Due to skyrocketing healthcare costs in the U.S., several strategies, including capitation, have been utilized to reduce overall cost. Capitation has helped to contain costs by placing a limit on the amount of reimbursement that is offered to the provider for specific types of patients and care. In order for physicians to improve their profitability under capitation, their practices must become more cost efficient. The purpose of this research was to analyze the effects of capitation on the overall reduction of healthcare cost.