NHIA has two payment models. Every Nigerian hospital that takes insurance patients has to work with one or both. This post covers exactly how each model pays, where the cash-flow risks sit, what makes claims get rejected, and how to structure your reconciliation so you catch problems before they eat into a month’s revenue.
For the wider NHIA context, see: NHIA billing for Nigerian hospitals: how the digital claims process works. This post drills into the two payment models specifically.
The two models, at a glance
| Aspect | Capitation (PHC) | Fee-for-service (secondary/tertiary) |
|---|---|---|
| Who receives it | Primary care providers | General, teaching, specialist hospitals |
| When paid | Monthly, in advance | Monthly, after claim review |
| Calculation | Rate x enrolees registered | Per procedure or admission tariff |
| Cash-flow pattern | Predictable monthly float | Lumpy, depends on claim volume |
| Risk on provider | Utilisation risk (busy month, same pay) | Denial risk (bad claim, no pay) |
| Documentation burden | Enrolee register + monthly returns | Full clinical record per claim |
Capitation, in detail
The HMO pays the PHC a fixed amount per month per enrolled beneficiary. Rates are set nationally under NHIA and revised periodically. The current per-life capitation rate for the formal-sector programme is a small figure per enrolee per month, currently in the low four-figure Naira band.
The provider is expected to deliver the primary-care package for every enrolee on the register, whether the enrolee visits or not that month. This includes:
- Consultations for common conditions (fever, respiratory infections, minor injuries, follow-up).
- Antenatal care up to delivery gestational age.
- Family planning services.
- Diagnostics from an agreed short list (basic laboratory tests, urinalysis).
- Prescriptions for a defined essential-drugs list.
Anything outside that package requires referral to a secondary or tertiary provider, at which point the fee-for-service model kicks in and the receiving provider files a claim.
Capitation risks for the provider
- Utilisation risk. A busy month with high consultation volume produces the same revenue as a quiet month. Chronic under-provision destroys reputation; chronic over-provision destroys margins.
- Register accuracy. If the HMO’s register lists 800 enrolees but only 720 have current active cover, you get paid for the 720. Reconciling monthly matters.
- Denials for wrong referral. If you refer for something the primary-care package should have covered, the secondary provider’s claim can be denied and the cost flows back to you.
Fee-for-service, in detail
The provider delivers a covered procedure, admission, or diagnostic, then files a claim. The HMO reviews the claim, approves or rejects, and pays the approved portion typically 30 to 90 days later.
Each claim contains:
- Authorisation code (obtained before elective procedures; obtained after for emergencies within 48 hours).
- Diagnosis code (ICD-10 aligned).
- Procedure code (aligned to the NHIA tariff schedule).
- Clinical documentation supporting the procedure (operative notes, imaging report, discharge summary).
- Drug dispensing records if drugs were on the claim.
- Cost breakdown at the NHIA-published tariff.
The four most common fee-for-service denials
- Missing authorisation code for elective work. Elective admissions require the code before admission. Emergency admissions have a 48-hour window to obtain the code retrospectively; miss it, and the claim is rejected as unauthorised.
- Procedure mismatch. The procedure code does not match the referral diagnosis (e.g. cardiac procedure code with a musculoskeletal referral). The HMO’s clinical reviewer flags the disconnect.
- Tariff exceeded without pre-approval. Some procedures require pre-authorisation for cost thresholds. Exceeding the threshold without documented pre-approval leads to partial payment or full denial.
- Documentation gap. Missing operative notes, missing anaesthetic record, missing dispense receipt for a drug on the claim. The HMO reviewer cannot verify the service was delivered, so does not pay.
Fee-for-service cash-flow patterns
A hospital that runs mostly fee-for-service work sees revenue lag delivery by 30 to 90 days on the primary claim, plus another 15 to 30 days on any dispute or resubmission. Larger private hospitals typically maintain a working-capital cushion of 60 to 90 days of operating cost just to cover the lag.
The single largest determinant of a hospital’s fee-for-service cash flow is the first-pass approval rate. A hospital with 90% first-pass approval collects on 30 to 45 day terms. A hospital with 65% first-pass approval collects on 60 to 90 day terms because the rejected claims cycle through resubmission and negotiation. That 25-point gap is the difference between a solvent hospital and a stretched one.
Reconciling both models when a hospital does both
Some hospitals hold both PHC and secondary accreditation and receive both capitation and fee-for-service payments. Reconciliation is separate:
- Capitation: monthly bank statement, cross-referenced to the HMO’s monthly enrolee register.
- Fee-for-service: per-claim tracking through submission, review, approval or denial, payment or dispute.
Common accounting error: treating a capitation payment as if it can be split across specific enrolee visits. It cannot. The full monthly capitation payment is revenue for that month, whether one enrolee visited or two hundred did.
What a hospital management system should do about this
- Distinguish payer type on every consultation. HMO name plus scheme type (capitation or fee-for-service) so the billing path is set from the point of contact.
- Auto-generate the fee-for-service claim at consultation close, with the correct procedure code, diagnosis, and documentation attached. Doctor reviews and signs; system files.
- Track first-pass approval rates by HMO and by procedure. Show the finance team which HMOs are becoming problematic so contract renegotiation is data-driven.
- Enrolee register reconciliation for capitation providers. Match HMO monthly list against local register; flag departures and additions before the payment lands.
- Authorisation-code prompt. Elective admission forms block on missing authorisation code. Emergency admissions surface a 48-hour countdown timer.
- Dispense verification. Any drug on a claim must have a matching dispense receipt in the pharmacy module.
Practical questions for the finance team
- What is our first-pass approval rate this quarter, per HMO?
- What percentage of our fee-for-service claims cross the 60-day payment threshold?
- Which HMOs’ capitation payments arrive on time; which do not?
- What is the average reason for a resubmission?
- Do we have a documented workflow for the emergency-admission 48-hour authorisation window?
If you cannot answer any of these from your current system in under five minutes, that is a real gap. The money you leave on the table through preventable denials is almost always larger than the cost of the software that would surface the answers.