Health Care Payment Methods: How They Work

Health care is undergoing a shift from volume to value-based payment methods, although a blend of both volume and value reimbursement mechanisms are typically used together. Each payment method has its pros and cons and can affect both providers and consumers differently. Insurance benefit design also has an influential role on payment.

A new collaborative report from the Urban Institute and Catalyst for Payment Reform examines the intersection of payment and benefit design. It looks at different payment methods and identifies the key objectives, strengths, weaknesses, design choices to mitigate weaknesses, compatibility with other payment methods and benefit designs, the focus on performance measurement, and the potential impact on provider prices for each method. The following payment methods are covered:

• Fee schedules for physicians and other health professionals
• Primary care capitation
• Per diem payment to hospitals for inpatient stays
• Diagnosis Related Groups-based payment to hospitals for inpatient stays
• Global budgets for hospitals
• Bundled episode payment
• Global capitation to an organization
• Shared savings
• Pay-for-performance

Source: Berenson RA and others. Payment methods: how they work. Payment methods and benefit designs: how they work and how they work together to improve health care. Urban Institute; Catalyst for Payment Reform, updated May 17, 2016. http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000776-Payment-Methods-How-They-Work.pdf

Posted by AHA Resource Center (312) 422-2050, rc@aha.org