Capitation

In primary care, we discussed the idea of capitation which is often used by managed care organizations to control costs. In capitation, a fixed amount of money is paid to the provider per patient per year. Thus, the financial burden of excessive testing is transferred to the physician, not the managed care organization. That is, a physician will be paid the same whether or not he does a needless X-ray or blood draw. There's a financial disincentive against doing unnecessary costly procedures. There is also an incentive in keeping people healthy, in preventative medicine, so such costly procedures aren't necessary.

In some respects, capitation makes sense; a general pediatrician sees many, many well children a year, and the reimbursement for seeing a well child should be straightforward to calculate: the physician's time, health education, vaccinations, vision and hearing exams, routine laboratory tests, overhead, a little more to cover expected sick visits, etc.

But capitation also has disadvantages. For example, teenagers rarely go to the doctor. Capitation favors practices that recruit teenagers; they'll get paid each year for each teenager, but can double book teenagers expecting that they won't show up. On the other end of the spectrum, very sick children such as those with genetic or chronic diseases will be costly for physicians to take. If reimbursements are the same for a healthy child and a sick child, this is a disincentive to caring for those who need it the most.