Part 1

Drawback of Fee-For-Service Reimbursement

A fee-for-service model is a retrospective model where providers bill insurance companies and are paid for each service delivered/performed. These services may be a specific test, intervention, hospital stay or office visit. Amounts to be paid are determined by the payers and are included in a fee schedule (Casto, 2019)

In terms of healthcare spending and cost control, there are concerns with this type of retrospective model. Though the reimbursement amounts are known ahead of time, the actual reimbursement is not known until after the patient’s visit or treatment when exact services are billed. Because details of treatment are not known prior to services being rendered, third party payers have a lot of uncertainty with this model. Those opposed to this type of retrospective reimbursement models claim there is no incentive to control costs because reimbursement is based on what is billed. Further, there is no incentive for providers to consider less or lower cost and, potentially, less invasive treatment measures which may drive up the cost of care because providers are “rewarded” for higher amounts of potentially, unnecessary services (Casto, 2019). While a fee-for-service model is widely viewed as a thinly veiled plot for physicians to deliver more and unnecessary services just to line their pockets, physicians have historically preferred a fee for service model as this reimbursement allows them to “deliver the best care to their patients according to their professional standards” (Ikegami, 2015). Despite these drawbacks, a fee-for-service model is still widely used in America today.

Drawbacks of Capitation Reimbursement

Capitation is a prospective reimbursement model where providers are paid a pre-determined, set amount for insuring each person each month. The providers would contract with the insurance company to cover its employees and agree to pay a certain amount for each one. With this model, the amount or complexity of services provided does not matter because providers are reimbursed the same amount regardless.

The drawbacks of a capitation model include the potential delays in services or patients not receiving adequate care instead being serviced with less expensive, not as effective options (Casto, 2019). Because of the incentive to perform less services, some providers may elect to only see patients in a certain demographic that are deemed “healthier” so the services required are minimal yet their reimbursement remains the same. Finally, providers may choose not to use valuable testing or treatments because they are costly and they may not be compensated “appropriately” for their use (Oxholm et al., 2019).