Capitation and Pre-payment

Defining key terms:
Capitation: A way of paying health care providers or organizations in which they receive a predictable, upfront, set amount of money to cover the predicted cost of all or some of the health care services for a specific patient over a certain period of time. Risk Score: A number representing the predicted cost of treating a specific patient or group of patients compared to the average Medicare patient, based on certain characteristics and health conditions.

Defining key terms:

Capitation: A way of paying health care providers or organizations in which they receive a predictable, upfront, set amount of money to cover the predicted cost of all or some of the health care services for a specific patient over a certain period of time.
Risk Score: A number representing the predicted cost of treating a specific patient or group of patients compared to the average Medicare patient, based on certain characteristics and health conditions.

How is pre-payment used by the CMS Innovation Center?

Pre-payment is used by several CMS Innovation Center models as an alternative way of paying health care providers participating in models in a manner that holds them accountable for health care costs and outcomes. Instead of being paid for each health care service or product, health care providers participating in these models may be paid a set amount of money per patient, for a set amount of time, for a certain set of services. It is sometimes called “capitation.”

In CMS Innovation Center models, pre-payment for a patient may be based on characteristics and health conditions that predict whether a patient will have higher or lower health care costs than the average Medicare patient. These factors may collectively be called a risk score.

A goal of pre-payment in CMS Innovation Center models is to provide a stable, upfront payment to health care providers so they can focus on their patients’ health needs and avoid unnecessary, high-cost care. Furthermore, receiving a set upfront payment for a patient’s care enables providers to deliver services that may not be individually payable according to Medicare’s payment system. For example, pre-payment may be used to offer additional preventive care to keep patients healthier, longer and better care management. Health care practices may hire care managers and social workers to help coordinate patients’ health care and respond to their health-related social needs, such as access to healthy food options and safe housing. Pre-payment may make it possible for doctors participating in models to spend more time with patients during appointments and give them whole-person (physical, mental, behavioral, social) care, since they were not pressured to prioritize volume of patients and services over quality of care.

How pre-payment benefits health care providers and patients

Pre-payment can provide stability to health care organizations.

Earlier during the COVID-19 pandemic, some primary care practices had challenges keeping their doors open. Many patients weren’t scheduling regular check-ups out of fear of contracting the virus, which meant patients were at greater risk of their health issues getting worse and practices did not have enough income to cover their everyday costs of care. By participating in CMS Innovation Center models that provided pre-payments, health care practices received more stable funding, which helped them keep doors open and continue serving patients.

Additional Information

CMS Innovation Center models that include pre-payment:

Accountable Care Organization Realizing Equity, Access, and Community Health (ACO REACH) Model (referred to as the Global and Professional Direct Contracting Model prior to 2023)
Kidney Care Choices Model
Maryland Primary Care Program, part of the Maryland Total Cost of Care Model
Primary Care First Model
Vermont All-Payer Accountable Care Organization (ACO) Model

Originally posted on: August 14, 2023 | Reviewed and revised on: September 10, 2024

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