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Following completion of this chapter, the reader will be able to:

  • Define and differentiate fee for service, per-diem, per-episode, and capitation payment mechanisms.

  • Define value-based payment.

  • Analyze alternative payment models and rationale for their development.

  • Describe the Improving Medicare Post-Acute Care Transformation (Impact) Act of 2014.

  • List the reporting requirements required by the Impact Act of 2014 for physical therapy providers in post-acute care settings.

  • Describe the self-care and mobility items that must be rated on patient assessment instruments across post-acute care settings.

  • Explain documentation needs for new models of payment.


Payment for healthcare is rapidly evolving, with healthcare providers and the insured being asked to share more financial risk in the delivery of care. Traditional models of payment that provide incentives for providers to deliver a higher quantity of service are being replaced by payment models that provide incentives for providers to deliver higher-quality service that is effective and efficient. As these payment models evolve, documentation to demonstrate the delivery of a higher quality of care will be required. This chapter will define the different models of traditional payment schemes, describe alternative payment models and value-based payment, and discuss documentation changes necessary to demonstrate compliance with requirements of new payment models.

Fee-for-Service Payment (Pay for Quantity)

Payment for physical therapy has traditionally been based on the volume of service delivery. The amount of payment a therapist receives for each treatment session is based on the procedures billed indicated by Current Procedural Terminology (CPT) codes, Healthcare Common Procedure Coding System (HCPCS) codes (Medicare), and the number of units billed for each procedure. The monetary value for each procedure is established in a complex process called the Resource-Based Relative Value Scale (RBRVS) that considers multiple factors, including work value, practice expense and malpractice, and a conversion factor in determining the value for each procedure. This system provides financial incentives to providers who perform the most expensive procedures and bill for the highest quantity of units. No consideration is given to the medical value of the service provided or to minimizing the time spent with patients. Furthermore, there is no financial incentive to pushing a patient to achieve his or her goals in fewer sessions. Variations of the fee-for-service (FFS) payment methodology have evolved over time as payers sought to limit their financial risk by placing additional financial risk with the providers.

Per diem Providers receive one lump sum for each episode, regardless of severity.

Per episode of care This is similar to per diem, but accounts for severity and complexity. This payment covers the entire episode of care, regardless of the duration.

Capitation Entire networks of providers pool their resources and receive fixed monthly payments for each enrolled patient.

Cash based The physical therapist accepts payment directly from the ...

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