Capitated payments incentives: Which statement best describes the incentive effect of capitated payments compared with discounted FFS?

• A. Capitated payments tie payment to the actual services delivered, regardless of cost.
• B. Capitated payments fix a PMPM amount irrespective of services, incentivizing cost containment and efficiency.
• C. Discounted FFS pays for services rendered with negotiated discounts, linking revenue to utilization.
• D. Capitated payments reward higher volumes of services to maximize revenue.

Answer: (B)

Capitated payments establish a fixed per-member-per-month payment for a defined patient panel, coming in regardless of how many services are used. Because revenue doesn’t rise with higher utilization, the provider’s incentive is to contain costs and manage care efficiently, focusing on cost-effective treatments and preventive measures. This contrasts with discounted fee-for-service, where reimbursement is tied to each service rendered and typically increases with utilization, making higher service volumes financially rewarding. The fixed PMPM nature and the emphasis on cost containment and efficiency are what make the statement describing capitation the best fit.