Fee For Service vs Capitation: What, Why & How It Affects Employers

admin | July 17, 2019

In our article “Value-based Care Fee-for-Service: What’s The Difference?” we discussed the importance of VBC as a long-term solution for self-insured employers seeking financial control over their annual employee health benefit package costs. Value-based care can come in the form of more than one model, like capitation (read more below). From our previous post:


“The industry’s default model of payment reimbursement FEE-FOR-SERVICE, FFS, could be described as ‘volume-based care.’ In this model, healthcare providers are paid based on the number of tests, procedures, or visits ordered, often in the (more expensive) hospital setting, to help an employee along their wellness journey.

Paid for by insurance companies, self-insured employers, and government agencies, these services are billed separately and may or may not be needed, as supported by data. In short: quantity is (unintentionally) rewarded over more proactive, quality and efficiency-focused wellness strategies.

The FFS model explains much of the average employee’s currently confusing, frustrating, and financially burdensome relationship with their healthcare benefits package.

Without a dedicated team of professionals, communicating frequently with equal access to the continuing progress of their shared patient, employees have little hope of effectively making use of their health benefits.”

Value-based care offers another way of incentivizing and empowering providers, allowing for the (critical) re-centering of the primary care physician-to-patient relationship. Said another way by our Chief Operating Officer, MARC PINNEY:

“Value-based care introduces a structure for providers to focus on the total cost of care and quality, and includes financial incentives to align the providers, patients and plan sponsors for efficient delivery of care.”



“Value-based care links primary care physician reimbursement incentives to the outcomes of the care they provide based on the overall quality of care rendered and cost-efficiency.

Instead of financially incentivizing volume (as the FFS model does) the VBC-model incentivizes practice efficiency, cost control, and patient improvement. (Read more.)”

In this model providers tend to use a collaborative approach to manage patient wellness journeys. Physicians and specialists work as a coordinated team to keep patients highly engaged and closely monitored. This approach is referred to as “care coordination.” Like the value-based care model, care coordination can take multiple forms, but its goal is the same: identifying patients that require higher levels of care and ensuring that care is delivered at the most appropriate place and time, in the most appropriate order.

Care coordination models leverage a trained team of care givers that cover the healthcare delivery spectrum (i.e. Registered Nurse, Social Worker, Behavioral Health) which act as an extension of the primary care provider. (Learn more about care coordination.)



“Capitation provides financial alignment but goes a step further by shifting financial risk for services from the plan sponsor to the provider by compensating providers a fixed amount for the care of each member. Done well, this gives the providers the ability and motivation to provide quality, cost-efficient care which positively impacts both the cost of care and the outcomes for members,” MARC PINNEY, Chief Operating Officer, Healthcare Highways

Capitation is a type of value-based care model wherein healthcare providers are paid a prospective amount per member per month (PMPM), or a “cap” to provider care. Providers keep any net savings below the cap/PMPM amount, while adhering to or surpassing defined quality and efficiency standards.

This performance-based system encourages the use of care coordination teams and proactive, highly engaged care outside of the costly hospital setting. The monthly financial stability and the shift of risk from the insurance carrier to the provider makes it a strong alternative to the FFS model.

One weakness of this model to be considered: if caps are set too low there will not be enough money to encourage and maintain physician participation and support. We eliminate this risk in our health plan by negotiating directly with physicians to build a high-performance network of healthcare providers aligned with our client’s budgetary and employee needs.



High-performance networks reward physicians for delivering efficient, outcome-driven care that results in improved patient health outcomes. In exchange for a consolidated, high-performance network of quality providers, members and employers pay lower premiums. Members also have lower out-of-pocket costs.

In addition to access to physicians with above-average performance metrics, members of high-performance networks often receive coordinated medical care, helping patients navigate their healthcare treatment options and maintain healthy lifestyles.” BRIAN WALLACH, Vice President of Provider Networks, Healthcare Highways

High-performance networks form a critical foundation for value-based health plans to ensure the structure of the employee health benefits packaged is designed to accessible and easy to use to its maximum potential.  This helps to ensure members are seeing in-network providers, aligned to the employers’ needs who are receiving profitable financial incentives within defined quality and efficiency metrics.

Maximize your current health plan with these five tips, and find out why you weren’t invited to your health coverage negotiations, here. Interested in learning more about Primary Care Physicians and their impact on employee health and company profits? Click here.