Column: Provider Reimbursement

This series titled “Column: US Healthcare System” is sponsored content from our partners at Axene Health Partners.  AHP offers highly specialized health care actuarial and consulting services across a number of states.  We have curated this content because we think it adds value to the work our readers are engaged in.  As always, we welcome your feedback on this series.





How providers are paid is one of the often-discussed and often-reformed aspects of the American healthcare system. Are doctors being paid too much? Is how they are being paid incenting them to perform unnecessary services or to not give enough attention to their patients? Why can’t we just pay them salaries like most of the rest of us receive? Why does provider reimbursement have to be so complicated?

In an ideal world, healthcare providers would always make the most cost-effective course of care decisions for their patients. However, provider-payment discussions aside, there are not always clear-cut decisions in healthcare. For example, if a patient comes into a physician’s office with vague symptoms, there are any number of courses of action a physician could recommend, ranging from a “wait and see” approach to a “run every test we’ve got” approach. The right decision for any individual patient should be made through an open and honest discussion with their physician, covering their options, the patient’s medical history, and any cost/benefit trade-offs. The goal of an effective provider reimbursement structure would be, most simply, to not stand in the way of a physician and a patient making the “right” healthcare decision for them in a given situation.

This article intends to discuss various reimbursement methodologies, both traditional approaches and emerging approaches, in order to highlight some of the complexities of the healthcare system that need to be considered as we work through a reform environment.

Traditional Reimbursement Models

Traditionally, there have been three main forms of reimbursement in the healthcare marketplace: Fee for Service (FFS), Capitation, and Bundled Payments / Episode-Based Payments. The structure of these reimbursement approaches, along with potential unintended consequences, are described below.

Fee for Service (FFS)

Under FFS reimbursement, a physician’s revenue is based solely on what procedures they perform. Each individual “service” a patient receives would have a corresponding code with a price attached. For example, a 15-minute office consult, a tetanus shot, a urinalysis, a basic metabolic panel, all have separate codes and prices attached to them.

A physician might get paid three times as much to provide the exact same care to a privately insured patient than they would for a patient covered under Medicaid.

Additionally, what a healthcare provider gets paid for a particular service varies depending on the insurance of the patient receiving the care. When dealing with Medicare or Medicaid the prices per code are decided by Centers for Medicare and Medicaid Services (CMS). Commercial (or private) insurance often sets its prices per code as a percent of the Medicare price. Medicaid prices are the lowest, then Medicare, then Commercial. And so, a physician might get paid three times as much to provide the exact same care to a privately insured patient than they would for a patient covered under Medicaid.

FFS reimbursement approaches are referred to as “volume-based” reimbursement, because the primary way for a provider to increase their revenue is to increase the number of services they perform. To be reimbursed, a provider needs to show that the procedures provided are justifiable to the diagnoses that are present. There is a potential misalignment of incentives here, where doctors can justifiably do more (and therefore make more revenue) even when the additional services might not be necessary or appropriate for the patient.

Continue reading the column here.