Capitation has been defined as a way of paying a health care provider or a physician a fixed rate irrespective of the type service offered. It is viewed as a way of standardizing a physician’s remuneration so that he or she won’t expect more for extra work done. Capitation can also be looked at in a positive way where it reduces unnecessary specialist procedures and helps in providing reimbursement incentives that are proper. Capitation is normally used on specialties. Fee-for-service is where the service offered determines the payment to be given to the physician. It best suites physicians that are of primary care.

There are many arguments for and against capitation. Capitation is a good way of minimizing personnel costs because it is mostly used on specialists. Specialists are meant to be paid high salaries and if they were paid as per the service offered, the firm would end up spending so much on their remuneration. Primary physicians are paid using the fee-for-service method because it boosts their performance and is more cost friendly compared to using the same method to pay specialties. Capitation moderates competition among specialists because regardless of the service offered the compensation given is constant. Fee-for service on the other hand encourages competition among the primary physicians therefore creating an environment for productivity. Fee-for-service is a way to encourage primary care physicians to provide quality services to the patient because over utilizing primary care has significantly less effect on the budget than over utilizing the specialties.

Capitation of specialists comes from dissatisfaction with traditional utilization management such as services that require prior authorization. Prior authorization has been observed to be a very ineffective system of cost-control which requires the time of nurses and physician that can be better directed toward improvements in quality of care. Unlike primary care physicians, specialties are known to create their own guidelines and control their own payment. This occurs because they have more freedom compared to primary care physician referrals.

A few years back, there specialties used to operate very differently from how it does today. Some of the things that used to be done then were the geographical area which tried to answer questions like why they planned to cover a large geographical area and the services offered had to be comprehensive enough. The other sections that were considered were the quality where the patients were contacted to enquire on whether or not they were satisfied, accessibility of the offices including the facilities in general and lastly the cost of care-per-member-per-month where they requested for bids and selection was not made according to the lowest bidder.

The above rules were made by physicians who wanted to form a group and after they formed a recent survey has shown that both patients and primary care physicians were happy with the choices of specialists and the care. They have so far achieved a positive outcome after considering a controlling clinical variation. A medical director has however been assigned to interact with the IPA which is where their incentive aligns. The main change has been capitation of primary care physicians which now has been made possible and is functioning well. The specialists are eager to work with the primary care physicians to develop guidelines for care because there has not been a trend of inappropriate referrals but Management Service Organization had been collecting referral volume data prior to capitation and is continuing to monitor referrals under capitation.