Payment Structures in the Healthcare Industry


Preferred payment schemes in the healthcare industry are a matter of long and ongoing debate. Each of the three traditional reimbursement methods of health care providers is based on certain principles, having different benefits and drawbacks. However, these schemes also have similarity in some point that indicates their common weakness. As a result, there is a current tendency to modify or blend different payment models to achieve maximum efficiency in patient outcomes and the financial benefits of healthcare organizations. In this essay, three payment structures used in the healthcare industry will be described, compared, and contrasted.


The fee-for-service (FFS) payment system is based on the reimbursement for health care specialists considering the number of appointments, treatment procedures, and tests that patients undergo. This type is referred to as a “volume-based” system, as the number of performed services straightly results in an amount of payment a health care provider gets. Sometimes, this approach may lead to misalignment when doctors tend to prescribe unnecessary procedures to increase their payoff. This approach has considerable drawbacks, leading to lower quality while increasing the number of patients and performed activities. Moreover, as Erickson et al. (2020) argue, “beyond being wasteful, unnecessary services can harm the patient” (para. 3). At present, the requirement for modifying this payment scheme became obvious.


In capitation, health care providers get fixed payment per time period, not considering numbers of patients and provided services. Unlike the previous one, this reimbursement type does not lead to excessive treatment. However, in these circumstances, the incentives to underprovided services may appear (Zhang & Sweetman, 2018). In some cases, as argued by Miller et al. (2017), this type is more efficient than others. For example, a patient-centered medical home (PCMH) model requires integrated efforts of different specialists, and sometimes their interpersonal collaboration prevents strictly dividing their responsibilities. Thus, it may be challenging to attribute performed activities to particular specialists.

Bundled Payments

This payment scheme is also called episode-based payment, as patients pay for the individual procedures within their entire treatment plan. For example, payment may be provided for surgery, diagnostic procedures, etc. In this case, a health care provider gets reimbursed according to the expected (i.e., average) procedure cost. However, services of the same type may have different levels of complexity. Thus, it prevents fair reimbursement and causes health care providers’ preference of patients with less severe conditions over others.

Comparing and Contrasting the Schemes

Each payment type has its strengths and weaknesses and may be preferable in some cases. For example, in FFS, a patient could hardly be underserved, as it may happen in the capitation system. However, excessive treatment may also be harmful, in addition to being costly. Bundled payment is sometimes considered the fairest and the most cost-efficient method (Adida et al., 2017). However, there is a common problem that transverses all three of the identified payment structures. All these systems are not based on the exact value of provided services and, thus, need further improvement. The attempts to modify or blend different types have already been made, exploring the new ways of health care reimbursement.


In summary, there are three principal payment schemes in the healthcare industry: fee-for-service, capitation, and bundled payment. All of them have certain advantages and disadvantages and may be applied in different situations. However, they are not value-based systems, preventing fair reimbursement to health providers as well as cost-minimizing for patients. Several steps have been already done towards payment system improvement; further development would depend on the detailed analysis of the industry.


Adida, E., Mamani, H., & Nassiri, S. (2017). Bundled payment vs. fee-for-service: Impact of payment scheme on performance. Management Science, 63(5), 1606–1624. Web.

Erickson, S. M., Outland, B., Joy, S., Rockwern, B., Serchen, J., Mire, R. D., & Goldman, J. M. (2020). Envisioning a better U.S. healthcare system for all: Health care delivery and payment system reforms. Annals of Internal Medicine. Web.

Miller, B. F., Ross, K. M., Davis, M. M., Melek, S. P., Kathol, R., & Gordon, P. (2017). Payment reform in the patient-centered medical home: Enabling and sustaining integrated behavioral health care. American Psychologist, 72(1), 55–68. Web.

Zhang, X., & Sweetman, A. (2018). Blended capitation and incentives: Fee codes inside and outside the capitated basket. Journal of Health Economics, 60, 16–29. Web.

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"Payment Structures in the Healthcare Industry." NursingBird, 5 June 2022,


NursingBird. (2022) 'Payment Structures in the Healthcare Industry'. 5 June.


NursingBird. 2022. "Payment Structures in the Healthcare Industry." June 5, 2022.

1. NursingBird. "Payment Structures in the Healthcare Industry." June 5, 2022.


NursingBird. "Payment Structures in the Healthcare Industry." June 5, 2022.