Approaches to capitation and risk adjustment in health care: an international survey

This report is a survey of current capitation methods in health care finance in developed countries. It was commissioned as part of the fundamental review by UK Ministers of the formula used to allocate health care finance to local areas in England, being carried out under the auspices of the Advisory Committee on Resource Allocation (ACRA). The study was commissioned in February 1999 and completed in May 1999. It was informed by a review of published literature and an extensive network of contacts in government departments and academic institutions. A capitation can be defined as the amount of health service funds to be assigned to a person for the service in question, for the time period in question, subject to any national budget constraints. In effect, a capitation system puts a “price” on the head of every citizen. Capitations are usually varied according to an individual’s personal and social characteristics, using a process known as risk adjustment. In most nations, the intention is that the risk-adjusted capitation should represent an unbiased estimate of the expected costs of the citizen to the health care plan over the chosen time period (typically one year). There is an element of capitation funding in the health care systems of almost all developed countries. Capitation is seen as an important mechanism for securing both equity and efficiency objectives. The review examined capitation schemes in 19 countries and concentrated on major strategic risk adjustment schemes implemented at the national or regional level. It identified two broad approaches to setting capitations, which we term matrix methods and index methods. The fundamental difficulties affecting both approaches are a lack of suitable data and the problem of disentangling needs effects from supply effects on health care utilization. Almost all schemes rely on analysis of empirical data, and various analytic methods have been used for setting capitations. Numerous need and cost factors have been used in setting capitations. However, the choice has usually been determined more by data availability than a compelling link to health care expenditure needs. The review concluded that there were elements of many schemes that may be of relevance to the review of methods currently used in England, and which deserve further investigation. However, until improvements in data availability are in place, it is difficult to envisage major enhancements to methods currently in use.