The 8 basic payment methods in health care.

Area of Science:

• Health Economics
• Healthcare Management
• Health Policy

Background:

• Existing terms for healthcare payment (e.g., capitation, fee-for-service) lack specificity.
• Understanding payment units is crucial for analyzing financial risk distribution in healthcare.
• Healthcare payment methods significantly influence provider incentives and patient care.

Purpose of the Study:

• To introduce a taxonomy of eight basic healthcare payment methods.
• To define each method by its unit of payment (e.g., per episode, per service).
• To analyze how these methods distribute financial risk between payers and providers.

Main Methods:

• Defined eight distinct payment units: per time period, beneficiary, recipient, episode, day, service, dollar of cost, or dollar of charges.
• Correlated each payment unit with the division of financial risk and risk factors in healthcare spending.
• Analyzed the implications of this taxonomy for understanding payment reform trends and provider/payer conflicts.

Main Results:

• Financial risk shifts from providers (per time period) to payers (per dollar of charges) across the eight methods.
• Payment per episode serves as a critical juncture between epidemiologic and treatment risk.
• Combined payment methods are used to balance incentives and mitigate undesirable consequences.

Conclusions:

• The proposed taxonomy clarifies trends in payment reform, including value-based purchasing, bundling, and accountable care organizations.
• No payment method is inherently neutral; each creates specific incentives and disincentives for care provision.
• Healthcare's variable and unsettled payment units differentiate it from other industries.