Health Care Administration Practice Exam 2026 - Free Practice Questions and Study Guide

Capitation is a payment approach where a physician or hospital receives a fixed amount for each enrolled patient, typically per month or per year, regardless of how many services that patient uses. This shifts financial risk to the provider: if a patient needs more care, the provider must cover those costs within the fixed payment; if utilization is low, the provider can keep the difference. Capitation encourages care coordination and preventive services to keep costs predictable while still maintaining quality, often with additional quality metrics or risk-adjusted payments to account for patient complexity. In practice, it’s common in managed care arrangements where a payer contracts with providers to manage a defined patient panel for a set annual or monthly rate.

The other terms don’t describe this payment structure: benefits refers to what the plan covers, not how providers are paid; a carrier is the payer organization, not the payment method itself; catastrophic coverage describes protection for very high medical costs, not a fixed annual payment per patient.