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Risk-Based Reimbursement

Risk-Based Reimbursement

The post-Affordable Care Act era in healthcare has seen healthcare providers and organizations shift to value-based care. Hirakawa (2022) asserts that the value-based approach incentivized healthcare providers to collaborate with other caregivers involved in the entire care continuum system to attain the best possible clinical care outcome for the patient. This approach has redefined capitation payments, including quality measures and reward standards to deter caregivers and health systems from withholding care services. Risk-based reimbursements are an affirmation of the value-based model in healthcare. Risk-based reimbursement places greater responsibilities on the healthcare systems to provide cost-effective care but not at the expense of quality. This paper details an interview with a hospital administrator on the intricacies of physician reimbursement in the ACA era.

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Risks That MCOs Assess

The interviewee is a long-serving hospital administrator who doubles as a family physician. He affirms that managed care organizations assess several risks before reimbursing healthcare systems or healthcare providers. Patient safety risks are one main area of managed care organizations (MCOs) evaluation. Managed care contracting and reimbursements in the Affordable Care Act era have resulted in changes in healthcare utilization, with a greater tag on quality enhancement placed on caregivers and the healthcare system. These organizations incentivize performance and influence quality improvement and patient safety enhancement strategies. In this regard, these organizations strictly assess patient safety markers and require more accountability for safety by physicians.

Another kind of risk assessed by managed care organizations is quality improvement. The interviewee noted that quality improvement has sometimes been used analogously to patient safety enhancement because quality healthcare often safeguards the safety of the patients. However, most managed care organizations assess quality improvement independently and require physicians and care systems in their networks to conform to the standard of quality prescribed by ACA and its allied bodies, the Center for Medicare and Medicaid Services CMS. MCOs also assess the financial risks and the ability of the healthcare system or provider to conform to the HIPAA provisions. Financial risks are often accustomed to economic systems management by the care facility and may jeopardize the quality of care in the hospital. Contravention of the HIPAA provisions may also contribute to quality compromises in care operationalization.

Risk-Based Compensation and Its Limitation on the Freedom of Primary Care Physicians

The interviewee noted that risk-based compensation significantly limits what they can do. Risk-based compensation is a value-based approach that rewards quality over quantity. It is a shift from the traditional free-to-service care model. The risk-based compensation provides primary care physicians with benefits that are cost-effective but limited or redirects them to flexible plans that are more expensive. The restricted plans may not cover specific aspects of care, such as specialty care. For instance, a Health maintenance organization (HMO) requires a referral for any person under this network to get specialized care. Additionally, HMO does not cover any service sought that is not an emergency or a referral from a primary care physician. These restrictions limit the scope of activities that a primary physician can do.

The Capitation Model of Reimbursement

The capitation model of reimbursement is a risk-based model of reimbursement that gives the caregiver a fixed amount of money per patient. This money is often given in advance and for a specified time and is not dependent on whether or not the patient visits the hospital. The amount of money to be paid to the caregiver is based on the expected number of patients as informed by the average patient visits, healthcare utilization, and the forecast data. Healthcare utilization varies with geographical locations and is factored in during these calculations. The interviewee mentioned that physicians tend to favor the older free-to-service model. This is because this model was quantity-based and would reward physicians based on the number of patients they attended, translating to more remittances. Physicians tended to stretch their limits to increase the amount they got paid. According to Zuvekas & Cohen (2016), the free-to-fair model incentivized caregivers to push their limits on the number of patients covered and order more unnecessary tests that would increase the care cost for them to receive higher remittances. This method was thus favorable for the physicians as it provided a framework for them to earn more.

Reasons for HMOs’ Preference for the Prepaid Monthly Premium

HMOs usually charge a fixed monthly premium to cover their customers’ healthcare costs. The HMO prefers the prepaid monthly premium to eliminate the need for claim forms whenever customers visit a physician or seek healthcare services. This plan’s only requirement is proof of membership, often indicated by the insurance card. Unlike other plans that require claim forms before receiving care services, the prepaid options allow the customer to receive care at any point upon prepaying the monthly premium.

The Pay-For-Performance Model versus Existing Models of Compensation

The pay-for-performance model has found considerable use in most healthcare systems, especially in this era of reforms. In this model, compensation is based on performance reviews rather than the number of patients seen. This model is a shift from the traditional free-to-service model that compensates healthcare providers based on the number of patients they attend to. The pay-for-performance model provides a better alternative to other existing models. It is more quality, patient-oriented, and targeted at ensuring better clinical outcomes. This model bestows responsibilities upon the caregivers to provide quality services while upholding standards that prevent withholding of care (Kyeremanteng et al., 2019). Its benefits notwithstanding, this model presents considerable administrative complexities. This is because the caregivers have to maintain quality accountability at the lowest costs and maintain contact with the patient’s data for ease of monitoring. This model could also compromise a provider’s commitment to quality as they are required to provide quality care at the least cost.

Follow-Up Questions for Depth and Clarification: The Way Forward For the Healthcare System

The interviewee noted that greater strides have been made toward utilizing value-based approaches and risk compensation models. He, however, mentioned that a balance should be established between the ACA-approved value-based approaches and increased spending on the healthcare systems. The complexities imposed on healthcare providers by performance-based approaches can only be eased when healthcare providers are better incentivized to conform to their requirements.


As care approaches move towards patient-centered approaches and the intrigue to quality care and enhanced patient outcomes increases, value-based approaches become pivotal. Subsequently, the risk compensation models become handy. Managed care organizations are fast-tracking their efforts towards value-based approaches by assessing risks in the care system that may jeopardize the overall quality of care. The interview with the hospital administrator outlined the need for a balance between the value-based approach and increased spending on healthcare.


Hirakawa, Y. (2022). Defining and Implementing Value-Based Healthcare for Older People from a Geriatric and Gerontological Perspective. International Journal of Environmental Research and Public Health19(18), 11458.

Kyeremanteng, K., Robidoux, R., D’Egidio, G., Fernando, S., & Neilipovitz, D. (2019). An Analysis of Pay-for-Performance Schemes and Their Potential Impacts on Health Systems and Patient Outcomes. Critical Care Research and Practice2019, 1-7.

Zuvekas, S., & Cohen, J. (2016). Fee-for-service, While Much Maligned, Remains The Dominant Payment Method For Physician Visits. Health Affairs35(3), 411-414.


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For your assignment, a primary care physician is often reimbursed by Health Maintenance Organizations (HMOs) via capitation, fee-for-service, relative value scale, or salary. Capitation is considered a risk-based compensation.

Risk-Based Reimbursement

Risk-Based Reimbursement

To understand the intricacies involved with physician reimbursement, particularly in an era of health care reform, identify and interview an expert in the field, such as:

Hospital Administrator
Managed Care Organization (MCO) executive
Health care consultant
Legal Professional
Assumption: MCOs use risk-based reimbursement for primary care physicians.

Ask the following questions in the interview:

What kind of risk do the MCOs assess?
Does risk-based compensation limit primary care physicians’ freedom regarding patient care? Why or why not?
How does the capitation model of reimbursement work? Do physicians generally prefer one model over the other? Why or why not?
Why do HMOs prefer the prepaid monthly premium?
Is pay-for-performance a better model than existing models of compensation? Are there limitations to it as well?
Feel free to add additional follow-up questions for depth and clarification as you see fit.

Create a 4- to 5-page report in a Microsoft Word document, analyzing the responses provided (which should be included as part of the report) using the evidence from the literature to help support or refute the responses provided.

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