Fee for service, capitation and episode-based payment

There is one organising idea that makes this post write itself: each model puts financial risk somewhere different, and every benefit and risk the brief asks for follows from where it lands. Under fee for service the payer carries the risk, because the provider is paid per service rendered and revenue rises with volume. That preserves clinical freedom and rewards thoroughness, and it is also why it produces fragmented care, duplicated tests and rising cost, with the patient exposed through cost-sharing on every additional item. Under capitation the provider carries the risk: a fixed amount per patient per period, whatever care is used, which rewards prevention, care coordination and keeping people well, but creates a real incentive to under-provide and can penalise a practice that attracts sicker patients unless the payment is properly risk-adjusted for the case mix that practice actually carries, which is the mitigation most posts leave out entirely.

Episode-based or bundled payment sits between the two and is the one students describe least precisely. A single payment covers all the care within a defined clinical episode — a joint replacement, say, from the operation through a fixed post-discharge window — so risk is shared, and the provider gains by coordinating across the whole episode rather than optimising their own slice. Its benefits are reduced fragmentation and a genuine incentive to prevent readmission; its risks are the difficulty of defining the episode boundary, the pressure to select against complex patients, and the possibility of shifting cost to just outside the window. The brief asks you to keep provider and patient in mind for all three, so answer both explicitly at each model: what it does to the clinician's incentives, and what it does to the patient's access, continuity and out-of-pocket cost. The knowledge check then wants a real answer about your own employer.