“The complexity of financing in health care is one of the primary characteristics of medical care delivery in the United States” (Shi & Singh, 2012, p. 129). There are numerous reimbursement methods (e.g., capitation, fee-for-service, package pricing, etc.) that are used by health care organizations and providers to get paid for the health care services that they provide. Building upon your Individual Project from Unit 1, write a 3-5 pages not including a title page and reference page that contains the following: Summarize 3 different reimbursement methods that are used by health care providers and organizations. Choose which method(s) will work best for the health care facility that you have proposed to be developed, and explain why you chose that method(s). Discuss the pros and cons of the reimbursement method(s) that you chose. Discuss the impact that the method(s) may have on the financial operations of the facility that you chose. Note: You should include a minimum of 3 references, properly cited in APA format.


The financing of healthcare in the United States is a complex and multifaceted process, with numerous reimbursement methods employed by healthcare organizations and providers to obtain payment for the services they deliver. This assignment builds upon the Unit 1 Individual Project and aims to summarize three different reimbursement methods used in the healthcare industry. Additionally, it requires choosing the most appropriate method(s) for a proposed healthcare facility and discussing the pros, cons, and potential impact on the facility’s financial operations.

Summary of Three Reimbursement Methods

1. Capitation:
Capitation is a reimbursement method in which healthcare providers receive a predetermined amount per patient on a regular basis, regardless of the actual services rendered. Under this method, providers assume the financial risk for their patients’ healthcare needs. Capitation emphasizes preventive care and encourages wellness as healthcare providers are motivated to keep their patients healthy to reduce costly treatments. However, it can lead to underprovision of healthcare services as providers aim to minimize costs and may not fully meet patients’ needs. Furthermore, capitation can be difficult to implement and monitor effectively due to issues such as risk selection and proper allocation of resources.

2. Fee-for-Service:
Fee-for-service (FFS) is a reimbursement method in which healthcare providers receive payment based on the specific services they deliver to patients. It allows providers to be reimbursed for each individual service or procedure performed, providing a direct incentive for delivering more services. FFS offers flexibility and autonomy to healthcare providers, allowing them to tailor treatments to individual patients’ needs. However, this method has been criticized for promoting overutilization of services, as providers may be incentivized to perform unnecessary procedures to increase revenue. Additionally, FFS can result in fragmented care and lack of coordination among healthcare providers.

3. Package Pricing:
Package pricing, also known as bundling, is a reimbursement method in which a single price is assigned to a set of related healthcare services. It combines multiple services into one bundled payment, covering the entire episode of care or a specific medical condition. This approach aims to promote efficiency and cost savings by streamlining billing and reducing administrative overhead. Package pricing encourages coordinated care by incentivizing collaboration among healthcare providers. However, challenges arise in determining the appropriate bundled payment amount and negotiating contracts with various providers involved in the care episode. There is also a risk of providers resorting to “cherry-picking” healthier or less costly patients to maximize profits.

Choice of Reimbursement Method

For the proposed healthcare facility, the most suitable reimbursement method would be a combination of capitation and package pricing. This integrated approach would provide the facility with several advantages. Firstly, capitation would incentivize preventive care and wellness initiatives, promoting population health management and reducing the incidence of costly treatments. Secondly, package pricing would allow the facility to offer a comprehensive range of services for specific medical conditions or episodes of care at a fixed price. This approach would enhance care coordination and reduce fragmented services while streamlining the billing process.

Pros and Cons

The chosen reimbursement method has several pros. Capitation encourages providers to focus on preventive care and overall population health, leading to better health outcomes and potentially reducing healthcare costs in the long run. Package pricing offers simplicity and efficiency by combining multiple services into a single payment, eliminating the need for separate billing and reducing administrative burden for both providers and payers. This method also incentivizes coordinated care and collaboration among healthcare providers, which can lead to better outcomes and reduced duplication of services.

However, there are also cons associated with this reimbursement method. Capitation may create the risk of underprovision of services, as providers may be motivated to limit costly treatments to control costs. Furthermore, managing capitated contracts and ensuring appropriate resource allocation can be challenging. Package pricing requires careful negotiation to determine appropriate bundled payment amounts, and there is a risk of the facility assuming too much financial risk if the bundled payment is insufficient to cover the actual cost of care.

Impact on Financial Operations

The chosen reimbursement method would have a significant impact on the financial operations of the proposed healthcare facility. Capitation would provide the facility with a stable revenue stream, as providers would receive regular payments regardless of the number of services delivered. This predictable income would enable the facility to better plan its budget and allocate resources accordingly. Package pricing, on the other hand, would require careful cost analysis and contract negotiation to ensure that the bundled payments cover the costs of providing the services. Proper implementation of this method would help streamline billing processes, reduce administrative costs, and promote cost-effective care delivery.


In conclusion, the complexity of healthcare financing in the United States necessitates the use of various reimbursement methods by healthcare organizations and providers. Capitation, fee-for-service, and package pricing are three commonly employed methods, each with their own advantages and disadvantages. For the proposed healthcare facility, a combination of capitation and package pricing would be the most appropriate reimbursement method. This integrated approach would incentivize preventive care, encourage coordination among healthcare providers, and streamline billing processes. However, careful consideration must be given to the potential risks and challenges associated with these methods, and appropriate measures must be taken to ensure financial stability and effective resource allocation.