Question

Physicians are traditionally paid on a fee-for-service basis. Provide three explanations of how this can lead to inefficient overuse of medical care. Describe how capitation is different from fee-for-service and how it can reduce some sources of inefficient use of medical care.

Answer 1

Fee for service is a system where services are not clubbed together and for each service there is a seperate fee. In health care system, it basically provides an incentive to the physicians who can provide better treatments further. Because this system is quality based and not quantity based. Whereas in the capitation model, physicians are not paid for a fixed amount for each patient or case they see, instead there is a fixed per capita payment mode. In fee for device, the risk is taken by the patients and in capitation the risk is taken by the hospital or insurance people.