While the Affordable Care Act is expected to shift more of health coverage from the private employers to taxpayers, the most common source of health insurance for Americans is still though an employer or the employer of a spouse or parent.  According to the most recent census data, over half (55%) of all Americans receive employer sponsored health insurance.  As a result, employers have been extremely sensitive to increases in healthcare costs, the quality of care delivered, and addressing the high degree of inefficiency in the healthcare system.

For many years, fee-for-service (FFS) reimbursement has served as the primary healthcare payment model.  Traditional fee-for-service payment is really fee for volume, rewarding inefficiency and discouraging the best performing physicians and hospitals.  Therefore, today, many employers – particularly large, self-insured employers – are eager to replace fee-for-service with models that pay providers based on their clinical and economic performance.  In other words, payment based on value, not mere volume.  The objective is to reward opportunities to eliminate unnecessary costs while improving the quality and safety of patient care.

Four Major Payment Reform Models:

Conceptually, large employers are increasingly interested in four general types of payment reform models:

1.  Population-Based Payment. 

Under population-based payment, a provider organization receives a set amount of money in order to provide care for a given group of patients.  Providers face an incentive to keep costs low, reduce readmissions and additional therapies, and improve overall efficiency.  By doing so, their overall costs may be lower than the initial allocated sum for the care of the population, resulting in a financial gain.

2.  Patient-Centered Medical Home Payment.

Patient-centered medical homes (PCHM) are primary care settings in which a physician led team provides a variety of coordinated primary care services to make and keep patients healthy.  Often times, payor organizations give PCHMs a set sum per patient to provide these services.  By operating efficiently and meeting specified performance expectations, PCHMs can result in financial savings.

3.  High-Intensity Primary Care Payment. 

High-intensity primary care payment is often used in cases involving complex patient needs, including patients with multiple chronic conditions.  These models involve the use of highly integrated teams of practitioners.  Through effective care coordination, high-intensity primary care payment models can achieve greater financial savings than traditional fee-for-service models.

4.  Bundled Payment.  

Bundled payment strategies include paying for all associated costs for a given condition for a specific patient.  This payment model has been used in Medicare in order to reduce costs for complex or expensive treatments and conditions.  Bundled payment is also known as “episode-based payment.”

To learn more about these particular models and their return on investment (ROI), read Payment Matters: The ROI for Payment Reform, a new brief from AcademyHealth and prepared by Bailit Health Purchasing.

To learn more, please check out other Piper Report posts on payment reform.