What Is Healthcare Reimbursement?

Healthcare expenses are reimbursed to the patient by the insurance company. Find out the details and see how that is done.

In the intricate world of healthcare, understanding the nuances of reimbursement is akin to deciphering a complex code. Healthcare reimbursement is a term that influences everyone, whether you’re a patient searching for medical care or a provider supplying those crucial offices. But what precisely is healthcare reimbursement, and why does it issue?

At its core, reimbursement simply means paying back. It’s the process by which the costs of medical services are covered, ensuring that healthcare providers are compensated for their invaluable work. This intricate dance of payments occurs through various channels involving insurance companies, government payers, and even out-of-pocket expenses.

In this enlightening guide, we’ll navigate the labyrinthine landscape of healthcare reimbursement, shedding light on its many facets. We’ll cover everything from reimbursement models that shape healthcare delivery and costs to innovative strategies for saving money on healthcare expenses.

Delve into the depths of fee-for-service models, bundled payments, and capitation, and discover how these reimbursement approaches impact patient care, costs, and how healthcare professionals are compensated. Gain insights into the importance of fee-for-service (FFS) in the healthcare industry and why it’s transforming value-based care.

Explore the diverse sources of reimbursement, from insurance and government payers to private insurance companies and health reimbursement arrangements (HRAs). Uncover the often-confusing terrain of co-pays, co-insurance, balance billing, and out-of-pocket expenses.

Discover how forward-thinking organizations like 6 Degrees Health are revolutionizing healthcare reimbursement, potentially reducing healthcare spending by up to 40%. But it doesn’t end here. Dive deep into common challenges medical providers face when dealing with insurance reimbursement, from reimbursement schedules to claims denials and post-payment audits.

What is Reimbursement?

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In the most basic definitions, reimbursement means paying back. If a person has paid on your behalf, you pay them back, which means you’re reimbursing the amount in full. In the world world, a policyholder’s insurance company pays on their behalf. When the policyholder goes through the entire medical treatment process, the bills are sent to the insurance company, which is produced in whole or half, depending on the coverage.

Types of reimbursement in healthcare

Explore the various healthcare reimbursement methods, focusing on fee-for-service, bundled payments, and capitation. Learn how each impacts patient care and costs. Healthcare reimbursement comes in several forms, with two prominent methods being traditional fee-for-service and value-based reimbursement. These reimbursement models significantly affect patient care, healthcare costs, and how medical professionals are compensated.

1. Fee-for-Service

Fee-for-service is the most prevalent insurance reimbursement method. In this model, healthcare providers receive payment for each service they render. The medical reimbursement rate determines the payment amount, which specifies the fee for each service provided. For instance, an office visit might have a medical reimbursement rate of $100.

The primary benefit of fee-for-service reimbursement is that it guarantees healthcare professionals are reimbursed for every service they give. However, it has its disadvantages. This model can incentivize unnecessary medical procedures and services, as providers are paid per service, irrespective of the service’s quality or outcome.

2. Bundled Payments

Bundled payments represent a more recent approach to healthcare reimbursement. Under this model, medical providers receive a lump sum for a bundle of services related to a specific episode of care. The lump sum is determined based on the expected cost of all services involved in that care episode.

Bundled payments encourage healthcare providers to collaborate and deliver efficient and effective care. This method is often used for procedures that entail multiple services, such as surgeries. The payment is contingent on the quality and efficiency of care provided.

The primary advantage of bundled payment reimbursement is its potential to promote high-quality care while controlling costs. However, determining the appropriate payment for bundled services can be challenging and may only sometimes cover the total cost of care.

3. Capitation

Capitation is another insurance reimbursement model that counterbalances medical suppliers with a fixed quantity per patient for a determined period, such as a month or a year. Within this period, the medical contributor accepts responsibility for delivering all necessary care to the patient. Capitation aims to encourage preventative care and maintain patient health to reduce the need for costly processes.

Capitation reimbursement is usually used in directed care plans like Health Maintenance Organizations (HMOs). It makes healthcare providers focus on preventative care to avoid expensive medical intrusions. The primary advantage of capitation compensation is its cost-saving potential in the long run. 

However, balancing high-quality care within budget constraints can be challenging, and specialized medical services may need to receive adequate compensation. These reimbursement models are crucial in shaping healthcare delivery and costs. Fee-for-service emphasizes quantity, bundled payments aim for quality and efficiency, while capitation encourages preventive care and cost containment. 

Understanding these models helps patients, providers, and policymakers make informed healthcare financing and delivery decisions.

What is fee-for-service (FFS)?

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Fee-for-Service (FFS) is a reimbursement model usually used in healthcare, especially in the United States. In this model, healthcare services are unbundled and billed independently for each treatment or procedure. Doctors and healthcare providers receive payment based on the number of services they deliver. FFS differs from alternative reimbursement models such as packaged payments, patient-centered medical homes, and responsible care organizations, which focus on different advances to offset healthcare providers.

Why is Fee-for-Service (FFS) Important in Healthcare?

Fee-for-service (FFS) holds significance in the healthcare industry due to its widespread use in the United States. It has been the dominant reimbursement model for many years. However, its importance has evolved in the context of changing healthcare dynamics.

While FFS encourages a higher volume of treatments, it has faced criticism for potentially prioritizing profit over individual patient needs. In some cases, the sheer volume of services provided under FFS can lead to overutilization of medical services, raising concerns about unnecessary treatments.

The healthcare industry is now actively encouraged to shift away from traditional FFS and value-based care models. This transition aims to achieve several critical goals:

  • Cost reduction: Value-based care models intend to reduce healthcare spending by promoting efficient and effective care delivery.
  • Improved quality: By emphasizing the quality and outcomes of care, value-based models seek to enhance the overall patient experience and health outcomes.
  • Patient-centered care: Value-based care puts patients at the center, tailoring treatments to individual needs and preferences, ensuring a more personalized approach to healthcare.

Fee-for-service (FFS) has played a historically significant role in healthcare reimbursement. Still, its importance is shifting as the industry moves towards value-based care models prioritizing cost-efficiency, quality, and patient-centric healthcare delivery.

Sources of reimbursement in healthcare

In healthcare, providers receive payment for their services through various reimbursement methods. Here, we shed light on the different sources of reimbursement that ensure healthcare costs are covered:

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  • Insurance and government payers: Healthcare providers bill insurance companies or government payers for their services. Once you’ve received medical care, your provider sends a bill to the entity responsible for covering your medical expenses. The billed amount is based on the specific service provided and the pre-negotiated payment rate established between Medicare, your health insurer, or Medicaid for that service. You can reference the Common Procedural Technology (CPT) code to gauge how much Medicare reimburses for a procedure.
  • Private insurance: Private insurance companies negotiate with healthcare providers and hospitals to establish reimbursement rates. Some healthcare facilities may decline patients if their insurance fails to provide sufficient reimbursement, except in emergencies.
  • Co-pay and co-insurance: Your health insurance policy may stipulate that you contribute a copay or coinsurance amount for certain medical services. This amount is typically detailed in your insurance coverage contract.
  • Balance billing: In scenarios where your healthcare provider accepts your insurance, they have already agreed to the reimbursement rate set by your payer. Balance billing, which implies billing you a further amount beyond your co-pay and co-insurance without prior notification, is usually considered unlawful.
  • Out-of-pocket expenses: Even with insurance, you might be accountable for costs related to processes or services not covered by your plan. These expenses are divided from balance billing and are your duty.
  • Out-of-network costs: Opting for services outside your insurance network may lead to further charges, especially when in-network options are available. In such cases, your provider may bill you extra, which your insurer might not cover.
  • Concierge care: Engaging in concierge care, where you contract directly with a healthcare provider or practice for personalized services, often incurs substantial costs that may not be covered by standard health insurance.
  • Self-payment: When you cover your healthcare costs out-of-pocket, your provider should provide service cost information. However, unforeseen expenses may arise in unexpected allergic reactions during diagnostic tests.
  • Health Reimbursement Arrangement (HRA): HRAs are employee health benefits some U.S. employers offer. These arrangements reimburse employees for their out-of-pocket medical expenses. Typically, HRAs are part of a group health insurance plan funded by the employer. The advantage of an HRA is that it can reimburse you for healthcare expenses before you meet your plan’s deductible, providing financial relief.

Healthcare reimbursement comes from various sources, including insurance, government payers, out-of-pocket payments, and specialized arrangements like HRAs. Understanding these sources is essential for navigating the complex world of healthcare financing.

Healthcare Reimbursement Models

Now that we’re clear on healthcare reimbursement and how it works, let’s understand how it helps policyholders and the models and most current plans.

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The most common types of hospital reimbursement methods are as follows:

  • Fee-for-service: This is one of the most prevalent healthcare reimbursement models, where the hospital provides bills to the patient that they have to pay. Since the insurance company later reimburses these, it could create redundancy and corruption in the system by ordering unnecessary tests, etc. Whatever the doctor prescribes, treatment or medicines are added to the bills, and this system is quantity-based.
  • Value-based care: This healthcare billing model focuses on the quality of the service rather than the quantity. Even though not so popular today, this model is still a better way of eliminating corruption in the health system and focuses solely on the quality of healthcare services the hospital provides.
  • Bundled payments: This model is generally known as a midway between fee-for-service and value-based care systems. In this model, the bundled payments are combined into one sum of healthcare, and then when the bill is paid, the amount is divided into small bundles of healthcare provided to the patient. This reimbursement process focuses on not only accountability but also the quality that is offered to patients.
  • Pathways model: This allows patients to choose one treatment plan over the other based on the price. Mostly common in the oncology area, the pathways model agrees that if two or more treatments produce the same result, it shall give the cheapest option to the patient. This model encourages patients and healthcare providers to collaborate for absolute transparency in all processes.
  • Health maintenance organizations(HMO): The HMO is a group of health insurance providers who have made an organization of their own. The most significant advantage of using HMO as a reimbursement model is the availability of incentives and low-cost health plans. Mainly, in this plan, the patient has to pay some money on their own, and the insurance company funds the other part.

Ways to save money on healthcare reimbursement

Understanding healthcare reimbursement is just the beginning. To further alleviate the financial strain of healthcare expenses, explore these effective money-saving strategies that promote billing transparency and quality care while cutting costs:

  • Clean claim reviews: Beyond typical claim reviews, clean claim reviews delve into each line item of your medical bills, meticulously identifying and rectifying billing errors that might go unnoticed. With astonishingly high error rates of up to 80% in medical bills, this process can result in substantial savings while offering you a clearer picture of the billing intricacies.
  • Reference-based pricing: Reference-based pricing is a data-driven approach designed to reduce costs for patients and employers when paying healthcare providers. By comparing provider-reported service costs with Medicare’s reimbursement rates for the same services, this model establishes a baseline for fair reimbursement negotiations. With this knowledge, you can effectively negotiate lower healthcare payments, ensuring you get value for your healthcare dollars.

These strategies empower you to navigate the complex healthcare reimbursement landscape, reduce expenses, and promote transparency in medical billing, ultimately putting you in control of your healthcare spending.

How 6 degrees of health can lower your healthcare spending?

At 6 Degrees Health, we’ve assembled a team of industry experts committed to revolutionizing your healthcare experience. Our mission is simple yet powerful: to introduce transparency and equity into healthcare reimbursement, resulting in significant savings for you. Through innovative cost-reduction techniques, including reference-based pricing and thorough clean claim reviews, all powered by our cutting-edge MediVI software, we’re poised to deliver solutions that can slash your healthcare expenditure by up to 40%

Common insurance reimbursement challenges

Despite the significance of insurance reimbursement, medical providers need help with insurance reimbursements, comprising reimbursement schedules, denials/appeals, billing codes, postpaid audits, and services that need to be covered. Insurance companies often have different reimbursement plans, making it difficult for medical suppliers to predict when they will obtain payment. Insurance companies sometimes deny claims, demand medical providers to submit appeals and fight for reimbursement. 

An examination of Sermo physicians reports denials/appeals as the most significant challenge at 34%, followed by 26% signifying reimbursement schedules. Occasionally, incorrect or outdated billing codes can result in denied claims or delayed payments. Insurance companies may perform post-payment audits to review claims for accuracy, which can lead to delayed or reduced costs. Sometimes, insurance companies may not cover certain services, leaving medical providers without reimbursement.


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What is healthcare reimbursement, and why is it important?

Healthcare reimbursement is repaying healthcare providers for the medical services they offer. It matters because it determines how healthcare costs are covered, impacting patients and providers.

How does healthcare reimbursement work?

Healthcare reimbursement involves various methods, including fee-for-service, bundled payments, and capitation. Providers bill insurance or government payers based on pre-negotiated rates or patient-specific factors.

What is fee-for-service reimbursement?

Fee-for-service is a standard reimbursement model where providers are paid per service rendered. It can lead to overutilization of services but ensures providers get paid for each service.

What are bundled payments in healthcare reimbursement?

Bundled payments involve a lump sum for related services within a care episode. Providers collaborate to deliver efficient, high-quality care within this model.

What is capitation reimbursement?

Capitation reimburses providers a fixed amount per patient for a set period, promoting preventive care and cost containment, often used in managed care plans.

How can I save money on healthcare reimbursement?

Consider clean claim reviews to identify billing errors and reference-based pricing to negotiate fair reimbursements, helping you save on healthcare expenses.

How can 6 Degrees Health help lower healthcare spending?

6 Degrees Health utilizes innovative approaches like reference-based pricing and clean claim reviews, potentially reducing your healthcare expenditure by up to 40%.

What are the common challenges in insurance reimbursement?

Challenges include varying reimbursement schedules, claim denials, billing code errors, post-payment audits, and services that insurance may not cover.

What is the role of insurance in healthcare reimbursement?

Insurance plays a significant role by covering medical costs and negotiating reimbursement rates with healthcare providers, affecting how much patients need to pay.

Why is understanding healthcare reimbursement necessary for patients?

Patients benefit from understanding reimbursement to make informed decisions, avoid unexpected costs, and receive quality care while managing expenses.


In the complicated world of healthcare reimbursement, sympathy for the complexities of how medical bills are settled is essential. It’s not merely about bills being paid; it’s about who pays, when, and how much. We’ve considered the diverse healthcare reimbursement view, from the traditional fee-for-service model, which rewards amount, to value-based care and bundled payments, where quality and capability take center stage.

We’ve examined the sources of reimbursement, peeling light on how insurance, government payers, co-pays, and out-of-pocket expenses play significant roles in the process. It’s essential to be conscious of balance billing and out-of-network costs, as these can catch patients off guard. Transparency is critical to avoiding unforeseen expenses for those opting for concierge care or self-payment.

But knowledge is power, and understanding healthcare reimbursement is just the beginning. We’ve also explored ways to save money on healthcare reimbursement. Clean claim reviews and reference-based pricing are potent tools in your arsenal to cut through the complexity of medical billing, potentially saving you substantial sums while offering clarity.

And for those seeking expert assistance navigating this maze, 6 Degrees Health stands ready to transform your healthcare experience. With a team of industry experts and cutting-edge technology, we’re committed to introducing transparency and equity into healthcare reimbursement, potentially lowering your healthcare spending by up to 40%.

However, it has its challenges. Reimbursement schedules, denials, billing codes, post-payment audits, and uncovered services all present hurdles for medical providers. These challenges underscore the importance of a robust understanding of healthcare reimbursement for professionals and patients.

Sandra Johnson

Sandra Johnson

Sandra Johnson was a few years out of school and took a job as a life insurance agent in California, selling coverage door-to-door for Prudential. The experience taught her about the technical components of insurance and its benefits for individuals and society, as well as the misunderstandings people often have about insurance. She has over ten years’ experience in the insurance industry, having worked as both a Broker and Underwriter, assisting clients across a broad range of industries. At Insurance Noon, Sarah diligently gathers all the required information and curates up pieces to provide meaningful insurance solutions. Her personal value proposition is to demonstrate a genuine interest in always adding value for clients.Her determined approach to guiding clients has turned her into a platinum adviser to multiple insurers.