What Healthcare Payment Models Exist?

In all of the healthcare payment models, quality is a key component, and most arrangements tie the final payment to the achievement of key quality metrics. Healthcare payment models break down into eight basic types:

Fee-for-Service
The most traditional of healthcare payment models, fee-for-service requires patients or payers to reimburse the healthcare provider for each service performed. There is no incentive to implement preventative care strategies, prevent hospitalization or to take any other cost-saving measures.
Pay-for-Coordination
Pay-for-coordination goes beyond fee-for-service by coordinating care between the primary care provider and specialists. Coordinating care between multiple providers can help patients and their families manage to a unified care plan and can help reduce redundancy in expensive tests and procedures.
Pay-for-Performance
In a pay-for-performance (P4P) or value-based reimbursement environment, healthcare providers are only compensated if they meet certain metrics for quality and efficiency. Creating quality benchmark metrics ties physician reimbursement directly to the quality of care they provide.
Bundled Payment or Episode-of-Care Payment
Bundled payments reimburse healthcare providers for specific episodes of care such as an inpatient hospital stay. This healthcare payment model encourages efficiency and quality of care because there is only a set amount of money to pay for the entire episode of care.
Upside Shared Savings Programs (Centers for Medicare and Medicaid Services (CMS) or Commercial)
Shared savings programs provide incentives for providers with respect to specific patient populations. A percentage of any net savings realized is given to the provider. Upside-only shared savings is most common with Medicare Shared Savings Program (MSSP) Accountable Care Organizations, but all MSSP participants must move to a downside model after three years.
Downside Shared Savings Programs (CMS or Commercial)
Downside shared savings includes both the gain share potential of an upside model, but also the downside risk of sharing the excess costs of healthcare delivery between provider and payer. Because providers are taking on greater risk with this model, the upside opportunity potential is larger in most cases than in an all-upside program.
Partial or Full Capitation
In this healthcare payment model, patients are assigned a per member per month (PMPM) payment based on their age, race, sex, lifestyle, medical history, and benefit design. Payment rates are tied to expected usage regardless of whether the patient visits more or less. Like bundled payment models, healthcare providers have an incentive to help patients avoid high-cost procedures and tests in order to maximize their compensation. Under partial- or blended-capitation models, only certain types or categories of services are paid on a basis of capitation.
Global Budget
A global budget is a fixed total dollar amount paid annually for all care delivered. However, participating providers can determine how dollars are spent. Global budgets limit the level and the rate of increase of healthcare cost. Global budgets typically include a quality component as well.

Next: What is Physician Profiling?