The Re-Emergence of Medical Capitation?

Join Our Mailing List
Re-Thinking Fixed Payment Medicine 

[By Dr. David Edward Marcinko; MBA, CMP™ ]

[By Hope Rachel Hetico; RN, MHA, CMP™]

In February 2008, the industry leading California legislature passed “Welfare and Institutions” Code Section 14105.19. It required a 10% fee-for-service payment reduction to Medi-Cal physicians and mental healthcare providers. The new law took effect on July 1, 2008 and the rush seeking managed care capitated contracts was on. 

Capitation Back-in-the-Day

Yet, only a decade ago, astute physician executives and healthcare administrators thought it incredulous that they should accept pre-payment for unknown commitments to provide an unknown amount of medical care or health services. It seemed to create an unnatural and difficult set of incentives where fewer patients were seen, and less care rendered. It never equated to additional reimbursement. And, more than a few medical providers and healthcare facilities had a natural aversion to capitated, fixed payment or contractual medicine. It had always been associated with the worst components of managed care; hurried office visits and soul-less physicians.

Fixed Payments Re-Emerging

Today, the national conversion to a modified form of capitation financing is again re-emerging as a marketing force, and not merely a temporary healthcare business trend. More than 40% of all physicians in the country are now employees of a managed care organization that uses, or is re-considering, actuarially-equivalent medical capitation.

The Promise?

Has medical capitation reimbursement finally fulfilled its promise as a quality improving and revenue enhancing machination; or is it just another managed care cost reduction strategy that financially squeezes doctors and hospitals, and limits patient care and choice? To answer this query, one needs to review the Stark Laws.

Whole-Sale Medicine

Curiously, Stark Laws I, II and III were created to eliminate self-referral concerns potential leading to excessive medical care and fee-for-service payments. Ironically, these types of economic enriching paradigms of less-care were perfectly acceptable. Many, also never understood how a commitment to treat an entire patient population cohort could be made with little or no actuarial information. Hence frustration was the initial exposure of many medical providers to capitated reimbursement; also known as “wholesale medicine.”

Aligned Incentives

But, since inception, more modern medical cost accounting endeavors have gradually demonstrated that capitation has some advantages over traditional fee-for-service care. For example, it can create and align incentives that help patients, providers and payers by limiting their contingent fiscal liabilities. So, capitation in the current credit-deprived nationally economy is increasingly being viewed in a more positive way. More importantly, those healthcare organizations and providers that embrace it may thrive going forward; while those opposed may not!


So, how should physician and nurse executives, administrators, CXOs, managers and financial advisors navigate these treacherous fixed-payment waters?  One sound approach is to rely on a leader in the hospital, medical clinic and healthcare administration publication industry.  Our 2-volume, 24 chapters, quarterly journal-guide is relevant to the entire fluctuating healthcare space and can be a valuable navigation tool – in these troubling economic times. 

Capitation “ReDux” – Part Two

MORE: Capitation & Actuarial Medical Econometrics


Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.


Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact:


FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors


 Product Details 

10 Responses

  1. Dr. Marcinko and Ms. Hetico,

    I agree with your above post.

    In fact, looking back, it’s hard to argue that capitation models have plenty of flaws–but of late, they seem to be creeping back into the consciousness of health executives, legislators and policymakers anyway. Apparently, all of the strengths that made them seem attractive in the mid-90s, particularly cost control and pressure on providers to coordinate care, are looking pretty good again.

    And, here are two related links of interest to your ME-P readers:



  2. Capitaton Rates Decreasing in Mass

    Dr. Marcinko – Massachusetts seems hell bent on showing the nation that its’ healthcare model can work.

    In fact, the state just boasted that capitation rates will actually go down in 2012, allowing the program to grow enrollment without additional funding. It’s not difficult to imagine the feeling of responsibility weighing on administrators and Democratic officials there as they work to pull the levers of payment reform to reign in Partners HealthCare and other misbehavers.



  3. How does the concept of IBNRs relate to capitation reimbursement?

    Capitation in healthcare has accelerated the use of Incurred But Not Reported healthcare claims [IBNRs]. Likewise the hospital / surgeon / health care organization has to set up “capitation account” in which future payments will flow.

    From this account … all related therapy, services, ancillary providers, and drugs are paid. Obviously, identification and control of costs are needed to keep the health care organization in the black regarding these accounts and reimbursements.

    David K. Luke MIM


  4. Re-Emerging Dental Capitation Payments
    [California program of bundled dental care for children to get a checkup]

    About 18 years ago, California implemented a program of “geographic managed care” for children’s dental coverage in Sacramento. Now, in partnership with The Sacramento Bee, Jocelyn Wiener of CHCF’s Center for Health Reporting provides an exhaustive report card on the program and its outcomes.

    In her centerpiece, Weiner writes that “the state pays private dental plans in Sacramento County a monthly fee – currently about $12 – for each Medi-Cal child assigned to them. The amount paid is the same whether or not the child sees a dentist.”

    Any comments or thoughts?



  5. Is not seeing patients the answer for many doctors?

    A related follow-up essay.



  6. Capitation 2.0

    Beverly – Here is an essay on healthcare reform and medical capitation reimbursement.



  7. What is Micro-Capitation?

    Dr. David E. Marcinko MBA


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: