Define capitation in health care financing.

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Capitation is a payment arrangement in health care financing where a provider is paid a fixed amount for each enrolled patient over a defined period (usually monthly), regardless of how many or what services that patient uses. This setup shifts some financial risk to the provider, because their revenue remains the same even if a patient requires extensive care. The incentive is for the provider to focus on keeping patients healthy and coordinating care efficiently, with cost control and preventive services in mind. To prevent underuse, capitation plans often include quality metrics and risk adjustment to account for sicker patients.

Why the other ideas don’t fit: paying by each service describes fee-for-service, which rewards more services rather than containment. A lump-sum grant to a hospital isn’t tied to patient enrollment or ongoing per-patient payments. And a fixed per-patient payment that isn’t tied to the period or to patient enrollment wouldn’t capture the ongoing monthly (or defined-period) arrangement that characterizes capitation.