Healthcare Payment Model

Introduction to Healthcare Payment Models

Healthcare payment models are billing systems by which healthcare organizations get paid for the services they provide to patients, whether by insurance payers or patients themselves. As none of them are completely perfect and the world of healthcare billing is incredibly complex, there are many models that have been adopted in the United States. Each healthcare organization, clinic or hospital network has different goals and functions, so the models they use will also vary.

There are various Healthcare payment types. They are listed below: 

  • Fee-For-Service (FFS)
  • Capitation
  • Value-Based Care (or “Pay for Performance”)
  • Direct Care


Fee-for-service (FFS) is a payment method wherein physicians and other healthcare providers are paid separately for each unbundled service. In healthcare, it introduces an inherent incentive for providers to lay emphasis on the quantity of care (office visits, procedures, tests, treatments, etc.) rather than the quality of care. Each individual ‘service’ a patient receives would have a corresponding code with a price attached.

FFS reimbursement approaches are referred to as ‘volume-based’ reimbursement because the primary way for a provider to increase their revenue is to increase the number of services they perform.


Capitation is a departure from the traditional fee-for-service model. It is a model of reimbursement in which the providers receive a fixed amount of money per patient. This is paid in advance, for a defined time, whether the member seeks care or not. Ideally, patients who have little utilization will naturally balance out with the patients who have higher utilization.


  • It provides the ability to explore cost-effective care processes that yield the best outcomes, rather than relying on face-to-face services to generate a bill for services. 
  • A more predictable cash flow, less need for large internal billing staff, and a reduced wait time for reimbursement, leading to a greater incentive for encouraging and providing preventative care. 
  • With greater physician accountability, capitation can limit the provision of unnecessary care or costly procedures, and may reduce patient out-of-pocket expenses.


  • Incentivized enrolling of a large number of patients results in longer waits, and shorter time for individual patient visits. 
  • Restricts patient choice by requiring patients to stay within the network and puts increased financial risk on the physician for patients with significant medical issues. 
  • Burnout in physicians who are overwhelmed with attempting to keep up with regulatory changes, reporting requirements, and increased patient needs

Value Based Care

Value Based Care is a healthcare delivery model in which providers, including hospitals and physicians, are paid based on patient health outcomes. Under value-based care agreements, providers are rewarded for helping patients improve their health, reduce the effects and incidence of chronic disease, and live healthier lives in an evidence-based way.

Direct Care

Direct Care is a model of paying for primary care outside of insurance. The individual or organization paying for healthcare pays a monthly fee (like a gym membership) for all primary care needs.

Direct care is a departure from the fee-for-service model. Instead of receiving reimbursement for each service rendered, physicians receive a per-patient amount per month, quarter, or year. This fee can range from $50 per month to thousands or more per year, depending on the practice’s level of service and operating model. For patients, the subscription fee covers almost all primary care services including clinical, laboratory, consultative services, care coordination and comprehensive care management.