Data Brief: Payment Arrangements in California’s Commercial and Medicare Advantage Markets in 2023
The Healthcare Payments Data System provides a comprehensive picture of payment arrangements currently in use in California’s market. This analysis focuses on the commercial and Medicare Advantage markets and on three categories of services: inpatient facility, outpatient facility, and professional. The results show that both fee-for-service (FFS) and capitation are common forms of payment arrangement in California’s market. FFS is the most prevalent form of payment in the commercial market— by far —with capitation as a distant second. In the Medicare Advantage market, capitation plays a much larger role; it is the most common payment arrangement for professional services, and just as likely to be used as FFS for inpatient facility claims. (In this Data Brief, claims and encounters are both referred to as “claims”.)
The findings are based on approximately 600,000 inpatient facility claims, 7.4 million outpatient facility claims, and 185 million professional services in 2023; the analysis focuses on the share of claims and services (not the share of payment amounts). Kaiser Permanente is excluded from the analysis because of its distinctive structure as a fully integrated delivery system that combines a health plan with hospitals and physician organizations and manages provider payments internally. Kaiser Permanente’s large market share would substantially misrepresent payment arrangements in the rest of the market: in the 2023 data, Kaiser Permanente accounted for 53% of facility claims and 45% of professional services in the commercial and Medicare Advantage markets combined. 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
- Inpatient facility claims: In the commercial market, FFS is the dominant payment arrangement, used for 77% of claims; capitation is relatively rare, at 15% of claims. By contrast, FFS and capitation are equally prevalent in the Medicare Advantage market, with 44% of claims paid using each payment arrangement. Other forms of payment – including Diagnosis Related Group (DRG), bundled payment, and pay for performance – are used for about 8% of commercial and 12% of Medicare Advantage claims.
- Outpatient facility claims: Commercial payments for outpatient facilities are largely FFS, used 4.5 times more often than capitation (77% vs 17%). FFS is the most prevent payment arrangement in Medicare Advantage, but by a much narrower margin (46% vs. 36%).
- Professional services: Capitation is most prevalent in the Medicare Advantage market for professional services: two-thirds of claims are paid via capitation compared to one-third on a FFS basis. The reverse is true in the commercial market: two-thirds FFS and one-third capitation.
Visualization
Facility Claims and Professional Services, by Payment Arrangement, 2023
| 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% |
Notes
- This analysis focuses on three key 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, office), or long-term care setting (skilled nursing, intermediate care facility, and 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.
- The commercial market primarily consists of fully insured lives; only a relatively small share of ERISA self-funded lives are 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 California Health and Human Services Agency 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 California’s Commercial and Medicare Advantage Markets in 2023
Temporal Coverage: 2023
Spatial/Geographic Coverage: Statewide
Frequency: Annually