In an attempt to limit its health care expenditures, Ontario is, as one option, exploring the possibilities of a capitated system for service delivery payments as opposed to the present mixture of global budgets and fee-for-service. After reviewing the literatures on capitation (primarily American) and on resource allocation (primarily British), the paper sets out to establish a capitation rate, based on 'need' and not prior use, for a range of health services in the northern Ontarian community of Fort Frances-Rainy River. The difficulties and limitations of the needs-based approach are explored. The results reported show the setting of the local population characteristics against provincial average health care utilization data to generate expected use rates, which are then adjusted for need and other factors, particularly relative costs and sparsity. Finally these adjusted rates are applied to current provincial expenditures to derive a target share. This target is then expressed in relation to the planning population to derive the capitation rate.