How do Doctors Get Paid for Healthcare Treatment?
Whenever we visit a doctor, we assume they are getting paid well for their care and expertise.
But exactly how doctors get paid is pretty unclear to most Americans.
A 2015 study by Gallup revealed that almost 90% of Americans now have some form of health insurance. Most Americans pay a small deductible and then an insurance company picks up the bill in some form. From this process, we generally assume somehow the funds go directly back to the doctor.
But is this always the case?
As Pat Palmer from Bill Advocates writes: “We hear every day how healthcare costs and insurance premiums are rising and how America is by far the most overpriced country when it comes to paying the price of being healthy. The truth is, though, many doctors don’t know how much they get paid when you come in for an office visit.”
To try to simplify the process, here 6 models through which a doctors get paid for treating patients.
1) Fee for Service
This is the traditional way, used both by private health insurers and by the government (Medicare and Medicaid) and is called ‘fee-for-service.’
Under fee-for-service (FFS) the insurance payer pays whatever the physician, hospital or other health care provider charges, without prearrangement of fees, once the provider of care submits an insurance claim.
Fee-for-service payment is also the basis of early forms of managed care payment, in what is called ‘discounted fee-for-service’ managed care. This simply means that providers agree to provide health services at prearranged discounts off their regular fee-for-service fees. This is the usual arrangement for PPOs (Preferred Provider Organizations), which are essentially a group of available providers joined together into a network.
Fee-for-service reimbursement is potentially on its way out, which means more complex payment models are continuing to emerge.
When a doctor, medical group, hospital or integrated health system receives a certain flat fee every month for taking care of an individual enrolled in a managed health care plan, regardless of the cost of that individual’s care.
Given that the majority of people enrolled in a health plan will never use health care services within any given month, capitation arrangements should naturally balance out the high utilizers in health plans with those who use little or no health care every month.
3) Relative Value Units
A pay-for-performance model where the physician’s training, skills and time expended to provide a given service are taken into account when establishing compensation. With this model, the actual care provided by the physician is the driving force of compensation more so than the number of visits.
With this pay structure, a physician caring for a handful of high-profile patients has the ability to earn more than a physician working with very general patient cases. This is because a basic checkup would be assigned a lower RVU than a specialist procedure.
The RVU model focuses on value-based healthcare, rather than the fee-for-service volume-based model.
4) Bundled Payments (BPCI)
A payment model where physician and hospital expenses are joined to make a single payment for an episode of care.
A quick example would be an outpatient surgery. Many surgeons will often receive a single payment for pre-op, post-op and the surgery. However, bundled payments can also be much broader, encompassing longer periods of time and multiple providers.
With bundled payments, there are four models:
– Retrospective Acute Care Hospital Stay Only
– Retrospective Acute Care Hospital Stay plus Post-Acute Care
– Retrospective Post-Acute Care Only
– Acute Care Hospital Stay Only
Bundled payments encourage value-based medicine and efficiencies required by the Affordable Care Act; however, this model also creates complexity and incentives for hospitals and practices to withhold care and procedures.
5) Comprehensive Primary Care
A model that encourages physicians to keep patients healthy by establishing a single risk-adjusted price for all healthcare services needed by a group or individual for a fixed period of time. With this model, physicians are offered incentives based on better patient care.
The primary benefit of this payment model is that without the constraint of fee codes, healthcare providers are given increased flexibility in deciding what the patient requires and the needed resources to deliver them. However, as a physician, the concern lies in how administrators manage under such a payment system.
6) Concierge Care
An alternative to traditional payment models, where medical practices have a direct financial relationship with patients. They typically charge a monthly or annual fee so that the patient receives additional access and personalized care. These practices are known by a variety of names: concierge healthcare, direct primary care, direct care, direct practice medicine, retainer-based, membership medicine, cash-only medicine, cash-only practice, boutique medicine, personalized healthcare.
The range of access and amenities depends on the physician and the fee charged. For example, the patient may receive 24-hour physician availability by having the doctor’s phone number and email, as well as telephone consultations; executive-type physical examinations that last up to three hours long; expedited appointments, such as same-day or next-day appointments and no wait time at the office visit; longer appointments, personal visits in the hospital and sometimes in-home visits; follow-up calls after a specialist referral and/or hospital stay; and customized treatment plans including lifestyle and preventive plans.
There are two main types of concierge medical practices – retainer-based (what is commonly called ‘Concierge’) and direct primary care (commonly called DPC). Both of these models typically do not have co-pays, deductibles, or co-insurance fees, but instead, work on charging patients a retainer. Many of them are hybrid models, meaning that they also accept insurances.
These 6 methods may seem like quite a lot to take in, but it helps to have a basic understanding of how doctors get paid.