What is a Capitated Contract?

A capitated contract is a health insurance policy that pays care providers a flat fee for each patient in the plan.

How Does a Capitated Contract Work?

For example, a capitated contract issued by Company XYZ might pay Dr. Smith, say, $100 per month for every patient it covers in ABCTown. If Company XYZ has 200 patients there, then Dr. Smith's practice gets $20,000 a month, regardless of whether the patients actually see Dr. Smith that month. Dr. Smith will receive the $20,000 per month no matter how many times the patients see the doctor, too.

Why Does a Capitated Contract Matter?

In a capitated contract, the care provider gets a fixed, predictable amount of money every month. Accordingly, the payment is not associated with the frequency of care, so the profit per patient may be low if patients are sick and require a lot of care; however, the profit can be very high if patients are well and require little care.