Payment Methods: How They Work

Research Report

Payment Methods: How They Work

Abstract

Payment reform promises to substitute value for volume, but value- and volume-based approaches typically are implemented together. All payment methods have strengths and weaknesses, and how they affect the behavior of health care providers depends on their operational design features and how they interact with benefit design. Those seeking greater value for their health care dollar are also turning to innovation in benefit design, which typically implements more than one approach at a time. Although payment and benefit design have received significant attention independently, the intersection between the two has received little. The Urban Institute partnered with Catalyst for Payment Reform to explore how established and proposed payment methods and benefit design options work on their own and together. We also examined how payment and benefit design can be blended to improve health care delivery.

This report analyzes the nuances of how nine different payment methods work. These payment methods are in common use or proposed as reform methods and include fee schedules for physicians, primary care capitation, per diems for hospitals, diagnosis-related groups for hospitals, global budgets for hospitals, bundled episodes payment, global capitation, shared savings, and pay-for-performance.

Page 15 of this report was updated for clarity on May 17.

Related reports and chapters can be found on our project page.

Research Area: 

Centers

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