Free guide
Provider Payment Methods Compared: Fee-for-Service, Capitation, Case-Based and Global Budgets
How the main ways of paying health providers work, the incentives each creates, what each needs to run, and why most health systems combine several.
PDFUpdated 30 September 2026Health financing & insurance
What's inside
- How line-item budgets, global budgets, fee-for-service, capitation, case-based (DRG) payment and per diems work
- The incentives each method creates for providers
- What each method needs in data, systems and administration
- A side-by-side comparison table
- Why payment systems are mixed, and how to keep the mix aligned
Key points
- 01Every payment method rewards some behaviours and discourages others; none is neutral.
- 02Fee-for-service tends to increase the volume of services; capitation and budgets tend to contain costs but can reduce services.
- 03Case-based payment needs reliable diagnosis coding and cost data to set fair rates.
- 04Most systems use a mix of methods; the incentives of the mix matter more than any single method.
Frequently asked questions
Which provider payment method is best?
None is best in every setting. The right choice depends on the objective (for example expanding access or containing costs), the services concerned, and the data and administrative capacity available.
What is a DRG?
A diagnosis-related group is a way of classifying hospital cases with similar clinical characteristics and resource use, so that each case in a group can be paid the same rate.
What is strategic purchasing?
The World Health Organization describes strategic purchasing as aligning funding and incentives with the services people are entitled to, using information on provider performance and population health needs.
Need this done properly?
This guide explains the method. If you would rather have the analysis done for you — with local data, independent quality control and a report you can defend — we can help.
Need this done properly?
Tell us about the decision you need to support. We will propose a scope, timeline and price.