Traditional Payment Models

Historically, insurance was made available in the United States to offset the cost of illness or injury and was, primarily, in place to cover loss of wages and not actual medical care (Casto, 2019). There has always been a link between health insurance and employment illustrated by the significant worker shortage in the 1940s leading to the government implementation of several acts which became the basic structure of healthcare in the U.S. In the United States, healthcare is often offered through employers who pay a part of the insurance premium (Casto, 2019).

Traditional payment models include fee for service and capitated payment. A fee-for-service model is a retrospective model where providers bill insurance companies and are paid for each service delivered/performed. These services may be a specific test, intervention, hospital stay or office visit. Amounts to be paid are determined by the payers and are included in a fee schedule (Casto, 2019). The fee schedule shows the average or maximum amount that may be reimbursed. Though the reimbursement amounts are known ahead of time, the actual reimbursement is not known until after the patient’s visit or treatment when exact services are billed. Because details of treatment are not known prior to services being rendered, third party payers have a lot of uncertainty with this model. Those opposed to this type of retrospective reimbursement models claim there is no incentive to control costs because reimbursement is based on what is billed. Further, there is no incentive for providers to consider less or lower cost and, potentially, less invasive treatment measures which may drive up the cost of care because providers are “rewarded” for higher amounts of potentially, unnecessary services (Casto, 2019).

Capitation is a prospective reimbursement model where providers are paid a pre-determined, set amount for insuring each person each month. The providers would contract with the insurance company to cover its employees and agree to pay a certain amount for each one. With this model, the amount or complexity of services provided does not matter because providers are reimbursed the same amount regardless. Because there is no alteration no reimbursement amounts, the capitation model provides certainty for the payers yet gives no certainty to the providers as they are unable to know which services will be required and are not reimbursed more if more complex services are rendered. Because there is no “incentive” for more invasive services, providers may be more apt to encourage preventative services to keep the need for more complex services to a minimum. Critics of a prospective care model have noted a potential delay in services or patients not receiving adequate care instead being serviced with less expensive, not as effective options (Casto, 2019).

Current Trends in Health Care Payment

In the United States when discussing healthcare reimbursement two trends are noted.

Increasing spending and ongoing efforts to reform the current healthcare system (Casto, 2019). Two noted reimbursement trends are values-based reimbursement and accountable care organizations.

Value-based reimbursement compensates providers who provide a certain level of “quality of care” to their patients. This model “rewards” healthcare providers and organizations for the quality of care they provide. This model seeks to reduce costs for patients and payers while raising the bar on the level of care provided. Providers are rewarded when patients are healthier with lower numbers of those with chronic diseases (Casto, 2019). Value-based reimbursement allows financial incentives when key metrics regarding care quality are achieved.

Accountable Care Organizations (ACO) are groups of healthcare professionals who, voluntarily, work together to provide coordinated quality care to patients they serve. ACOs aim to spend healthcare monies more effectively while providing high quality care (CMS, 2023). The Center for Medicare and Medicaid Services or CMS, have several ACO programs including the primary ACO – Medicare Shared Savings Program and subsets that focus on specific populations such as the Comprehensive ESRD Care Initiative which relates specifically to those receiving dialysis services. The CMS Medicare Shared Savings Program ACO requires members to maintain certain quality and reporting measures and components focusing on patient access such as telehealth opportunities and empowering patients to make decisions about their healthcare (CMS, 2023). Members report results on required performance

How Quality Outcomes Are Rewarded

In comparing traditional and current trend reimbursement models, both are agreements between payers and those pr