Published On: Fri, Apr 26th, 2013

Is the provider reimbursement mechanism under the NHIS adequate? By Dr. Chidi Ukandu

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The launching of the NHIS in 2005 heralded a change in the method providers are reimbursed in Nigeria. Prior to this time, providers were mainly reimbursed on a fee-for-service basis and salaries.

The NHIS employs capitation, fee-for-service and per diem as the major methods for reimbursing health care providers. The new reimbursement method has been raising a lot of furore, since its introduction. Providers (hospitals and clinics) with small numbers of lives have often complained that the capitation fee is too small, whilst other providers such as pharmacists, and laboratory scientists, insist that they should be capitated directly, instead of receiving payments from hospital and clinics (for primary care services).

This article examines various methods for reimbursing health care providers and recommends reforms, if  necessary (in the context of the advantages and disadvantages of alternative methods of doctor’s reimbursement).

To arrive at conclusions, firstly, an overview of payment systems is carried out, the predicted impact of the various systems on quality, quantity and efficiency of healthcare services is enunciated, and suggestions are made regarding possible reimbursement systems.

 Overview of payment systems

There are seven main ways of paying providers: Fee-for-service (FFS), Salaries, Capitation, Daily Payment or Per Diem (for hospital stay), Case Payment (per visit or admissions), Budget, and Bonus (performance based) payment.

 The FFS System

This involves the remuneration of doctors per unit of service rendered. It rewards doctors according to the amount of work carried out. It is commonly used in Belgium, France, Germany, U.S.A. and Canada.


  • Enhancement of Productivity or Internal Efficiency
  • Promotion of cost-effectiveness


  • Provision of unnecessary services (particularly when the workload is low, treatment options are ambiguous, and the fees are set at a profitable level)
  • Reduction in quality of health care services
  • Relatively high cost of administration


This is a method of paying health care providers or insurers in which a fixed amount is paid per enrollee to cover a defined set of services over a specified period, regardless of actual services provided. Capitation payment is used in Denmark, Italy, the Netherlands, United Kingdom, Costa Rica, Indonesia, and in HMOs in the United States.


  • Reduction in health care costs
  • Incentive to promote use of preventive services
  • Lower administrative costs


  • Risk selection
  • Reduction in quality of care


Under this system, the physician is paid for units of time. Remuneration is independent of the volume of services and independent of the number of patients.  The salary payment to doctors is common in planned health care systems. For example, all hospital-based doctors in China and the United Kingdom are salaried. Doctors who take care of patients in outpatient health centers are often salaried in Finland, Greece, India, Indonesia, Israel, Portugal, Spain, Sweden, the former Soviet republics, Turkey, and many countries in Latin America.


  • No incentive for over or under provision of services.
  • Makes health care planning easier. This is because the doctor’s salary is known in advance.
  • Lower monitoring and administrative cost.



  • Low incentive for productivity and cost effective care
  • Poor morale
  • Low quality care

Despite its many disadvantages, the salary payment is still the most popular payment method around the world.


The budget is a prospective payment method in which health care providers are paid an amount per given period (usually a year) for specified service provision responsibilities. It is presently used in Germany, U.K., China, Hungary, Israel and Canada, and is increasingly becoming popular. Budgets vary in their structure and implementation modalities amongst various countries.


  • Makes cost of health care predictable
  • Increases internal efficiency


  • Reduces quality of care due to transfer of all risks to providers


The bonus is a payment that awards the payee extra money for achievement in association with established indicators of objectives. Various types of bonus systems exist in U.K., U.S.A., Indonesia, Canada and China. Although bonus systems are becoming increasingly popular, few studies in the health sector have analyzed the theoretical and practical effectiveness of the system.


From the above, it is clear that Provider Payment systems have their advantages and disadvantages. The choice of the ideal payment method for any health care system will depend on the historical, socio-cultural, economic and healthcare structure within which they are applied.


Incentives through provider payment systems influence provider behaviour and ultimately healthcare outcomes. The current provider reimbursement systems adopted by the NHIS appears adequate.

But it may be necessary to introduce some minor reforms, such as setting a minimum enrolee panel size, where capitation payment will commence for some providers. For example, providers with a panel size of 49 and below may be reimbursed on fee-for-service basis only and capitation introduced, when the enrolee panel rises to 50 and above. In addition, the bonus system may need to be added and tied to providers meeting health prevention objectives such as compulsory annual physicals for all enrolees.


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Is the provider reimbursement mechanism under the NHIS adequate? By Dr. Chidi Ukandu