BHA FPX 4009 Assessment 1 Reimbursement Models in Healthcare


This memo will look at reimbursement models in healthcare. The traditional and current trends in healthcare payment models will both be examined. Traditional and current payment models will be explored, noting similarities and differences. Lastly, the quality concerns regarding the recent problematic patient case at Vila Health will be discussed.

Traditional Payment Models

Historically, insurance was made available in the United States to offset the cost of illness or injury and was, primarily, in place to cover loss of wages and not actual medical care (Casto, 2019). There has always been a link between health insurance and employment illustrated by the significant worker shortage in the 1940s leading to the government implementation of several acts which became the basic structure of healthcare in the U.S. In the United States, healthcare is often offered through employers who pay a part of the insurance premium (Casto, 2019).

Traditional payment models include fee for service and capitated payment. A fee-for-service model is a retrospective model where providers bill insurance companies and are paid for each service delivered/performed. These services may be a specific test, intervention, hospital stay or office visit. Amounts to be paid are determined by the payers and are included in a fee schedule (Casto, 2019). The fee schedule shows the average or maximum amount that may be reimbursed. Though the reimbursement amounts are known ahead of time, the actual reimbursement is not known until after the patient’s visit or treatment when exact services are billed. Because details of treatment are not known prior to services being rendered, third party payers have a lot of uncertainty with this model. Those opposed to this type of retrospective reimbursement models claim there is no incentive to control costs because reimbursement is based on what is billed. Further, there is no incentive for providers to consider less or lower cost and, potentially, less invasive treatment measures which may drive up the cost of care because providers are “rewarded” for higher amounts of potentially, unnecessary services (Casto, 2019).

Capitation is a prospective reimbursement model where providers are paid a pre-determined, set amount for insuring each person each month. The providers would contract with the insurance company to cover its employees and agree to pay a certain amount for each one. With this model, the amount or complexity of services provided does not matter because providers are reimbursed the same amount regardless. Because there is no alteration no reimbursement amounts, the capitation model provides certainty for the payers yet gives no certainty to the providers as they are unable to know which services will be required and are not reimbursed more if more complex services are rendered. Because there is no “incentive” for more invasive services, providers may be more apt to encourage preventative services to keep the need for more complex services to a minimum. Critics of a prospective care model have noted a potential delay in services or patients not receiving adequate care instead being serviced with less expensive, not as effective options (Casto, 2019).

Current Trends in Health Care Payment

In the United States when discussing healthcare reimbursement two trends are noted.

Increasing spending and ongoing efforts to reform the current healthcare system (Casto, 2019). Two noted reimbursement trends are values-based reimbursement and accountable care organizations.

Value-based reimbursement compensates providers who provide a certain level of “quality of care” to their patients. This model “rewards” healthcare providers and organizations for the quality of care they provide. This model seeks to reduce costs for patients and payers while raising the bar on the level of care provided. Providers are rewarded when patients are healthier with lower numbers of those with chronic diseases (Casto, 2019). Value-based reimbursement allows financial incentives when key metrics regarding care quality are achieved.

Accountable Care Organizations (ACO) are groups of healthcare professionals who, voluntarily, work together to provide coordinated quality care to patients they serve. ACOs aim to spend healthcare monies more effectively while providing high quality care (CMS, 2023). The Center for Medicare and Medicaid Services or CMS, have several ACO programs including the primary ACO – Medicare Shared Savings Program and subsets that focus on specific populations such as the Comprehensive ESRD Care Initiative which relates specifically to those receiving dialysis services. The CMS Medicare Shared Savings Program ACO requires members to maintain certain quality and reporting measures and components focusing on patient access such as telehealth opportunities and empowering patients to make decisions about their healthcare (CMS, 2023). Members report results on required performance

How Quality Outcomes Are Rewarded

In comparing traditional and current trend reimbursement models, both are agreements between payers and those providing care to patients, though not a lot more. Though both models may employ a schedule of fees, their development and focus are not the same. In traditional reimbursement models, payments are not affected by the quality of care provided but focus more on the quantity of services provided or the number of people for whom services are being provided. This rewards providers by either performing a higher number of more expensive services or performing the least amount of the least expensive services possible. Neither of the traditional models discussed focus on the patient’s health when reimbursement is considered. In contrast, in our current trend reimbursement models, quality is heavily incentivized, monitored, and rewarded. There is little incentive for providers to coordinate care of a single patient in traditional models, yet this behavior is a goal in current trends. With value-based reimbursement providers are given a report card of sorts, showing their performance on certain key metrics and are given financial rewards for achieving certain levels of quality (Miller & Mosely, 2016). Some metrics of focus are the effective use of electronic health records and quality health outcomes.

Quality Concerns Affecting Reimbursement

The recent problematic patient case experience at Vila Health has shown light on a number of concerning behaviors. The registration issues of incorrect date of birth and inaccurate insurance information entered by registration staff would have caused an issue in both traditional and current models. Not billing the correct company and not having accurate patient information can result in reimbursement delays or, potentially, a complete lack of payment.

Given the rest of the issues, reimbursement would not likely have been affected in traditional models because there was not a lot of follow up on processes and outcomes. In our current models where reimbursement relies heavily on quality there is a big concern on payment. Not having an order entered for a test effectively means the patient didn’t have the test – or at minimum, that the cost of the test will not be reimbursed. There is a specific process required and this was not followed in this instance. Visit or treatment notes can be requested by an insurance company to ensure proper levels of patient care were provided. In this case the discharge plan was not followed, noted by a lack of phone call within 24 hours to ensure follow-up with the patient’s PCP. In addition, given the patient’s history and current symptoms, it is possible that keeping the patient for observation was warranted. Noting this “miss” by medical staff has caused the attention this case has garnered because of the readmission in such a short amount of time. Alonso, et al. noted there is a need for “audits to ensure guidelines are followed, promoting the awareness of health professionals to the importance of health records.” (2020). Given the number of quality care issues, in multiple departments, with this incident, involving our risk department for a review of emergency department practices to ensure these errors are not more widespread so we avoid further incidence.

Conclusion BHA FPX 4009 Assessment 1 Reimbursement Models in Healthcare

Reimbursement in healthcare has changed dramatically over time. Once a more transactional model of payment based on the quantity or complexity of services or merely the number of those insured, models have evolved and now focus on quality. Keeping the patient’s health as a priority places a requirement on the quality of patient care provided. Incentivizing providers and health organizations to deliver quality patient outcomes places the focus upon the patient where, arguably, it belongs. As the current trends progress, one can imagine the continued improvement of the healthcare system.


Alonso, V. Santos, J., Pinto, M., Ferreira, J., Lema, I., Lopes, F., & Freitas, A. (2020). Health records as the basis of clinical coding: Is the quality adequate? A qualitative study of medical coders’ perceptions. Health Information Management Journal, Vol. 49(1), 28-37.

Casto, A. (2019). Principles of Healthcare Reimbursement (6 th ed.). AHIMA Press.

CMS. (2023). Accountable Care Organizations (ACOs): General Information.

Miller, P. & Mosley, K. (2016). Physician reimbursement: From fee-for-service to MACRA, MIPS, and APMs. The Journal of Medical Practice Management : MPM, 31(5), 266-269.

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