Changing Face of Healthcare Payment Systems

Dec 7, 2016

It is a known fact that the healthcare payment system in the United States suffers from a number of shortcomings. Whether in terms of efficiency, cost, or quality of treatment, there has been extreme variability in the way in which health care services have been provided from region to region. The Affordable Care Act (ACA) aims to drastically reform healthcare payment and delivery systems.

Quality has always been a key component in all healthcare payment systems; final payment is usually tied to the achievement of key quality metrics. From the most traditional healthcare payment system, namely the fee-for-service model, healthcare payment models have evolved to be more patient-friendly and less of a financial burden on those paying for healthcare services.

The traditional form of healthcare payment has given way to far better payment models, which include the following:


Unlike the fee-for-service model, the pay-for-coordination system coordinates care between the primary care provider and the specialists. This payment system provides patients and their families with a unified care plan, thereby reducing the cost of expensive tests and other procedures.


Also known as P4P or value-based reimbursement, the pay-for-performance model is a system wherein the health providers are compensated only if they meet specified metrics for efficiency and quality. P4P ties the reimbursement paid to the physicians directly to the quality of services provided by them. According to the Center for Medicare and Medicaid, accountable care organizations (ACO), bundled payment for care improvement, up-side shared savings programs, downside shared savings programs, and partial/ full capitation are some of the more efficient models of healthcare payment.

Accountable Care Organization (ACO)

ACO consists of all health care providers, from primary care physicians to hospitals and post-acute care facilities. All of these entities agree to collectively take on the responsibility for the quality as well as the total cost of care for patients.

Bundled Payment

Also known as episode-of-care payment, this system reimburses healthcare providers for specific episodes of care such as an inpatient hospital stay. Efficiency and quality of care are encouraged by this payment system, as there is only a set amount of money that can be used to pay for the entire episode of care.

Upside Shared Savings Programs

One of the most common medicare shared savings programs (MSSP), this payment model offers incentives for healthcare providers with respect to a specific patient population. There are downside shared savings programs as well. These programs not only include the gain potential of the upside model, but also cover the downside risk of sharing the excess costs of healthcare delivery between provider and payer. As healthcare providers take far greater risk in this system, the upside opportunity potential is usually greater than most other ‘all-upside’ programs.

Along with the above mentioned healthcare payment systems, partial capitation and global budget have been the latest additions.

In cases of Partial or Full Capitation, patients are assigned per member per month (PMPM) payment based on their age, race, sex, lifestyle, medical history, and benefit design. The payment rates are tied to an expected usage, regardless of the number of times the patient makes visits. Just like the bundled payment models, healthcare providers in this payment system have an incentive to help patients avoid high-cost procedures and tests in order to maximize their compensation. Global Budget, on the other hand, is a payment system that involves the payment of a fixed amount on an annual basis for all types of care provided. This system includes the quality component and limits the rate of increase of healthcare costs.

It is clear that the healthcare payment system has changed a great deal in recent years. These changes have been predominantly positive, as patients and their families no longer have to incur the cost of excess payment for limited services, as was the case in the traditional fee-for-service model.

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