Learn The Lingo

Learn the Lingo: Key Terms for Navigating the Value Based Care World

With the shift toward value-based payment models, pharmacists are seizing new opportunities to improve patient care in medical homes, accountable care organizations, and other innovative care models. This resource includes acronyms and terminology commonly used when practicing in or discussing innovative practice models. Each term includes a short description and references so you can further your practice in a value based care world. This is the first of multiple volumes that will be published by the Medical Home/ACO SIG.

Angel Baltimore
/ Categories: Learn the Lingo


Definition: According to the American College of Physicians,“ capitation is a fixed amount of money per patient per unit of time paid in advance to the physician [or health care provider] for the delivery of health care services.”1 The amount of money actually paid depends on the range of services provided, how many patients are involved, and the duration of time in which the services are provided.1 The capitation rate is often set at PMPM (per member, per month) or PMPY (per member, per year). The rates used in capitation are determined using the local costs and average utilization of services; as a result, rates can differ from one part of the country to the other. Before a capitation agreement is made, a list of specific services that must be provided to patients is included in the contract. Examples of such services include1

  • Preventive, diagnostic, and treatment services
  • Outpatient lab tests, conducted either in-office or at a specified laboratory
  • Injections, vaccinations, and medications administered in the office
  • Health education and counseling services

Capitation was intended to create incentives for efficiency and prevention. The flat fee paid by the plan per member per unit time allows for emphasis on preventive care of all members, such as wellness visits and immunizations. The flat fee paid per member means that the provider is paid for members who may not be using the health system regularly and can redistribute those funds to focus on the health system “super-users” to prevent hospital readmissions and decrease those members’ overall costs. Capitation payments are meant to ensure focus is on all members with emphasis on primary care and prevention.

How it relates to ACO/PCMH: Most PCMH programs that are sponsored by commercial insurers pay an enhanced PMPM payment to primary care physicians, often for care management/care coordination services. In the PCMH model, most practices also receive FFS payments and incentives for meeting quality metrics. A PCMH can be part of an ACO in which the ACO provides the organizational structure, with processes deployed to encourage high-quality and efficient services, improve value, meet quality metrics, and cost thresholds.

Involved organizations/oversight: CMS, individual states, and associated health plans are all involved with capitation.2 The Medicare Advantage program within CMS is a fully capitated model in which private health plans receive capitated payments to provide all Medicare services to the beneficiaries enrolled in the plan. Within a Medicare capitated model CMS, a state, and a health plan enter into a three-way agreement in which CMS and the state pay health plans to deliver comprehensive care to patients.2


  1. ACP. Understanding capitation. Available at:
  2. CMS. Capitated model. Available at: Office/FinancialAlignmentInitiative/CapitatedModel.html

Contributing author:

Chidiya Ohiagu, PharmD, BCPS
Franklin Primary Health Center Pharmacy, Inc.

Last Updated 11/1/2019

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