Article - Pros and Cons of Various Payment Models and their Effect on Practices

The Obamacare healthcare reforms or formally known as the Affordable Care Act (ACA) was ushered in 2010 with the aim of changing the way the medical practitioners were paid so as to focus on higher quality at lower costs- the bottom line was to improve the value of medical treatment.

Already in existence were healthcare payment models which health practitioners employed as deemed fit for their practice, based on a variety of factors like community needs, geographical areas, and state and federal regulations. With the new healthcare reforms laws, a few new payment models have been introduced that can or may work in conjunction with the 3 primary models, which could be eased out depending on various pros and cons that can affect one’s practice.

Every physician reimbursement model poses different distributions of risks: patient health risk, society's financial risk, and physician financial risk which are all co-related and interrelated to each other

Primary Healthcare Payment Models


This payment model is reimbursement for specific, individual services provided to a patient, as each specific service (or procedure or intervention or piece of equipment) provided is billed and paid for.

Pros Cons
Encourages the delivery of care and maximizing patient visits Offers little or no incentive to deliver efficient care or prevent unnecessary care
Relatively flexible and is employed regardless of the size or organizational structure Limited to face-to-face visits and acts as a barrier to care coordination and management of conditions via other means
Supports accountability for patient care, but it is often limited to the scope of the service a particular physician provides at any point in time Patients suffer the logistics involved in this type of model


In the Capitation payment model prepayments to physicians or medical groups are given based on pre-defined services. The compensation is typically calculated based on the range of services provided, the number of patients involved, and the period of time that the services are provided.

Pros Cons
Physician benefits directly be it financial or health risks as caring for patients is associated directly with the physician Patient’s health risk could increase due to deferred care beyond the prepayment interval
Provides increased flexibility in the physician payment model Avoid patients who are likely to have high per capita costs during the contract interval
The physician has better contract leverage in negotiation with payers Physician personal financial risk can be high if care of complex or chronically ill patients are taken in
Brings in certain standardization of information systems

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The episode or Bundled Payments:

The episode or bundled payments are single payments meted out for a group of services related to a treatment or condition that may involve multiple providers in multiple settings

Pros Cons
Improves coordination among multiple caregivers How to define the boundaries of an episode
Flexibility in terms of place and timing care can be delivered Can create barriers to patients’ choice of provider and/or geographic preferences
Effective management of an episode (reduce treatment/manage costs) Lack of incentive to reduce unnecessary episodes
Simplicity in billing logistics (one bill instead of many) The tendency to avoid high-risk patients or cases that could exceed the average episode payment
Accountability for care for a specific episode

Further to the above, there are 4 other payment models that work in conjunction with any one of the above.

Pay for Performance Model:

Pay for performance is seen as a payment or financial incentive that is associated with meeting defined and measurable goals that are related to care processes and outcomes, patient experience, resource use, and other factors. This Pay for Performance model is being encouraged in the new healthcare reforms acts

Pros Cons
Can improve the quality of care delivered when measurable Operational challenges associated with measurement do not necessarily reflect the complexity of caring for patients with multiple conditions
Encourages efficiency of care Rigid measures and standards may lead to avoidance of high-risk patients and dismiss noncompliant ones
Enhances collaboration and promotes accountability among providers The burden of administrative work could lead to a decrease in focus on patient care
Supports improvement by emphasizing outcomes of care.

Shared Savings Model :

In this payment model, a group of physicians (and possibly other medical professionals) join together to form an Accountable Care Organization (ACO). This ACO then contracts with a payer to provide care for a patient population and meet certain quality and cost benchmarks for that population over a set period of time. If the ACO can provide care at a lower cost than the predetermined threshold, the savings are shared with the payer. But, if the care costs exceed the threshold, the ACO absorbs the difference. The ultimate goal is to give the participants a financial incentive for improving patient outcomes and lowering the cost of care.

Pros Cons
May provide both high quality and cost-efficient care to plan participants Requires upfront spending in terms of resources like people and money
If total healthcare spending for its patients is reduced the provider is rewarded with a portion of the savings, and if not able to then there are no penalties Caregivers who are not part of the ACO could negatively affect patient outcomes
Rewards high spenders rather than high performers as high spenders already have the infrastructure in place
Can help diversify their revenue streams to be less dependent on service volumes Entails increased administrative costs like collecting, tracking, and transmitting huge quantities of data related to treatments, cots, and outcomes, then checking to ensure the payer has interpreted it correctly
Enhances focus on population health management

Retainer Based/Concierge based model: This is sometimes called “boutique” medicine, whereby patients pay an upfront fee in order to secure the services of a physician. Many physicians are slowly moving towards this kind of payment model. However, it has its pros and cons depending on factors of the kind of specialty provided and the geographical placement of the practice

Pros Cons
Brings in more revenue per patient and allows you to cap your patient base with no loss of revenue.s While transitioning to this kind of practice you risk losing patients used to a standard model of healthcare
Depending on services included in fee billing and collections procedures can be bypassed If you set the upfront fee too high, your community looks to cheaper solutions to their healthcare needs and thus lose out on patients
Minimal staff to be maintained as no coding or collection is required as patients simply pay the fee and then pay directly per service rendered

With the above pros and cons listed among the various models of payment, each having their own advantages and disadvantages, and depending on operational feasibility, no single payment model is appropriate for all types of care or applicable in all settings, practice types, and/or geographic locations.

Each physician or healthcare organization needs to undertake a study of their present systems and then decide based on present finances, community needs, geographical presence and the various healthcare state and federal regulations as to which of the models either standalone or in conjunction will be an appropriate fit to pursue further. Adaptation and change are needed as socio-economic shifts take place and hence payment models cannot be taken as a constant.

Published By - Medical Billers and Coders
Published Date - Oct-07-2015 Back

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