What is Healthcare Capitation Payment

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What is Healthcare Capitation Payment and How Does the Systems Work?

Capitation is a type of a healthcare payment system in which a hospital is paid a fixed amount per patient for a prescribed period of time by an insurer or physician association. In Nigeria, the National Health Insurance Scheme (NHIS) and other state health insurance scheme such as Federal Health Insurance Scheme (FHIS) pay a capitation fee of 750 Naira per life each month to the health care provider.

The term capitation comes from the Latin word for caput, meaning head, and is used to describe the headcount within an HMO or similar group.

It pays the hospital, known as the primary care provider (PCP), a set amount for each enrolled patient whether a patient seeks care or not. The PCP is usually contracted with a health maintenance organization (HMO) whose role it is to recruit patients.


An Examples of Healthcare Capitation System

An example of a capitation model would be an HMO which negotiates a fee of 750 naira per month per patient with an approved PCP. For an HMO group comprised of 1,000 patients, the PCP would be paid 750,000 naira per month and, in return, be expected to supply all authorized medical services to the 1,000 patients for that month.

If an individual patient utilizes 800,000 naira worth of healthcare services for primary care services, the practice would end up losing 50,000 naira on that patient. On the other hand, if an individual uses only 50,000 naira worth of healthcare services for primary care, the doctor would stand to make a profit of 700,000 per month. Capitation is a game of number and many hospitals in Nigeria who understand the scheme better are benefiting massively from it but for those who dont know how to run the capitation scheme, you may run at loss except you consult an expert like Oshobaba.

Projected profitability for this model is ultimately based on how much health care the group is likely to need. Given that patients with pre-existing conditions will be often mixed with younger, healthier ones, the expected profits can sometimes converge from the actual profit.

There are both primary and secondary capitation relationships:

  • Primary capitation is a relationship in which the PCP is paid directly by the HMO for each patient who decides to use that practice.
  • Secondary capitation is one in which a secondary provider approved by the HMO (like a lab, radiology unit or specialist consultant) is paid out of the PCP’s enrolled membership when used.

There are even PCPs contracted under a preventive health model who receives greater financial rewards for preventing rather than treating illness. In this model, the PCP would benefit most by avoiding expensive medical procedures.

  • Simplifies bookkeeping
  • Discourages excessive billing or more costly procedures
  • Patients avoid unnecessary tests and procedures

Benefits of a Capitation System

The groups most likely to benefit from a healthcare capitation system are the HMOs.

 *   The chief benefit for a hospital is the decreased costs of bookkeeping. A hospital contracted by an HMO does not have to
      maintain a larger billing staff, nor does the practice have to wait to be reimbursed for its services. Alleviating these costs and
       hassles can allow a practice to treat more patients at a lower overall operating expense.
  • *     The benefit to the HMO is that it discourages PCPs from providing more care than is necessary or using costly procedures that
  •        may be no more effective than inexpensive ones. It alleviates the risk of excessive billing for procedures that may or may not
  •       be necessary.
  • *     The main benefit to the patient is the avoidance of unnecessary and often time-consuming procedures that may trigger higher
  •        out-of-pocket expenses.

Drawbacks of a Capitation System

One of the main concerns about healthcare capitation (and a complaint echoed by many enrollees in HMOs) is that the practice incentivizes hospital to enroll as many patients as possible, leaving less and less time to actually see a patient.

It is not unusual, for example, to hear an HMO patient complain about appointments lasting for no more than a few minutes or doctors offering diagnoses without ever touching or examining the patient.

While the broader aim of capitation may be to discourage excessive costs and spending (both of which can affect the cost of premiums), it may do so the detriment of the individual patient in need of enhanced care.

To increase profitability, a medical practice may alter how it would otherwise treat a patient or instigate policies that actively exclude procedures to which the patient may be entitled. It becomes a form of healthcare rationing by which the overall level of care may be reduced to achieve greater financial gain.

Some argue that capitation is a more cost-efficient and responsible healthcare model, and there is evidence to support this claim. A review of studies since 2010 till 2021 reported that capitation was most cost-effective in groups with moderate healthcare needs, with practices reporting fewer illnesses and more enrollments than fee-for-service practices.

By contrast, a study another study reported that as many as 60% of Hospital in Nigeria actively reduced their services as a result of financial incentives and concluded that “group revenue in the form of capitation was associated with incentives to reduce services.”

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