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"The principles of Jefferson are the axiom of a free society"

Abraham Lincoln

A Nonpartisan Economic, Health and Public Policy Research Foundation

Prospective Payments
By John A. Lanzalotti, MD
Copyright 2011

To date, there are three current prospective payment systems. They are “capitation”, a variation on capitation called “global payments”, and “bundled payments”.  Capitation is unsatisfactory for several reasons.  It pays under market value, and is based only on the number patients contracted to a particular insurance payer.  It does not give the provider an appropriate amount of money to pay for all anticipated expenses arising from an insurable event that requires a particular episode of care.  Capitation does not take into consideration the severity of a particular patient’s illness or the appropriateness of their care. Global payments are similar to earlier capitation plans but allow different payment amounts based on patient populations’ needs or health levels. It is not patient specific and it requires quality measurements for payment. This requires a lot of data reporting, time that could be better used to provide patient care and wastes resources. Bundled payments involve paying a hospital or healthcare organization for a patient’s episode of care. The payment is absolute and has to be divided among all providers. This is still third party payment paid directly to the hospital and although it has a good incentive for providers to coordinate care it puts the patient at risk because providers might shun very sick patients as too expensive to treat, access to specialists could be limited and the patient has no incentive since he is not paying for service directly. All existing forms of prospective payment are expensive, lack the proper incentives with checks and balances and none of them will reduce costs.

Table Showing Current Prospective Payments
And Table Showing Comparison of Existing Prospective Payments
with the New Patient Specific Prospective Payment


Pays under market value

Not patient specific

Pays the physician based on how many patients he will be responsible  for

Won’t adequately cover patient’s medical needs

Global Payment

Pays under market value

Not patient specific

Pays the physician different amounts based patient population needs

Won’t adequately cover patient’s medical needs

Bundled Payment

Pays under market value

Not patient specific

Pays the hospital only to divide among all providers

Puts the patient at risk


Pays full, Fair Market Value to Providers

Patient Specific

The Patient pays all providers directly

Covers the Entire Appropriate Episode of Care