Define capitation and how it contrasts with fee-for-service payment.

• A. Capitation pays a fixed amount per patient per time period; fee-for-service pays per individual service, creating different incentives.
• B. Capitation pays per service with no cap on total cost.
• C. Capitation reimburses only for preventive services.
• D. Capitation and fee-for-service are identical in incentives.

Answer: (A)

Capitation fixes the payment in advance: providers receive a set amount for each enrolled patient over a defined period (often per member per month), regardless of how many services that patient uses. This shifts financial risk to the provider and encourages care management, prevention, and avoiding unnecessary care because the more services used, the more cost comes out of that fixed payment. Fee-for-service, by contrast, pays separately for each service performed (visits, tests, procedures), creating an incentive to increase the volume of services since revenue grows with each additional service.

The other descriptions aren’t accurate: capitation is not payment per service with no cap, nor is it limited to preventive services. And the incentives under capitation differ from fee-for-service due to the risk-sharing and cost-control focus, whereas fee-for-service typically rewards higher utilization.