Addressing the inequity of capitation by variable soft contracts

In the search for greater efficiency and cost-containment, many health systems have introduced the practice of medical care providers operating under a fixed budget, often referred to as the capitation or fundholding contract. Although the capitation contract seems equitable at first glance, the sequential decision-making practice of providers-shaped by their rate of present-preference and their attitude toward the risk of running out of budget-may result in serious violations of basic equity principles. We propose a variable soft (or mixed) payment contract (VSC), where the share of the retrospective payment increases over time, as a way to make the contracts more equitable. We also discuss how the parameters of the capitation contract (length of the budget period, soft or hard contracts, solo vs. consortium practice etc.), which are usually set by efficiency criteria, may have serious implications with regard to the equity of the system. Copyright © 1999 John Wiley & Sons, Ltd.