Which statement best defines capitation in managed care?

• A. Capitation is a fixed annual fee paid to patients to cover all healthcare costs.
• B. Capitation is a fixed per-member-per-month payment to providers for a defined scope of services, independent of services used; it creates financial risk for providers and encourages cost containment.
• C. Capitation is a fee-for-service model that pays providers after each service.
• D. Capitation is an insurance premium paid by employers to cover all employees' services.

Answer: (B)

Capitation is a fixed per-member-per-month payment to healthcare providers for a defined set of services, independent of how many services the patient actually uses. This arrangement shifts financial risk to the provider because the payment stays the same whether utilization is high or low, so providers have a strong incentive to manage care efficiently and contain costs within the covered scope. It fits managed care by promoting preventive care, care coordination, and cost control within a specified service bundle. This differs from fee-for-service, where providers are paid for each service rendered, and from employer premiums, which fund the insurer rather than paying providers on a per-member basis for defined services.