Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Capitated Contract

What it is:

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

How it works (Example):

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 it Matters:

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.