Which statement best describes capitation and its impact on physician incentives?

• A. Capitation is a fixed payment per patient per period regardless of services, incentivizing cost containment but may risk under-service.
• B. Capitation pays physicians a fixed fee per visit only.
• C. Capitation is a payment per procedure performed.
• D. Capitation pays hospitals a daily rate for inpatient stays.

Answer: (D)

Capitation is a fixed payment assigned to a provider for each patient over a set period, and it does not depend on how many services that patient uses. This setup pushes physicians and groups to manage care efficiently and contain costs, since their revenue is the same whether they provide many or few services. It also creates a potential risk of under-service unless there are safeguards like quality measures and appropriate risk adjustment, because the provider might be inclined to limit care to stay within the fixed budget.

The other descriptions describe different payment methods: paying a fixed amount per visit is a visit-based, fee-for-service style arrangement; paying per procedure is also a form of fee-for-service; and paying hospitals a daily rate for inpatient stays is a per diem hospital payment. These do not reflect capitation, which is defined by the fixed per-patient, per-period approach and the associated incentive to control overall utilization.