Guidance

Capitation: an introduction

Capitation is an example of a potential new payment model to enable integrated care.

What is capitation?

Broadly speaking, capitated payment, or capitation, means paying a provider or group of providers to cover the majority (or all) of the care provided to a specified population across different care settings. The regular payments are calculated as a lump sum per patient.

Find out more about capitated payments and how they differ from some of the current payment approaches in place in this 5-minute animated introduction:

What are capitated payments?

Why payment reform is needed

The Five Year Forward View (5YFW) proposes a fundamental shift in the way that healthcare is commissioned and provided to help lead the integration and efficiency of services. The ambition of the 5YFW is to create a system that is more person-centred.

Currently the different services a patient may need could be funded by multiple commissioners each using a different payment approach. Previously, this has acted as a barrier to integrating care. For example, payments for the majority of acute providers promote increased activity while payment for community and mental health providers often fail to reflect the savings to the system these providers can deliver and their positive impact on patient outcomes. As a result, these providers may have a financial incentive to shift the costs of crises towards acute providers.

Integrated care models will change the way services are commissioned and provided as well as accessed by patients. The transition to the new care models requires the development of new payment approaches that support them. The integrated care pioneers and vanguards are testing different models of integrated care and payment approaches.

The way we pay for healthcare can support different health and care organisations to deliver services in a more integrated way. Capitation is one payment approach with this potential.

Benefits of this approach

If a provider meets the specified needs of the population for less than the capitated payment, the money saved will go back into the local health system.

Allowing providers to share this money gives them an added incentive to keep patients in their target population healthy. They are more likely to:

  • identify risks
  • intervene early
  • arrange the right treatment for patients, at the right place and the right time to aid patients’ recovery, continued wellness and better management of long-term conditions

By bringing together the payment for the majority (or all) of the care provided to a specified population, capitation also provides a means of realigning financial incentives of the providers involved with delivering outcomes for the whole system.

Help us refine and improve this approach

Some local health economies have already begun to explore how a capitated payment approach can help support the integration of care and drive improved outcomes for patients. We’ll refine the payment example as we learn more from local health economies that implement these new models.

If you’re exploring the use of a capitated budget, we’d like to hear about your experiences. Email us at pricingenquiries@monitor.gov.uk

Capitation in more detail

Our paper Capitation: a potential new payment model to enable integrated care provides guidance for finance, contracting and commissioning staff on how to approach developing and implementing the potential new payment approach locally

Published 16 July 2015