Question

Difference between cost base system, capitation arrangement and charge base system fee-for service arrangements

Answer 1

Cost based - Cost-based reimbursement guarantees that a provider’s costs will be covered by revenues generated from the delivery of those services. This form reimbursement is limited to allowable costs, usually defined as costs directly related to the provision of healthcare services​

Charge based – billed charges are paid according to rate schedule established by the provider. This trend is now shifting to a less generous reimbursement methods; only private patients pay full amounts. Although shifting this form of reimbursement will be in use for a while​.

Capitation pays the provider a fixed amount per covered life per period, regardless of the amount of services provided.​ In other words, under a capitation system, healthcare service providers (physicians) are paid a set amount for each enrolled person assigned to that physician or group of physicians, whether or not that person seeks care, per period of time. For example, a pediatrician may be paid $30 for each of the 120 children under his/her care, per month, even though the doctor may end up seeing only 35-40 of them (35-40 visits) in an average month. In other words, the doctor receives an average of about $90 per each child's visit in an average month. ​