Question

Compare and contrast the strategies health care providers use to make money under a fee-for-service reimbursement system versus a capitated managed care model. Discuss whether or not providers want patients who have chronic diseases under each model.

Answer 1

Fee for Service Reimbursement Model

Fee-for-service (FFS) is health care’s most traditional payment model where physicians and healthcare providers are paid by government agencies and insurance companies (third-party payers), or individuals, based on the number of services provided, or the number of procedures ordered. Payments are unbundled, so services are billed and paid for separately. In other words, every time a patient has a doctor’s appointment, a surgical consultation, or a hospital stay, providers bill for each visit, test, procedure, and treatment independently.

The traditional fee-for-service health care model in the United States has been based on quantity, essentially giving medical providers a license to write their own paychecks. Doing more means earning more, regardless of patient impact. Under a fee-for-service approach, medical providers are compensated for each test, treatment, and medication. Given the varied approaches and propensities among providers, patients often receive unnecessary and duplicated services.

Capitated Management Model

Capitation is a form of funding in which health service providers are paid an agreed upon fixed premium by a health fund in advance of services delivered to members of that fund for a specified period . The use of capitation is wide-spread; elements of risk-adjusted capitation can be found in the United Kingdom’s National Health Service (for example)

Although the capitation approach creates an obvious incentive for service providers to deliver care in a cost effective manner, practicalities relating to the implementation of a capitation system need to be carefully addressed. A study of capitated payments relating to the management of patients with diabetes under Medicare in the United States, for example, found a risk of overpayment for the care of relatively healthy patients and a potential for under-treatment of those patients who were very ill.

Currently, capitation methods of payment for public mental health services to the chronically mentally ill are being tested as an alternative to fee-for-service reimbursement. Proponents suggest that capitation will increase service flexibility and produce a variety of better coordinated, more cost efficient services. Opponents believe that capitation will result in reduced care given the absence of treatment protocols and the financial incentives for cost containment. In case of chronically ill capitation methods is more preferable.However, providers may want patients who have chronic disease in both models.