Reimbursement Methods: Fee-For-Service vs Capitation

As the present USA healthcare trends focusing more on Reimbursement Methods like value-based care, the fee-for-service is under intense scrutiny. Often labeled as an antiquated payment model, it promoted over-utilization by physicians and patients, while creating fragmentation among healthcare service providers.

The Affordable Care Act of 2010, along with MACRA legislation in the year 2015, has slowly helped to redirect healthcare payment reform away from fee-for-service to a capitation payment system. However; both models are widely used and they both have been criticized for various reasons. Now the present healthcare focus is emphasizing quality, efficiency, care coordination, cost control, and preventive health, capitation is developing as the model of choice for the value-based care movement.

The traditional model of paying for individual services on a case-by-case basis is being challenged by the newly introduced alternative model known as capitation. Capitation is a quality-based system measured by health outcomes, patient satisfaction, and clinical compliance. It has proved to be a great system for cost-conscious employees, but it might not be for everyone.

Fee-For-Service vs Capitation

Reimbursement Methods – Capitation

This reimbursement method will be given the primary care provider or physician practice a set fee per year or month for each patient. This new model aims to offer a perfect balance of patient protection with incentives to restrain the costs.

This method gives doctors, not the payers, more control over decisions about care, while also restraining unnecessary spending.

  • It inspires clinicians to limit unnecessary medical services that raise costs without adding value.
  • It makes it stress-free for providers to use things like telemedicine that aren’t easily compensated under traditional fee-for-service models.
  • It makes costs much more foreseeable for payers and gives the doctors and other providers a more predictable monthly cash flow.
  • It can be simpler to administer – a fee per patient rather than complicated billing and elaborate coding for every visit and procedure.

Reimbursement Methods – Fee For Service Model

  • Every patient visit, evaluation, treatment, procedure, test, etc. is billed by the provider to a third-party payer for payment.
  • The fee-for-service payment structure leaves the provider and patient “absolved” from fiscal accountability, which arguably encourages over-utilization by both parties, leading to an increase in overall healthcare costs over time.
  • If patients need more care than expected, the burden of cost overages lies with the payer, not the provider.
  • This arrangement creates a scenario with inherent financial uncertainty for the payer concerning medical care costs and payment, explaining in part the ongoing rise in health insurance premiums

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