ABSTRACT
In most managed-care organizations, covered medical and related services are usually rendered and payments are based upon a prospective budget allocated as a percentage of the premium collected by the health plan and are often referred to as a “target medical cost index” on a per-member, per-month basis. In highly managed plans, revenue is allocated using a prospective method of payment known as capitation. Capitation is a system of reimbursement that provides financial incentives and disincentives related to the use of specific providers, services, or service sites. In capitated managed-care plans, a contract is negotiated for a specific menu of services, and a fixed amount of money is paid to the provider of care in anticipation of rendering those services to patients who have selected that provider. The capacity and capability of the providers also impact the capitation. Hospitals generally choose to purchase reinsurance using per-diems or some other factors as accumulators.
