A capitation agreement is a contract between a healthcare provider and an insurance company. The agreement sets the terms for payment to the provider, based on the number of patients covered by the insurance company who receive care from the provider.

Under a capitation agreement, the provider receives a fixed amount per patient per month, regardless of the amount of care the patient receives. This is in contrast to a fee-for-service agreement, where the provider is paid for each individual service provided.

Capitation agreements are often used in managed care plans, such as HMOs. They help to control healthcare costs by incentivizing providers to keep their patients healthy and avoid unnecessary care. Providers who are able to keep their patients healthy and avoid costly medical procedures are able to increase their profitability under a capitation agreement.

However, capitation agreements can also create a moral hazard, as providers may be incentivized to avoid costly services that are necessary for patient health. In addition, capitation agreements may incentivize providers to avoid taking on patients with complex medical needs, as those patients may require more costly care.

Overall, capitation agreements are a valuable tool for managing healthcare costs, but they must be used carefully and in conjunction with other healthcare management strategies. As a professional, it is important to understand the nuances of capitation agreements in order to write accurate and informative content for healthcare companies and providers.