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What is “capitation” in a personal injury case?

Posted by Neil Shouse | Sep 20, 2019 | 0 Comments

doctor seeing patient

Capitation is a set fee paid by an insurance company to a physician for each person he treats, regardless of the exact services provided.

In a non-capitated system, alternatively, an insurance company pays doctors based on the actual medical services provided.

Capitation relates to a personal injury case because it is an issue that may arise in “subrogation.” This is a legal term that means:

  • a plaintiff's insurance company can recover any money that it paid to the plaintiff (e.g., for medical expenses), and
  • it can recover that money from the person that caused the plaintiff's injury (typically the defendant).

Note that, per Cal. Civ. Code 3040, if an insurance company pays a doctor on a capitation basis, then:

  • for subrogation purposes, when the company attempts to recover medical payments that it made to the plaintiff,
  • the insurance company is limited to recover 80% of any usual charge by medical providers on a non-capitated basis.

What is capitation?

Capitation is a set fee paid by an insurance company to a physician for each person he treats, regardless of the exact services provided. The actual amount of the fee paid is determined by:

  • the range of services the physician provides,
  • the number of patients involved, and
  • the period of time for when the services are provided.

The amount of capitation payments can vary from one geographic region in the U.S. to another.

Capitation payments are used by insurance companies to help control health care costs.

The alternative to capitation is non-capitation. In a non-capitated system, an insurance company pays doctors based on the actual medical services provided. While some health insurance plans pay medical providers based on a capitation basis, other providers pay on a non-capitated basis.

Capitation arises in California personal injury cases when it comes to subrogation payments.

What is subrogation?

In the context of a personal injury case, “subrogation” is a legal term that essentially means

  • a plaintiff's insurance company can recover any money that it paid to the plaintiff (e.g., for medical expenses), and
  • it can recover that money from the person that caused the plaintiff's injury (typically the defendant).

Subrogation is based on the concept that an insurance company is often obligated to pay a policyholder/plaintiff before the plaintiff can file, or finalize, a lawsuit. This is a definite benefit for the plaintiff. But, legally, any benefit that befalls on the plaintiff, should be the responsibility of the party that caused the injury. Subrogation is a way for the insurance company to make early payments and to eventually be paid back by the responsible party (or, the person at fault).

Subrogation has been described as:

  • the right of an insurance company to recover money from the person that caused the accident and caused the damages for which triggered the insurance company's payments;
  • the insurance company's right to be put in the position of the accident victim and to pursue recovery from the person responsible for the accident; and,
  • the substitution of the insurance company in place of the accident victim to whose rights they take over.

What is Cal. Civ. Code 3040?

Cal. Civ. Code 3040 deals with the reduction of health insurance bills in personal injury cases. Section 3040 places a limit on what an insurance company can recover out of a plaintiff's settlement for payments the insurance company made to that plaintiff.

Under Cal. Civ. Code 3040, the insurance company is limited in its recovery by the lesser of:

  1. the cost of the medical services, or
  2. a percentage of the total settlement.

How are capitation payments treated under Cal. Civ. Code 3040?

Given the limitations set forth in Cal. Civ. Code 3040, there is an issue when an insurance provider pays doctors on a capitation basis. This is because these payments are set at a fixed rate, and therefore, do not accurately account for the true cost of medical services. This presents a problem when an insurance company is entitled to recover from the plaintiff's settlement for the costs of the medical services that it paid for.

The law in section 3040 tries to provide a cure for this problem. The rule is that if an insurance company pays a doctor on a capitation basis, then:

  • for subrogation purposes, when the company attempts to recover medical payments that it made to the plaintiff,
  • the insurance company is limited to recover 80% of any usual charge by medical providers on a non-capitated basis.

All of this, though, is a non-issue, if under section 3040, the insurance company recovers a percentage of a total settlement (as opposed to the cost of medical services).

About the Author

Neil Shouse

A former Los Angeles prosecutor, attorney Neil Shouse graduated with honors from UC Berkeley and Harvard Law School (and completed additional graduate studies at MIT). He has been featured on CNN, Good Morning America, Dr Phil, Court TV, The Today Show and Court TV. Mr Shouse has been recognized by the National Trial Lawyers as one of the Top 100 Criminal and Top 100 Civil Attorneys.

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