Data Brief: Payment Arrangements in California’s Commercial and Medicare Advantage Markets
Introduction
The Healthcare Payments Data (HPD) Program provides a comprehensive picture of payment arrangements currently in use in California’s healthcare market. This analysis focuses on the commercial and Medicare Advantage markets and on three categories of medical services: inpatient facility, outpatient facility, and professional. The data for this view of California’s market is delivered in two forms for this brief. Data is provided as an overall view including all plans, and as a separate view omitting Kaiser Permanente’s (Kaiser) coverage. Kaiser, which accounted for approximately half of 2023 utilization in the commercial and Medicare Advantage markets in California, has a fully integrated delivery system that combines a health plan with hospitals and physician organizations and manages provider payments internally compared to the other participants in the market.
The findings are based on approximately 1.2 million inpatient facility claims, 15.7 million outpatient facility claims, and 336 million professional services in 2023; the analysis focuses on the share of claims and services, and not the share of payment amounts (in this Data Brief, claims and encounters are both referred to as “claims”). Kaiser’s large market share is reflected in the two tables below, which show that it represents 53% of facility claims and 45% of professional services in the combined commercial and Medicare Advantage markets in 2023. For additional information about HPD, including details on data sources, populations included, and data elements available, see HPD Public Reporting FAQ and HPD Resources.
Note: This analysis does not include Medicare FFS or Medi-Cal claims. See why these payer types were excluded.
Key Findings
The results of the analysis show that the form of payment arrangement used for the majority of medical services shifts notably depending on the market type in question. Despite industry-wide focus on value-based care and alternative payment arrangements, only a moderate share of professional and outpatient facility services in the commercial market are paid on the basis of capitation, and when Kaiser is excluded a large majority of services in the commercial market are paid under a fee-for-service (FFS) arrangement. Across the commercial market, capitation is rare for inpatient facility services. Capitation is used more extensively in the Medicare Advantage market, where the highest rates of capitation payment for professional and outpatient facility services are observed.
Note: In this analysis, “Other” payment arrangement includes Diagnosis Related Groups (DRGs), bundled payments, and pay for performance.
- In the commercial market, 54% of outpatient facility and professional services claims were paid through capitation, with FFS representing only 43-44% of claims. When Kaiser is excluded, however, FFS is the dominant payment arrangement for commercial outpatient and professional services. For facility services, 77% of claims (both inpatient and outpatient) are paid FFS and 15-17% are paid via capitation; for professional services, 69% of claims are paid FFS and 27% via capitation.
- In the commercial market, only 8% of inpatient facility claims were paid via capitation, with 51% paid via FFS and 40% paid using “other” payment arrangements. “Other” payment arrangements include Diagnosis Related Groups (DRGs), bundled payments, and pay for performance. The main driver of the 40% “other” is Kaiser’s classification of inpatient services as DRG.
- Compared to the commercial market, the Medicare Advantage market features more capitation and less FFS payment. More than three-quarters (79%) of claims for professional services and 68% of outpatient claims were paid via capitation, while FFS accounted for only 20-25% of claims paid.
- In the Medicare Advantage market, inpatient facility capitation remains much lower, at 21%, compared to 36% of claims paid via FFS and 42% using other payment arrangements. When Kaiser is excluded, the share of inpatient claims paid via capitation increases to 44%.
Visualization
Facility Claims and Professional Services, by Payment Arrangement, 2023 (All Plans)
| Commercial | Medicare Advantage | |||
|---|---|---|---|---|
| Number | Percent | Number | Percent | |
| Inpatient Facility Claims | 579,037 | 100% | 577,536 | 100% |
| Fee for Service | 298,070 | 51% | 210,330 | 36% |
| Capitation | 47,583 | 8% | 123,304 | 21% |
| Other | 233,384 | 40% | 243,902 | 42% |
| Outpatient Facility Claims | 10,421,830 | 100% | 5,294,909 | 100% |
| Fee for Service | 4,461,215 | 43% | 1,323,670 | 25% |
| Capitation | 5,648,135 | 54% | 3,584,317 | 68% |
| Other | 312,480 | 3% | 386,922 | 7% |
| Professional Services | 234,378,403 | 100% | 101,618,447 | 100% |
| Fee for Service | 103,804,052 | 44% | 20,637,765 | 20% |
| Capitation | 125,665,279 | 54% | 80,366,224 | 79% |
| Other | 4,909,072 | 2% | 614,458 | 1% |
*Due to rounding, percentages may not add precisely to 100%.
Facility Claims and Professional Services, by Payment Arrangement, 2023 (All Plans Excluding Kaiser)
| Commercial | Medicare Advantage | |||
|---|---|---|---|---|
| Number | Percent | Number | Percent | |
| Inpatient Facility Claims | 310,859 | 100% | 280,521 | 100% |
| Fee for Service | 238,478 | 77% | 123,009 | 44% |
| Capitation | 47,115 | 15% | 122,966 | 44% |
| Other | 25,266 | 8% | 34,546 | 12% |
| Outpatient Facility Claims | 5,241,665 | 100% | 2,179,942 | 100% |
| Fee for Service | 4,014,723 | 77% | 1,009,979 | 46% |
| Capitation | 914,462 | 17% | 783,041 | 36% |
| Other | 312,480 | 6% | 386,922 | 18% |
| Professional Services | 132,384,406 | 100% | 52,394,160 | 100% |
| Fee for Service | 91,957,146 | 69% | 16,053,355 | 31% |
| Capitation | 35,518,188 | 27% | 35,726,317 | 68% |
| Other | 4,909,072 | 4% | 614,488 | 1% |
*Due to rounding, percentages may not add precisely to 100%.
Notes
- This analysis focuses on three key medical service categories available in HPD: Inpatient Facility, Outpatient Facility, and Professional. The Professional category includes services provided by a healthcare professional in an inpatient setting, outpatient setting (hospital outpatient, ambulatory surgery center, or office), or long-term care setting (skilled nursing, intermediate care facility, or residential). A fourth service category, Other Services, is not included; its subcategories are Durable Medical Equipment, Home Health, Hospice, Pharmacy, and Unclassified/Other.
- The term “claims” refers to both claims (a request for payment) and encounters (a record of service utilization that is not a request for payment). Facility claims (both inpatient and outpatient) are reported at the summary (“header”) level, while professional claims are reported at the service (“line”) level.
How HCAI Created This Product
- This analysis uses the payment arrangement indicator (APCD-CDL data element CDLMC132) available on medical claims and encounters. Data submitters indicate the payment methodology associated with each claim or encounter using one of the eight types described in the APCD-CDL: capitation, fee-for-service, percent of charges, DRG (Diagnosis Related Group), pay-for-performance, global payment, other, and bundled payment. The APCD-CDL does not provide definitions for these payment arrangement types. For this analysis, the “Fee-for-service” category reported in the table and narrative includes two APCD-CDL payment arrangement types: fee-for-service and percent of charges. The “Capitation” category is comprised solely of the capitation APCD-CDL payment arrangement type. The “Other” category is comprised of all remaining APCD-CDL payment arrangement types: DRG, pay-for-performance, global payment, bundled payment, and other.
- This analysis focuses on the number (and share) of facility claims/encounters and professional services rather than payment amounts.
- This analysis focuses on commercial and Medicare Advantage plans. Other payer types included in HPD but not included in this analysis are Medicare FFS (Traditional Medicare) and Medi-Cal (both managed care and FFS). Medicare FFS is excluded because it is, by definition, all FFS. Medi-Cal is excluded because information about how Medi-Cal managed care plans pay providers in their networks (plan-to-provider payment arrangement) for each individual service its members receive is not available in HPD. For context, in 2023, HPD recorded roughly 4.3 million inpatient claims, 54.7 million outpatient claims, and 453 million lines of professional services that collectively represent both Medicare FFS and Medi-Cal.
This evaluation centers on commercial and Medicare Advantage health plans. Although the Healthcare Payments Database (HPD) also contains data on other payer categories—such as Medicare Fee-for-Service (FFS, or Traditional Medicare) and Medi-Cal (both managed care and FFS)—these are not addressed in this study. Medicare FFS is omitted since it exclusively utilizes fee-for-service payment methods. Medi-Cal is not included because HPD does not provide details on how Medi-Cal managed care plans reimburse providers for individual member services. For context, in 2023, HPD recorded roughly 4.3 million inpatient claims, 54.7 million outpatient claims, and 453 million lines of professional services that collectively represent both Medicare FFS and Medi-Cal.
- The commercial market primarily consists of fully insured lives; only a relatively small share of ERISA self-funded lives is included.
- Facility claims with multiple services lines that have mixed payment arrangements (e.g., the payment arrangement for some service lines is capitation and for others is fee-for-service) have been dropped from this analysis.
- Per the California Health and Human Services Agency’s data de-identification guidelines, any observations with fewer than 30 records were masked for the analysis.
Additional Information
Topic: Cost Transparency
Source Link: Cost Transparency – Healthcare Payments Database
Citation: HCAI – Healthcare Payments Database – Payment Arrangements in the Commercial and Medicare Advantage Markets in 2023 (version 2.0 updated on 03/17/2026)
Temporal Coverage: 2023
Spatial/Geographic Coverage: Statewide
Frequency: Annually