Caitlin Clement|12/14/2023|4 min read

Understanding the Per Member Per Month (PMPM) Model

A brief overview of PMPM, its many benefits and tips for successful implementation

provider reviewing billing information for services rendered

Let's dive into something that's been buzzing around lately: Per Member Per Month (PMPM) billing. No jargon, just straight talk. We're here to break down what it is, why it matters, proven implementation strategies and how to use it to navigate the financial waters in healthcare. 

Overview of PMPM Billing

If you’re here, it’s likely you already have an idea or base level understanding of what PMPM is, so we’ll keep this short. PMPM is a financial model where a fixed amount is allocated per enrolled member each month, encompassing the total cost of care. This method offers a structured approach to financial management, focusing on predictability and stability.

Imagine PMPM as a compass guiding financial decisions. It involves monitoring membership counts, calculating monthly costs and accommodating variations in PMPM rates. The objective is to create a reliable and consistent financial foundation that rewards better health outcomes. 

Advantages of PMPM billing

Predictability of revenue streams is a key advantage of PMPM. By allocating costs on a monthly basis, healthcare organizations can forecast and plan effectively, mitigating financial uncertainties. This model also encourages cost-effective care delivery without compromising quality, fostering efficiency.

Financial stability and risk mitigation are additional benefits. Allocating costs monthly allows organizations to navigate unexpected financial challenges with greater resilience. Adopting PMPM incentivizes strategic financial planning and investments for improved patient outcomes.

Challenges to PMPM billing

Healthcare has been stagnant to innovation for decades due to legacy technology and outdated processes—all intricately sewn into the very fabric of the industry. It won’t transform in a day and the reality is you’ll probably face some challenges along the way. But healthcare leaders agree it's a change that needs to happen, for everyone's benefit. Here are some challenges you might encounter transition to PMPM:

  • Accurate membership counting: Transitioning to PMPM requires precise membership counting. Legacy systems may not be adept at capturing real-time data, leading to inaccuracies.

  • Variability in healthcare costs: Predicting and managing the variability in healthcare costs can be challenging. Unexpected fluctuations in patient needs and resource utilization may strain budgets.

  • Provider contract management: Establishing and managing contracts with healthcare providers becomes crucial. Ensuring that the agreements align with PMPM goals can be a complex task.

  • Staff resistance and training: Resistance from staff accustomed to traditional billing models is not uncommon. Adequate training and change management strategies are essential to overcome this challenge.

Consider challenges as peaks to conquer in the journey toward financial stability. Overcoming hurdles, such as outdated systems in membership counting, requires an investment in updated health information technology for streamlined operations.

Implementation strategies

Implementing PMPM requires a strategic approach and, just being honest here, money. Updating technology and building training programs are going to require some investment, but they are integral to a success implementation and transition. Here are some tips you might find helpful:

  • Invest in new technology: Ensure that your data tracking and management systems are equipped to handle the intricacies of PMPM. Robust technology streamlines processes and enhances accuracy. Take a look at our previous article, Is Your EHR Platform Working for You? to determine if you’ve outgrown your technology.

  • Collaborate actively with providers: Engage in open and transparent communication with healthcare providers. Collaborative efforts are essential for aligning goals and expectations.

  • Establish clear communication channels: A clear and concise communication strategy is crucial. Ensure that all stakeholders, from executives to frontline staff, understand the nuances of PMPM and their roles in its successful implementation.

  • Provide comprehensive training: Invest in training programs to educate staff on the new billing model. A well-informed team is better equipped to navigate the transition smoothly. 

You’re likely to experience some growing pains, but think of PMPM implementation as building a bridge. Each component, from technology to communication, contributes to a sturdy and reliable structure. Success stories underscore the importance of these elements in facilitating a smoother journey for patients and providers.

Monitoring and evaluation

You’ve weighed the pros and cons, implemented the new model, and now it’s time to tweak and/or repeat. Monitoring and evaluation are pivotal components of successful PMPM implementation. Here are some key performance indicators (KPIs) health leaders should consider:

  • Cost Per Member Per Month (PMPM): Might be a no-brainer at this point, but track the actual costs against the allocated PMPM. Deviations can indicate inefficiencies or areas for improvement.

  • Health outcomes: Monitor improvements in health outcomes, such as reduced hospital readmissions or improved patient satisfaction. Positive trends signify the effectiveness of PMPM in enhancing care delivery.

  • Provider engagement: Evaluate the engagement and satisfaction levels of healthcare providers. A collaborative and motivated provider network is crucial for the success of PMPM.

  • Financial performance: Assess overall financial performance, including revenue growth and cost savings. PMPM should contribute to the organization's financial stability and growth.

Proactively identifying areas of improvement not only maintains financial stability but also consistently enhances the quality of care provided.

Why PMPM is better for patient, providers and payer

According to Blue Cross Blue Shield there are a few ways Alternative Payment Models (APMs), like PMPM, can generate positive ROI and impact.

Providers can maintain or increase margins while reducing revenue and FFS charges

According to their case study, in traditional FFS models, providers can only increase margin by performing more health services. This then disincentivizes better care outcomes, making patients pay more out of pocket for unnecessary services.  However, with a well constructed VBP, providers can earn enough non-FFS revenue that it adds directly to operating margin due to no variable costs. Essentially, it offers providers financial visibility without pressuring them to attract unnecessary business and drive up costs. 

VBPs drive better quality of care for patients and members

When receiving value-based payments, providers are given the funds they need to restructure their care models. This can include investing in better care coordination, launching a virtual care arm or constructing lower-cost sites. As the cost transparency grows, so does the provider's interest in transitioning to this type of model. All of this then allows your providers to focus on patient needs instead of improving margins.

Members benefit from more affordable healthcare

Members also benefit from a PMPM model by making member healthcare more affordable and accessible. VBP models like PMPM support innovative healthcare solutions like virtual care, additional care coordination and other services to help achieve better outcomes at a lower billing volume. Members no longer have to be stuck in the middle for care authorization. Instead, it makes getting care easier.

Powering patient-centered care

Transition from what’s historically been done is going to take bold leaders and innovative solutions. Providers and payers alike agree that a switch to more ABP models is the next step in better care and lower costs. However, only a small percentage of healthcare dollars are impacted by them. Healthcare players must be willing to challenge the status quo and shift from the way we bill care from responsive treatment to preventative.

At OpenLoop, we’re committed to helping our clients breakthrough the traditional healthcare model. We are the go-to infrastructure built to support and scale your digital health services while pioneering value-based payment models like PMPM. Tap into our clinician network of over 6000+ NCQA-certified providers, HIPAA-compliant EHR platform, state-by-state regulatory and legal support specific to telehealth and more!

Interested in how you can get started? Get in touch here!

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