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Understanding New Medical Practice Payment Models


Payers are mobilizing their reimbursement models to ensure that they are paying only for "quality" and "efficiency" in medicine.

By now, you are likely familiar with terms such as "fee-for-service" (FFS), "pay-for -performance" (P4P), "patient centered medical home" (PCMH) and "accountable care organization" (ACOs). But do you understand how these models really work in terms of payment?


Fee-for-service means exactly that. You provide a service and are paid a fee for doing so. This is how most payer contracts have been structured to date. Under this model, the more procedures providers perform, the more fees they are able to collect, and so this payment method has been blamed for ever-escalating costs due to issues like overutilization of services. Over the last couple of years, however, we have seen payers look to new forms of payment (or revised forms of old payment models) in an effort to increase efficiency, curb spending, and create value for those purchasing insurance.


Pay-for-performance has been around for many years in various forms. For example, Highmark in Pennsylvania has been using P4P models for two decades! Simply put, P4P is a model whereby payers "reward" providers for performance, rather than for the number of services performed. It is considered "outcomes-based," meaning that if certain targets are reached - such as X percent of all female patients over the age of Y receiving a routine mammogram - then the provider receives a payment in addition to their regular fee for performing that service. The logic goes that by meeting certain evidenced-based targets, overall health in patient populations can be improved, and therefore overall costs of care reduced. Thus, this model can be considered as "cost-sharing" with the plan; the provider does its part to be efficient, the payer ensures that the provider gets paid part of the savings for doing so.

Patient centered medical home

The patient centered medical home model works along the same lines - the provider delivering value based on outcomes - but in this model it is in the form of highly coordinated care. The provider's practice is the patient "home" and all care needed is coordinated through that home. Providers are encouraged to educate their patients about their chronic diseases, provide support to ensure proper evidenced-based treatment, help accomplish appropriate outcomes, and generally coordinate all of their patients' healthcare needs. The nature of this model is to reward preventive medicine, and as such, is usually limited to primary-care providers (pediatrics, internal and family medicine, etc.). While this model is only beginning to gain widespread traction, several payers across the country are already incentivizing providers to adopt PCMH and become recognized by organizations such as the National Committee for Quality Assurance (NCQA). Providers that do so are eligible for various types of payment incentives. For example, some state Medicaid plans pay an additional fee for every well-care visit; Carefirst in Maryland and Pennsylvania provides PCMH's with enhanced fee schedules (usually 10 percent above "street rates") as well as P4P incentives for reaching certain preventive targets (such as having X percent of patients immunized on time based on the American Academy of Pediatrics vaccine schedule).

Accountable care organizations

Accountable care organizations are also just beginning to emerge. CMS recently finalized the ACO rules, which have opened the door for institutions and organizations to begin building these models. Primarily, these organizations are hospitals, independent physician associations (IPAs) and other larger institutions that have the ability to organize multiple specialists and primary-care physicians into one ACO. The basis for an ACO is to have primary care at its base, whereby preventive medicine is used to help control costs, and specialty care is used judiciously, only as needed. Payers provide a single payment based primarily on population health and other factors to an ACO, and the ACO determines how to use those funds to pay the providers within the model.

Regardless of the model, the message is clear. Payers are mobilizing their reimbursement models to ensure that they are paying only for "quality" and "efficiency" in medicine. This means that in the future, providers' payments will be based on successful patient-care outcomes, and we will see fewer and fewer fee-for-service only contracts.

Susanne Madden, MBA, is founder and CEO of The Verden Group, a consulting and business intelligence firm that specializes in practice management, physician education, and healthcare policy. She can be reached at madden@theverdengroup.com or by visiting www.theverdengroup.com.

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