A payment mechanism whereby an organization receives a fixed, previously specified amount of money per time period (e.g., month, year) for each individual for which it is responsible for meeting defined health needs (e.g., primary care, primary and secondary care), regardless of the volume of services rendered.
In other words, payments will vary according to the number of patients enrolled, but not with the number of services rendered per patient.
It can also refer to a tax or fee levied per head, or a grant or budget provided per head, of a given population for a certain service.
Capitation is a common basis for determining the budget for health facilities or for health care workers, such as primary care physicians. It may be used in combination with other methods of payment, such as fees-for-service.

Capitation may prevent overuse of services, but could limit necessary services.

World Health Organization. Regional Office for Europe. Terminology : a glossary of technical terms on the economics and finance of health services. Internet. Accessed May 28, 2016.