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New payment methods are overtaking the fee-for-service model traditionally used in the urgent care industry. In fact, some major payors no longer offer fee-for-service contracts for urgent care centers. Do you understand what the current reimbursement models are and how they might impact your urgent care center?

Fee-for-Service Payment Method

Fee-for-service was introduced in the 1980s in an effort to control health care costs and as a way to standardize the way hospitals and physicians billed payors for individual units of care, such as lab tests, supplies or medical services. In this model, providers bill a CPT code for every health care service they provide, and it’s still the primary reimbursement model used in the U.S. today.

For years, the fee-for-service payment method has been lauded as the most equitable reimbursement option in the health care industry. Clinicians provide a service, they bill a code for that service, and then they get reimbursed for that service. And unlike case rate and capitation, tracking utilization is built right into the fee-for-service model through the CPT codes providers already have to use.

But the fee-for-service method is not without its flaws. For starters, the method used to calculate fee-for-service reimbursement rates isn’t actually equivalent to the cost of providing care; the rates are estimates that constantly change. And because this method focuses on individual procedures and services, there’s no care coordination, so providers are not treating medical conditions over the entire care cycle.

Major criticism for this method is that providers are directly incentivized to provide more care than may be medically necessary. Any complications or bounce-backs that result aren’t penalized, they just require additional services for which the provider gets reimbursed – or rewarded.

Urgent Care Case Rates/Bundled Payments

Case rate also dates back to the 1980s and, like fee-for-service, was introduced primarily as a cost-control measure. In 2016, “bundled” per case payments were introduced into Medicare for specific medical conditions, but in the urgent care industry, “case rate” is “bundled payments.” In short, this type of reimbursement method is a flat rate paid per visit (per case). Most urgent care centers see on average a case rate of about $120 per visit.

Case rate covers the cost of all the care required to treat a patient’s specific medical condition across the entire care cycle. Payments are adjusted for risk, so providers are rewarded for taking on difficult cases and for creating better efficiencies and for finding better ways to standardize care. On the other hand, because providers are taking on that risk, if they are ineffective or provide unnecessary services, they take on that unnecessary cost.

The downside to case rate in the urgent care industry is that it causes a degradation in the acuity of care. Providers are getting paid the same rate regardless of the acuity of the case, so if they get too many cases in which the cost of providing care is higher than the rate they’re getting paid, they’ll go out of business. Conversely, a provider can treat more retail clinic- and telemedicine-level services in one day than full-level urgent care services but still get paid the full case rate amount, so it would make more sense to seek out lower acuity cases. However, if providers do choose to maximize profitability by treating a lower acuity of patients than average, over time they will that case rate drop.

The result? This payment method incentivizes urgent care providers to provide less care because providing more care could be financially detrimental. Or, quite honestly, providing less care could be quite lucrative.

Capitation Payment Method

Capitation brings reimbursement to the individual level by paying the provider a fixed rate monthly or annually per patient, though typically this is per member per month. This payment method was introduced in the 1990s and is still used today as a population-based form of payment. Capitation is typically used in accountable care organizations (ACOs) and integrated health systems, which focus on managing the health of specific populations, such as a business’ employees and their dependents.

Because capitation covers all health care services over a defined period of time, providers are held accountable for the cost of providing care. Unlike the fee-for-service model, providers must coordinate care and ensure patients get only the care they need at the time they need it to keep costs down. This is a level of accountability and waste reduction that just didn’t seem possible in the past.

Capitation seems like a great alternative to the fee-for-service method, but this coordination of care has actually resulted in a “gate-keeping” of sorts, with ACOs and integrated health systems dictating what providers patients can see regardless of what’s best for the patient, all in the name of cost-savings. Urgent care centers in particular have found themselves completely shut out of these networks, losing access to large swaths of patients with no method of recourse.

Ultimately, capitation serves as fee-for-service’s foil by incentivizing providers to withhold care in order to keep costs down.

What’s the Solution?

The health care industry has yet to find the perfect solution, of course, but for those in the urgent care industry, arming yourself with knowledge is your best weapon. Understand how each payment method works and how each one might impact you and your business. Watch for potential updates in the industry and, if in doubt, consult with an urgent care billing company that has the experience needed to save you from any expensive pitfalls.


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This resource was first published prior to the 2019 merger between DocuTAP and Practice Velocity. The content reflects our legacy brands.

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