For generations, health care services in the United States have been paid for (or “reimbursed”) based upon the so-called fee-for-service model. A hospital or physician develops a set of charges for their medical services. Health insurers also establish what they will pay health care providers, (e.g., 80 percent of what is charged) and what they will require their insureds to pay as deductibles and/or co-payments. Managed care plans such as health maintenance organizations contract with providers to be in their network and to accept negotiated payments as opposed to the providers’ charges; the plans then offer to minimize or eliminate deductibles and co-payments to their members if the members obtain their health care services from their network providers.
The fee-for-service model has long been criticized for creating economic incentives for hospitals, physicians and other providers to maximize high-profit and expensive treatments and procedures, rather than focusing on meeting the patient’s actual medical needs and paying for satisfactory patient outcomes. It is also regarded as one of the reasons for the dramatic rise in health care spending that has taken place over decades. Health care now accounts for approximately 17-18 percent of the gross domestic product, and it is estimated to grow to 20 percent in the coming years, the highest by far among industrialized nations.
