t receive a ton of vitamins, or didn’t get a hundred tests for checking out every possible condition. The prepayment and fixed terms prevent this from happening unnecessarily.

What are the cons of this kind of deal?

Just like everything else in life, there are pros and there are cons to a particular procedure. In this case, the negative side of prearranged paying is that doctors and the medical staff won’t show too much care as they would when they are paid by service received.

Money is a motivation for everyone, so if everything is already settled, and there is no more money coming from additional actions, the patients might be the ones that will suffer. The doctors will see additional tests as unnecessary, so they can focus more on their patients who are paying them for their services.

Some might think that this is unethical and that doctors shouldn’t be doing this, but in reality, this is just an option, and it doesn’t mean that it will happen just like this. There are lots of examples in which doctors and clinics tried to scam the insurance companies, so everyone must do their best to prevent this from happening.

After all, the care for the patients is a priority for everyone. The medical provider will certainly not let their patient get worse, but they are not going to provide the service as they’d be paid for giving extra attention.

We all know how important it is to have someone taking care of us when we’re sick or injured. It’s not just the doctor’s knowledge, skills, and experience, but the nursing and the care also matters. This type of arrangement seems to be discouraging the staff to pay extra attention to their patients.

How to make it perfect?

Some additional arrangements can be done to avoid unwanted situations like the ones we described. For example, establishing a risk pool is one of the solutions that will keep things clearer.

The risk pool is a place where the money for the medical service goes, and they aren’t released until the end of the fiscal year. If the plan goes financially well the money is released and the medical provider gets them without saying.

However, if the plan went poor, then the money is kept for covering the deficit. In other words, this is a capitation service, but with additional arrangements that keep the insurance safe. Learn more about this on this excellent link:


As patients, we only care about getting the right treatment. We’re not interested in how the insurance company will handle their business. If we’re not happy, we’re going to switch to another insurance and another medical provider.

On the other hand, insurance companies are those who are doing all the work for us. They take care of our health when we’re in need. This system has its pros and cons, and it’s a manager’s job to decide which one they are going to choose.

What are the Pros and Cons of the Capitation Payment?

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