What does the term "capitation" refer to in healthcare financing?

The term "capitation" in healthcare financing refers to a payment model in which providers receive a set amount per patient enrolled in a specific health plan, regardless of the number of services provided or the number of times the patient seeks care. This fixed payment is intended to cover all necessary healthcare services for that patient for a specified period, typically a month or a year.

This model incentivizes healthcare providers to focus on preventive care and efficient management of health services, as they are rewarded for keeping patients healthy rather than for the volume of services rendered. By receiving a predetermined payment, providers are encouraged to manage resources wisely and to emphasize overall wellness, which ideally leads to improved patient outcomes and reduced unnecessary healthcare expenditures.

In contrast, other options present different aspects of healthcare financing rather than describing capitation accurately—paying providers based on services rendered aligns more with fee-for-service models, while emphasis on quality over quantity speaks to value-based care principles, and billing based on insurance coverage relates to administrative processes rather than the payment structure itself.