What is meant by "capitation" in managed care payment systems?

Capitation refers to a payment arrangement in managed care where a healthcare provider is paid a fixed amount for each enrolled patient, or "member," per period, regardless of the number of services provided. This advance payment covers all necessary health services for that patient during the specified timeframe, such as a month or a year.

This model incentivizes healthcare providers to focus on preventive care and efficient management of treatment, as their revenue is not directly linked to the volume of services rendered but rather to maintaining the overall health of their patient population. As a result, providers may prioritize quality of care and patient outcomes, striving to keep patients healthier to avoid additional costs.

The other choices do not accurately capture the essence of capitation: Payment based on services provided per patient indicates a fee-for-service model rather than a fixed payment; a fixed rate per service delivered suggests specific transaction-based payments; and a discount on billed charges refers to a form of negotiated price reductions that do not align with the concept of a comprehensive pre-paid structure inherent in capitation.