Comparing Healthcare Payment Reform Models

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August 7th, 2012

Healthcare Payment ReformAccelerated by the PPACA, healthcare payers and providers have begun to adopt new and innovative ways to pay for healthcare services. These new payment models include incentives that improve quality and reduce the use of unnecessary and costly services. Many agree that the current fee-for-service (FFS) payment model increases the volume and intensity of services without enhancing the quality or efficiency of care. FFS payment can contribute to the over-use of services with little health benefit and does not promote care coordination across providers or organizations.

The PPACA has increased the momentum towards payment reform by introducing approaches that are designed to improve quality while containing cost. The cost containment component of these reforms is achieved by eliminating the incentives under the FFS model to increase the use of services by shifting some amount of financial risk to providers, motivating them to consider the costs of their decisions.  The financial risk of these payment models could have a mixed impact on quality. In one scenario, the financial risk may increase quality by encouraging providers to reduce the use of inappropriate services. In another scenario, the financial risk may lead providers to reduce medical services that are essential for high-quality care or limit access to care.

In order to offset the inherent risks to quality, the proposed payment reform models include specific measures of quality and tie payment to performance on those measures. In this way, providers will have a financial incentive to improve quality through the use of clinically appropriate services, coordination of care among providers and incentives to invest in patient safety.

The chart below compares five payment reform options, two of which (ACO and Primary Medical Homes) are tied to care delivery models.

Healthcare Payment Reform Models

  1. Accountable Care Organization (Shared Savings) - a provider, or group of providers which takes accountability for controlling the total cost of care for a population of patients.
  2. Primary Care Medical Home - a hybrid care delivery and payment reform model that receive upfront payments and works to integrate and coordinate care by providing a monthly management fee.
  3. Bundled Payments - making a single payment for both hospital and physician services instead of separate DRG or per diem payments to hospitals and case rates or fees to individual physicians.
  4. Partial Capitation - a payment partially on a fee-for-service basis and partly as a fixed amount per patient, dependent on diagnostic and demographic factors.
  5. Full Capitation - a single price for all services needed to care for a patient or a group of patients during a particular period of time, regardless of how many episodes of major acute care they receive.

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