Capitation or Fee For Service?

What is Capitation? | What is Fee For Service? | Which is better?  

Capitation(Cap, Capped, Capitated) - Specified amount paid periodically to health providers for a group of specified health services, regardless of quantity rendered. Amounts are determined by assessing a payment "per covered life" or per member. The method of payment in which the provider is paid a fixed amount for each person served, no matter what the actual number or nature of services delivered. The cost of providing an individual with a specific set of services over a set period of time, usually a month or a year. A payment system whereby managed care plans pay health care providers a fixed amount to care for a patient over a given period. Providers are not reimbursed for services that exceed the allotted amount. The rate may be fixed for all members or it can be adjusted for the age and gender of the member, based on actuarial projections of medical utilization.

Fee-For-Service (FFS) - Traditional method of payment for health care services where specific payment is made for specific services rendered. Usually people speak of this in contrast to capitation, DRG or per diem discounted rates, none of which are similar to the traditional fee for service method of reimbursement. Under a fee-for-service payment system, expenditures increase if the fees themselves increase, if more units of service are provided, or if more expensive services are substituted for less expensive ones. This system contrasts with salary, per capita, or other prepayment systems, where the payment to the physician is not changed with the number of services actually used. Payment may be made by an insurance company, the patient or a government program such as Medicare or Medicaid. With respect to the physicians or other supplier of service, this refers to payment in specific amounts for specific services rendered--as opposed to retainer, salary, or other contract arrangements. In relation to the patient, it refers to payment in specific amounts for specific services received, in contrast to the advance payment of an insurance premium or membership fee for coverage, through which the services or payment to the supplier are provided.

As noted above, both models offer a very different cash flow scenario. Under the capitated model, a practice will receive a fixed amount based on the number of members that are assigned to him/her monthly, regardless of the number of visits to the office. If a members shows up 10 times in a month, the provider will receive just the one set Capitation for that month. Likewise if that same member goes to New York for the month and does not come into the office, the PCP still receives the contracted capitation amount for that member. Under the Fee for Service model, that same patient comes in to the office 10 times and CMS is billed ten times and payment is made for the 10 visits, when the member goes to New York for the month, the PCP must work at getting other members to come in to offset the reduced revenue create by the member’s vacation. Clearly if cash flow is not a concern, Capitation is the answer.

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