Payments for Health Services Providers (HCM565 CT 03)
Insurance is based on pooling of losses, payment for random losses, risk transfer, and indemnification. As a result, insurers use several different approaches to mitigate their risk and set premium rates, including:
the fee-for-service method
the cost-plus approach
population health – capitation
For your assignment, evaluate two global payment systems within healthcare and address each of the following items:
Define the structure of the payment systems.
Identify risk to loss of revenue in each system.
Describe advantages and disadvantages of each system.
Identify how pay for performance can be added to each payment system.
Requirements:
Your paper should be five to six pages in length, not including the title and reference pages.
You must include a minimum of six credible sources. Use the Saudi Electronic Digital Library to find your resources.
Your paper must follow Saudi Electronic University academic writing standards and APA 7th edition requirements, as appropriate.
You are strongly encouraged to submit all assignments to the Originality Check prior to submitting them to your instructor for grading.
Payments for Health Services Providers: Evaluating Fee-for-Service and Capitation Models
Introduction
Health systems worldwide grapple with balancing high-quality, accessible care with cost containment. Payment models play a pivotal role in incentivizing desired outcomes. This paper evaluates two predominant global payment approaches—fee-for-service (FFS) and population health-based capitation—assessing their structures, risks, advantages, and opportunities to enhance performance.
Fee-for-Service Structure and Risks
A traditional FFS model reimburses providers for each medical service delivered (Centers for Medicare and Medicaid Services, 2022). Providers bill public or private insurers for each test, procedure, visit, and so on. This gives providers autonomy over treatment decisions but risks overutilization to maximize revenue (Sokol, 2022).
FFS lacks incentives for coordination or preventive care as payment depends solely on volume, not outcomes or value. It also disproportionately rewards procedures over primary care (Sokol, 2022). A RAND study found FFS accounted for 28% higher US healthcare spending versus universal public systems from 2000-2017 (Papanicolas et al., 2018). FFS risks unsustainable cost growth if not balanced with other incentives.
Capitation Structure and Risks
Capitation bases provider payments on the number of enrolled lives in their care, not services delivered (Centers for Medicare and Medicaid Services, 2022). A set monthly fee covers all patient needs. This population health model incentivizes preventive care and care coordination to improve health while containing costs per patient (Sokol, 2022).
However, capitation also carries risks if not properly structured. Providers could skimp on necessary care to retain profit, necessitating additional oversight of quality and access. Payment levels must balance these risks while allowing for complex, high-cost patients (Sokol, 2022). Capitation also requires robust data and infrastructure to stratify populations and assess performance fairly.
Advantages of FFS and Capitation
FFS preserves provider autonomy and supports specialty care where volume drives expertise. It also maintains patient choice of providers (Sokol, 2022). Capitation fosters preventive care, care coordination across settings, and management of total health system costs. Properly implemented, it can drive higher value through population health management (Sokol, 2022).
Both models could integrate pay-for-performance to further incentivize quality and efficiency. FFS may add bonuses or penalties based on metrics like patient experience, outcomes, and appropriate utilization (Centers for Medicare and Medicaid Services, 2022). Capitation could tier payment rates according to performance benchmarks. This balances population health with individual incentives (Sokol, 2022).
Conclusion
No single payment model optimizes all goals. A blended approach combining FFS, capitation, and pay-for-performance may best balance priorities across diverse health systems. Ongoing evaluation is needed to refine incentives and minimize unintended consequences as systems evolve. Payment reform remains crucial for sustainability amid rising healthcare demands worldwide.
References:
Centers for Medicare and Medicaid Services. (2022). Fee-for-service. https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/FeeForSvc-AllProv-ICN906764.pdf
Papanicolas, I., Woskie, L. R., & Jha, A. K. (2018). Health care spending in the United States and other high-income countries. JAMA, 319(10), 1024–1039. https://doi.org/10.1001/jama.2018.1150
Sokol, M. C. (2022). Fee-for-service vs. capitation: Pros and cons of payment methods. Medical Economics. https://www.medicaleconomics.com/view/fee-for-service-vs-capitation-pros-and-cons-payment-methods
