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5 payer contracting terms you need to know

Payer contracting can be a complex and challenging process for healthcare organizations. Here are some key terms and concepts related to the process that you should be familiar with:


A payment model in which healthcare providers receive a fixed payment per patient per month or year, regardless of the amount of care the patient receives. Capitation is often used in managed care organizations to incentivize providers to keep patients healthy and reduce unnecessary care.

Example: A primary care physician receives a monthly capitation payment of $50 per patient from a health plan. If the physician has 100 patients in the plan, they would receive $5,000 per month.


A payment model in which healthcare providers receive payment for each service or treatment they provide to a patient. Fee-for-service is the traditional payment model in healthcare and is still used by many insurance plans.

Example: A hospital bills a health plan $1,000 for a surgery performed on a patient. The health plan pays the hospital $800, and the patient is responsible for the remaining $200 as a copay or deductible.

Value-based reimbursement

A payment model in which healthcare providers are rewarded for achieving specific quality or performance metrics, such as reducing hospital readmissions or improving patient outcomes. Value-based reimbursement is becoming more common as healthcare moves towards a focus on value and outcomes rather than volume of care.

Example: A health plan offers a bonus payment to a primary care physician who achieves a certain percentage of patients with controlled blood pressure or diabetes management.

Network adequacy

The sufficiency of a health plan's provider network to meet the needs of its members. Network adequacy is often regulated by state and federal agencies to ensure that patients have access to the care they need.

Example: A health plan is required by state law to have at least one primary care physician within a certain distance of each member's home.


The process of verifying a healthcare provider's qualifications and eligibility to participate in a health plan's provider network. Credentialing includes verifying licensure, education, training, and other qualifications.

Example: A health plan verifies a physician's medical license, board certification, and malpractice history before allowing them to join its provider network.

Successful organizations use Medallion

For comprehensive information on this topic, read: What is payer contracting?

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