Hospital Services: What are some advantages and disadvantages of the Fee-for-service, Per diem, Capitation and the DRG-based payment systems on cost containment and provider behavior?

Solution Preview

An advantage of fee for service payment systems on cost containment is the fact that these guaranteed upfront payments help to keep the costs of medical services down, due to the fact that providers won’t have to pay for as many payment management systems or collection services, which would normally be added to total medical services charges. A disadvantage is the fact that medical fees may be raised due to the fact that hospital service providers are guaranteed to receive payment immediately.

An advantage in respect to provider a behavior is that providers will be willing to treat a wider variety of patients due to guaranteed receipt of payment. A disadvantage is that providers may start to only focus upon treating higher end customers who pay for higher level more expensive hospital services. An …