What type of payment mechanism is cost-based payment associated with?

Cost-based payment is fundamentally linked to provider costs. This payment mechanism involves reimbursing healthcare providers for the actual costs incurred in delivering care to patients. The rationale is to compensate providers based on the expenses they incur, including labor, equipment, and other operational costs related to patient care. This approach is often used in various government programs and safety net institutions where the focus is on ensuring that providers can cover their expenses while delivering necessary services.

In this model, the payment amount is typically not predetermined or fixed. Instead, it may vary widely based on the specific costs incurred by providers, thus making it distinct from other payment models like fixed rates or percentage-based payments, where reimbursement is predetermined or contingent on a percentage of charges. Understanding this distinction helps to clarify why cost-based payment is specifically characterized by aligning compensation with providers' actual incurred costs.