<P> The financial risks providers accept in capitation are traditional insurance risks . Provider revenues are fixed, and each enrolled patient makes a claims against the full resources of the provider . In exchange for the fixed payment, physicians essentially become the enrolled clients' insurers, who resolve their patients' claims at the point of care and assume the responsibility for their unknown future health care costs . Large providers tend to manage the risk better than do smaller providers because they are better prepared for variations in service demand and costs, but even large providers are inefficient risk managers in comparison to large insurers . Providers tend to be small in comparison to insurers and so are more like individual consumers, whose annual costs as a percentage of their annual cash flow vary far more than do those of large insurers . For example, a capitated eye care program for 25,000 patients is more viable than a capitated eye program for 10,000 patients . The smaller the roster of patients, the greater the variation in annual costs and the more likely that the costs may exceed the resources of the provider . In very small capitation portfolios, a small number of costly patients can dramatically affect a provider's overall costs and increase the provider's risk of insolvency . </P> <P> Physicians and other health care providers lack the necessary actuarial, underwriting, accounting and finance skills for insurance risk management, but their most severe problem is the greater variation in their estimates of the average patient cost, which leaves them at a financial disadvantage as compared to insurers whose estimates are far more accurate . Because their risks are a function of portfolio size, providers can reduce their risks only by increasing the numbers of patients they carry on their rosters, but their inefficiency relative to that of the insurers' is far greater than can be mitigated by these increases . To manage risk as efficiently as an insurer, a provider would have to assume 100% of the insurer's portfolio . HMOs and insurers manage their costs better than risk - assuming healthcare providers and cannot make risk - adjusted capitation payments without sacrificing profitability . Risk - transferring entities will enter into such agreements only if they can maintain the levels of profits they achieve by retaining risks . </P> <P> Providers cannot afford reinsurance, which would further deplete their inadequate capitation payments, as the reinsurer's expected loss costs, expenses, profits and risk loads must be paid by the providers . The goal of reinsurance is to offload risk and reward to the reinsurer in return for more stable operating results, but the provider's additional costs make that impractical . Reinsurance assumes that the insurance - risk - transferring entities do not create inefficiencies when they shift insurance risks to providers . </P> <P> Without any induced inefficiencies, providers would be able to pass on a portion of their risk premiums to reinsurers, but the premiums that providers would have to receive would exceed the premiums that risk - transferring entities could charge in competitive insurance markets . Reinsurers are wary of contracting with physicians, as they believe that if providers think they can collect more than they pay in premiums, they would tend to revert to the same excesses encouraged by fee - for - service payment systems . </P>

What is the standard method of calculating pcp capitation payments