Topic

Provider payment

Provider payment methods set how hospitals and clinicians are paid, and each method creates its own incentives for the volume and quality of care. Concepts include Fee-for-Service, Capitation and Activity-Based Funding, the Case Mix Index and Relative Value Unit used to set prices, and newer models such as Value-Based Purchasing.

Concepts in this topic

• Accountable Care OrganizationAn accountable care organization (ACO) is a provider group that shares in savings if its patients' spending beats a benchmark and quality targets are met.
• Activity-Based FundingActivity-based funding (ABF) pays hospitals a preset, case-mix-weighted price for each episode of care, so income follows patient numbers and complexity.
• All-Payer SystemAn all-payer system is a provider payment arrangement in which a regulator sets the rates that every payer, public or private, pays for the same service.
• Ambulatory Payment ClassificationAmbulatory Payment Classification (APC) is Medicare's grouping of clinically similar, similarly costly hospital outpatient services sharing one base rate.
• CapitationCapitation is a provider-payment method that pays a predetermined amount per enrolled or attributed person for a defined period and service package, regardless of the number of covered services that person uses during the period.
• Capitation PaymentA capitation payment is a predetermined amount paid to a healthcare provider or organisation per covered person over a defined period for a specified set of services, largely independent of that person's actual service use.
• Case Mix IndexCase mix index is the mean diagnosis-related group relative weight of a defined set of inpatient discharges under a specified classification and weight schedule.
• Case WeightCase weight is a relative value for a diagnosis-related group showing its expected cost against the average case, used to scale payment from a base rate.
• Conversion FactorConversion factor (CF) is the money amount per relative value unit that turns fee schedule relative values, such as Medicare RVUs, into payment amounts.
• DRG CreepDRG creep is a rise in recorded hospital case mix, and so in DRG payments, that comes from coding changes rather than from sicker or more complex patients.
• Fee-for-ServiceFee-for-service is a provider-payment method in which each eligible health-care service generates a separate payment according to an applicable fee or contract.
• Payment Adjustment FactorA numerical multiplier applied to a base payment rate to account for specific circumstances affecting the cost of care, such as geographic wage differences.
• Per Member Per MonthA standard unit expressing a capitated payment as the fixed monthly amount received per enrolled member, regardless of services actually used.
• Provider PaymentProvider payment is how health purchasers pay doctors and hospitals, for example by budget, salary, fee-for-service, per diem, case (DRG) or capitation.
• Relative Value ScaleA system assigning a numerical value to each service reflecting its relative resource intensity, providing the structure for a standardised fee schedule.
• Relative Value UnitA relative value unit is a standardized weight assigned to a covered service component to represent its relative resource use within the US Medicare Physician Fee Schedule.
• Relative WeightA numerical value assigned to a payment classification, such as a diagnosis-related group, reflecting its expected resource intensity relative to average.
• Resource-Based Relative ValueA methodology determining physician reimbursement based on a standardised measure of resources required, incorporating work, practice expense, and malpractice risk.
• Risk CorridorA risk-sharing mechanism where government shares in an insurer's unexpectedly high losses or profits relative to a projected target, stabilising a new market.
• Value-Based PurchasingA purchasing approach that connects provider selection, contracting or payment to measured care quality, outcomes or efficiency for a defined population.