8.4 Health Care Reimbursement Models
As discussed in the previous section, hospitals and health care providers are paid for services provided to individuals by government insurance programs (such as Medicare and Medicaid), private insurance companies, or people using their out-of-pocket funds. Traditionally, health care institutions were paid based on a “fee-for-service” model. For example, if a client was admitted to a hospital with pneumonia, the hospital billed that individual’s insurance program for the cost of care.
However, as part of a recent national strategy to reduce health care costs, insurance providers have transitioned to “Pay for Performance” reimbursement models that are based on overall agency performance and client outcomes.
Pay for Performance
Pay for Performance, also known as value-based payment, refers to reimbursement models that attach financial incentives to the performance of health care agencies and providers. Pay for Performance models tie higher reimbursement payments to positive client outcomes, best practices, and client satisfaction, thus aligning payment with value and quality.[1] Nurses support higher reimbursement levels to their employers based on their documentation related to nursing care plans and achievement of expected client outcomes.
There are two Pay for Performance models. The first model rewards hospitals and providers with higher reimbursement payments based on how well they perform on process, quality, and efficiency measures. The second model penalizes hospitals and providers for subpar performance by reducing reimbursement amounts.[2] For example, Medicare no longer reimburses hospitals to treat clients who acquire certain preventable conditions during their hospital stay, such as pressure injuries or urinary tract infections associated with use of catheters.[3]
The Centers for Medicare and Medicaid Services (CMS), spurred by the Affordable Care Act, has led the way in value-based payment with a variety of payment models. CMS is the largest health care funder in the United States with almost 40% of overall health care spending for Medicare and Medicaid. CMS developed three Pay for Performance models that impact hospitals’ reimbursement by Medicare. These models are called the Hospital Value-Based Purchasing Program, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Condition Reduction Program. Private insurers are also committed to performance-based payment models. In 2017 Forbes reported that almost 50% of insurers’ reimbursements were in the form of value-based care models.[4]
Hospital Value-Based Purchasing Program
The Hospital Value-Based Purchasing Program (VBP) was designed to improve health care quality and client experience by using financial incentives that encourage hospitals to follow established best clinical practices and improve client satisfaction scores via client satisfaction surveys. Reimbursement is based on hospital performance on measures divided into four