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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

Bundled Payments: Implementation & Operation

Bundled payments are an alternative model to the traditional fee-for-service model used in the U.S. for paying for health services. The bundled payment model pays a fixed amount that covers care services for a particular condition over a defined time period. The Health Care Incentives Improvement Institute identified and studied 19 non-federal bundled payment initiatives underway. The results are shared in an article that provides concise answers for the following questions:

  • Why are bundled payments being pursued?
  • What conditions are most commonly bundled?
  • How are bundles defined?
  • What services are included within a bundle?
  • When does the bundle start and stop?
  • What patients are included, and are there any factors that would exclude them from a bundle?
  • What is the process for reaching agreement on a bundle definition?
  • How do payers qualify providers for bundled payment arrangements?
  • How are rates set for the bundle?
  • What is the time period from bundle planning to implementation?
  • Does insurer claim data support implementation of bundled payment rates?
  • How are payments made?
  • How to plans track and report spending within the bundle?
  • Are the bundles adjusted for performance in any way?
  • What types of risk arrangements are in place?
  • How many patients are involved in bundled arrangements?
  • What results have been produced by the existing initiatives?
  • How do the payer and provider
  • How do the interviewees involved in the study see the future of bundling?

The participating bundled payment organizations identified and interviewed for the article are listed. Also included is a detailed list of inpatient and outpatient procedural conditions and chronic and acute conditions that are currently subject to or are planned for payment bundling .

Source: Painter MW. Bundled payment across the U.S. today: status of implementations and operational findings. Health Care Incentives Improvement Institute Issue Brief, June 1, 2012. http://www.hci3.org/sites/default/files/files/HCI-IssueBrief-4-2012.pdf

Related resources:

Committee on Research. Bundled payment: AHA research synthesis report. American Hospital Association, May 2010. http://www.aha.org/research/cor/content/BundledPayment.pdf

Hussey PS and others. The PROMETHEUS bundled payment experiment: slow start shows problems in implementing new payment models. Health Affairs, 30(11):2216-24, Nov. 2011. http://content.healthaffairs.org/content/30/11/2116.abstract

Berenson RA. Moving payment from volume to value: what role for performance measurement? Robert Wood Johnson Foundation, Dec. 14, 2010. http://www.rwjf.org/qualityequality/product.jsp?id=71568

Bundled payments for care improvement. Center for Medicare & Medicaid Innovation, accessed June 4, 2012 at http://www.innovations.cms.gov/initiatives/bundled-payments/index.html

Practice Management Center. Bundled payments. American Medical Association, accessed June 4, 2012 at http://www.ama-assn.org/ama/pub/physician-resources/practice-management-center/claims-revenue-cycle/managed-care-contracting/evaluating-payment-options/bundled-payments.page

Cutler DM and Ghosh K. The potential for cost savings through bundled episode payments. New England Journal of Medicine, 366:1075-1077, Mar. 22, 2012. http://www.nejm.org/doi/full/10.1056/NEJMp1113361

Sood N and others. Medicare’s bundled payment pilot for acute and postacute care: analysis and recommendations on where to begin. Health Affairs, 30(9): 1708-17, Sept. 2011. http://content.healthaffairs.org/content/30/9/1708.abstract

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