CO 24 denial code in medical billing (Capitation)

What are Capitation Payments and how to work on the denial?

A capitation payment plan is agreed upon between an insurer and a medical provider to pay periodic payments to the insured healthcare provider or hospital per covered patient. The payments made to the insured over a one-year period are included, regardless of the number of patients the healthcare provider has or receives.

Points to be taken

  • Capitation payments are fixed payment amounts between insurers and providers as part of the capitation health care system.
  • Payments for hospital services and physicians are made by health care associations or insurance firms for a given amount of time for each enrolled patient.
  • It is used by physician associations or insurance companies to pay healthcare providers or physicians per enrolled patient for a certain amount of time.
  • Ratios of fees for using services for capitation are calculated based on the average rates and quantity of services used locally.
  • Capitation payment processes could be used by HMOs and IPAs to extract the most advantage from their health-related work.
  • Healthcare costs are typically lowered by means of capitation payments.

How do Capitation Payment Plans Work

The average revenue per client, as well as the regional cost of medical care, are used to determine the rates for capitation payments. Local payments vary from one region of the country to another and can be provided at different organizations. You may choose a plan to establish a bulk payment.

Covering the deficit costs in this pool is withheld from the medical provider throughout the fiscal year. As noted by the medical facility’s financial performance, the money is obtained or not relies on the financial institution.

Capitation will cover the expenses of the medical services for your overall health plan and will rely on the specific medical care entity. Most primary capitation payment plans typically include the three major components of medical coverage:

  • preventive, emergency, and primary medical care.
  • Administration of injections, vaccines, and medications at the doctor’s office.
  • Laboratory tests are ordered via an electronic health record form or at an off-site laboratory.
  • Health and safety education sessions are often provided at the office.
  • Visual and auditory screening are monitored routinely.

There are two types of capitation relationships. The first one is where payments are received directly from a company and are known as prime capitation. The second one occurs when a different provider (such as a laboratory or a medical professional) is paid with the reimbursements from this company is known as a secondary capitation.

After another form of capitation is used preventive health checkups are requested by health insurance organizations. With this type of capitation, the insurer is compensated for providing preventive health services. This incentivizes the Obamacare recipient or the healthcare provider in an effort to prevent expensive medical services.

Capitation is a method for limiting excessive spending and customer support. Nevertheless, it may also translate to patients spending less time visiting their medical professionals. Providers may take advantage of having capitation funds by increasing profits by cutting down on the time that patients will be seen by the medical professional.

Forward than the exclusive to per-service (FFS) advance payment plan, which is thought to be more inexpensive, suppliers have spare face time periods with medical doctors. FFS advance payments compensate suppliers according to the serving quantity as opposed to exclusive that compensates each service. Studies from the years have revealed that FFS is more affordable compared with capitation.

Capitation systems have been found to encourage doctors to engage in cost-saving measures. A Center for Studying Health System Change study found that 7% of doctors engage in cost-saving measures within capitation systems, as there is a financial incentive to do so.

Advantages and Disadvantages of Capitation Payments

Capitation payments are liked by certain managers compared to other alternatives, but some companies may choose to stick with FFS.

Advantages of Capitation

An alternative to capitation payments is FFS, where providers are paid based on the number of services provided. Perhaps the greatest benefit to capitation contracts is that they are set up to provide fixed payments to providers, discouraging them from ordering more procedures than necessary, which can be an issue when using FFS (i.e., capitation provides greater provider accountability).

In addition, fixed payments by capitation offer greater financial certainty for providers. They are able to focus on their face-to-face care and explore various cost-effective care options that provide the best treatment. Along those lines, providers have a greater incentive to incentivize preventive care.

Disadvantages of Capitation

In some cases, the disadvantages of a capitation agreement are the major cause behind healthcare providers purchasing inexpensive medicines or treatments. On the other hand, having a large number of providers can provide incentives for them to enroll large groups of patients, resulting in longer wait times for patients.

Capitation rates are likely to vary based on patient demographics. In cases where the entire population is covered by capitation, there may be problems rendering service. In such cases, the company may supplement the model with fee-for-service payments.

Special Considerations

Capitation payment methods are defined, recurrent, per-provider payments for individuals that are enrolled in a capitated health plan. , for example, the healthcare provider might be compensated monthly, per patient, regardless of the number of doctor visits the patient or a family requires. Capitation programs can cover individuals or family members of HMOs and IPAs.

The payment is based on the capitation agreement; however, these payments are often based on details such as the age of the child enrolled. Modifying the plan by age group is one way to incentivize healthcare providers to accept payment for care that is usually required for similar conditions in groups of patients.

Insurance companies use capitation payments to control healthcare costs. Capitation payments limit the use of healthcare resources by placing the physician at financial risk for patients’ services.

At the same time, in order to make sure that sufferers do not acquire poor care on account of the underutilization of health care therapies, insurance companies monitor rates of resource utilization in medical suppliers. The reports of this sort are publicly available and can be plugged into remunerations like merit payouts.

Example of a Capitation Payment

A capitation example would be a type of HMO called an IPA that has 5,000 patients. The IPA will need to obtain insurance coverage for the upcoming year, so it will require a capitation agreement with a doctor.

The physician’s charge for all 5,000 patients would be paid a fixed amount of $400 per year. One formal example is that the physician’s yearly capitation fee is $400 per individual. The physician would collect $2 million on an annual basis from the IPA. In return, the physician would be obligated to treat all 5,000 patients under this capitation arrangement.

The idea is that of the patients in this IPA, not all will need at least $400 in medical services during the first year. Some will need between $1,000 and $2,000, but others only require between $100 and $0. For the sake of the physician, it’s estimated that the patients from this insurance plan will use less than $400 each in services.

The capitation payment should be dependent on how much each patient intends to use the service. Patients, such as those with preexisting needs, may have more health-related expenses and expectancies. It’s favorable for managed care companies and IPAs to base financial expectations on medical needs and costs.

Some Frequently asked Questions

What is called the Capitation Agreement?

In this agreement, health care organizations, government agencies, or individuals can be contracted to administer medical necessities on behalf of a medical insurance plan or organization. This contract details the payment parameters, as well as the dose and schedule of medical care to be provided.

Capitation Fees?

Capitation rate, or capitation fee, is the fixed amount paid from an insurer to a provider. This amount is the amount paid (generally monthly) to cover the cost of services for an individual. Capitation rates are usually lower in sparsely populated areas.

Is there any difference Between Capitation and Fee-For-Service?

A fixed amount is paid monthly to healthcare providers based on the number of patients they have or see. Elsewhere, fee-for-service model payments are based on procedures and services that providers provide. These payment schemes are used in the U.S. healthcare system.


Healthcare providers reserve payments for medication for services provided to patients. Each payment is paid the same every month with a fixed amount. Doctors can use this system to reduce accounting, accounting, and other administrative costs. Capitation benefits the HMO or IPA by helping ensure that providers don’t provide more than necessary. The idea is that it reduces the potential for inflation through excessive billing.

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