From a provider's perspective, which third-party payment method has utilization risk?

From a provider's perspective, which third-party payment method has utilization risk?

• A. Capitation
• B. Fee-for-service
• C. Per diem
• D. Global budgeting

Answer: (A)

The main idea here is who bears financial risk when payments are fixed rather than per service. With capitation, the provider receives a fixed amount per patient per month, no matter how many services that patient uses. If actual care costs exceed what the fixed payment covers, the provider absorbs the loss. That is utilization risk borne by the provider. In fee-for-service, payments rise with each service, so higher utilization increases revenue for the provider rather than creating risk for them; the payer bears the risk of paying for more services. Per diem pays a fixed rate for each hospital day, which does create some incentive issues around length of stay, but the risk is tied to days rather than the overall total cost of care per patient. Global budgeting caps overall spending for a facility or system, transferring risk if utilization pushes costs beyond the set budget, but capitation most directly represents utilization risk for the provider in the typical health care payment structure.

The main idea here is who bears financial risk when payments are fixed rather than per service. With capitation, the provider receives a fixed amount per patient per month, no matter how many services that patient uses. If actual care costs exceed what the fixed payment covers, the provider absorbs the loss. That is utilization risk borne by the provider.

In fee-for-service, payments rise with each service, so higher utilization increases revenue for the provider rather than creating risk for them; the payer bears the risk of paying for more services. Per diem pays a fixed rate for each hospital day, which does create some incentive issues around length of stay, but the risk is tied to days rather than the overall total cost of care per patient. Global budgeting caps overall spending for a facility or system, transferring risk if utilization pushes costs beyond the set budget, but capitation most directly represents utilization risk for the provider in the typical health care payment structure.