Fee-for-service is when a patient pays a fee for the services provided by a healthcare provider. According to Valerius et al. (2012), the more patients a physician sees in the fee-for-service, the more charges the health plan repays (section 1. 4, p. 11). On the other hand, capitation payment cycles involve the first party, which is the patient, policyholder or employer (Valerius et al, 2012).
Also the capitation payment cycle includes the second party, which is the provider and insurance specialist, as well as the third party, which is the health plan (Valerius et al, 2012). Capitation is a fixed payment method, which a certain amount of money is reimbursed to the provider for patients enrolled for a specific time frame regardless of the services delivered or how many office visits(Valerius et al, 2012).
In this situation of capitation, the money is received before the patient even visits the office, and if the patient does not receive medical services for that specific time (Valerius et al, 2012). Furthermore, the physician agrees to take on the risk that an insured individual will utilize more services than the fee covers, and use less services (Valerius et al, 2012). Nevertheless, the physician still only collects the contracted rate, even if their expenses are higher than the rate for the time frame, and the physician risks getting less per office visit revenue.