Welcome to unit five of introduction to healthcare and public health in the US, financing healthcare part two. In section 5B, we will be discussing reimbursement methodology is and managed care.
In this section unit 5B, we will review reimbursement or payment for services to healthcare organizations and examine the two reimbursement methodologies fee-for-service and episode-of-care. We will then examine managed care techniques and managed care organizations and their reimbursement methods. Finally will briefly look at consumer driven healthcare.
As with other business entities, healthcare organizations must receive income to pay expenses. Managing expenses in healthcare organizations is similar to any other business. But, healthcare is unique in the way in which it receives payment. Features making health care organizations different include first, a third party makes the majority of payments to someone other than patient for services provided. Second, the amount paid or reimbursed by an insurance plan depends on the codes submitted with the claim and a formula determined by the payer. This formula for payment frequently not transparent.
Third, payment amounts for identical services may vary within a payer and from payer to payer. Lastly, healthcare organizations depend on payment from the government for approximately half of all healthcare expenses in the US.
Reimbursement is the term used to describe payment by third-party payers to healthcare organizations for services already provided.
A claim is the healthcare organizations itemized statement and formal request for payment from the third-party payer for the medical services provided to the patient or insured.
Third-party payers reimburse claims based upon one of two methodologies: fee-for-service or episode of care both of which describe a unit of payment. Fee-for-service refers to separate payments made for each individual service provided, whereas episode of care refers to one payment for all care provided during an illness or time frame.
For example, a patient with the cough and fever is examined and treated at an urgent care center. The urgent care center provides three services for this patient: the doctor’s professional fees, an x-ray, and an blood test. With fee-for-service reimbursement, the provider receives payment for the three services individually, a fee for the doctor’s services, another fee for the x-ray, and another fee for the blood test. Under episode of care payment, the urgent care center would receive a preset amount whether one, two, or all three of the services are provided.
There are two types of fee-for-service payments - traditional retrospective and self-pay, and three types of episode of care payments - capitation, prospective payment, and global payment.
Managed care when referring to reimbursement methodology, is a method of payment that may involve either fee-for-service and/or episode-of-care.
Traditional retrospective fee-for-service payments refers to the payment by third-party payer usually under a commercial or indemnity plan after services have been provided. Payments are based upon the fee schedule developed from historical claim data. A fee schedule is a list of allowable services and procedures, and the amounts payable for each. Some medical services are not allowable and payable, for example cosmetic plastic surgery. Traditional retrospective payments are based on the average of the usual, customary, and reasonable charges that have been submitted by providers over time.
A recent type of retrospective fee-for-service payment is the resource-based relative value scale(RBRVS) used by Medicare and other third-party providers. Payments are based on the cost of services in terms of effort, overhead, and malpractice insurance.
The second form of fee-for-service payment self-pay is self-explanatory. Patients pay out-of-pocket for the services they receive. A discount may be offered for self-pay patients and some may seek reimbursement from a third party. Those without insurance are considered a subset of self-pay since they are responsible for all expenses. Self-pay costs tend to be higher for services provided.
In one self-pay scheme, some large employers self-insure whereby the employer administers and pays for all employee healthcare costs, assuming all the risks for the cost of care.
An episode-of-care is defined as one or more services given by a provider or healthcare organization during the course of care related to a particular medical problem or situation. Reimbursement is provided as a lump sum payment for all the care provided to and received by the patient during the episode regardless of the cost of providing the services.
There are three types of episode of care payments: capitation, prospective payment, and global payment.
Capitation payments are typically paid by HMOs. The healthcare organization receives the same amount per member from the third-party payer per length of time, usually a month, regardless of the number of patients in the plan requiring care, the frequency of the visits, or the severity of an illness. The term used to describe this payment is per member per month or PM PM. The advantage of this method of payment for the payer is that the third-party payer knows it's costs in advance and put some of the risk to the provider. The advantage to the provider is a guaranteed stream of payments or income, assuming the risk that the costs of care will not exceed the payments received.
For example, a group practice enters into an agreement with a payer to receive $25 per member per month. For every 100 members assigned to the practice, the provider receives $2500 per month whether none of the patients is seen or all are seen.
Another type of episode of care methodology is prospective payment method payers establish reimbursement rates in advance packages of healthcare service for specific problems. The rates are established based upon average resource use for the level of care and the services provided. Individual patients may require more or less resources that is more less expense of the total resource usage should average over time.
There are two prospective payment types. The first is per-diem payment in which a fixed amount is paid for each day of hospitalization. The second type of prospective payment is case based payment. In case based payment, the same amount is paid regardless of the length of stay and total resource use.
For example, two patients with pneumonia are admitted to the hospital on the same day. The first requires five days of hospitalization and the second requires nine days of hospitalization. With per-diem payments, the hospital receives five times the per diem payment for the first patient, and nine times the per diem rate for the second patient. Under the case based payment, the organization receives the same amount for both patients even though one required for additional days of care.
An example of prospective payment system is the CMS diagnosis related group system used for payment hospitals for inpatient services of Medicare patients. Payments are made based upon the age, sex, diagnosis and any existing comorbidities that may affect the length of stay, procedures, complications, and discharge status.
Comorbidity is the presence of two or more conditions or diseases in the same patient which complicates the patient's hospital stay leading to more resource use or longer length of stay.
The final episode of care method is global payment under the global payment model the third-party payer makes one payment for a single episode of care provided by multiple providers.
Managed care is a generic term for techniques designed to provide comprehensive health care, manage outcomes and quality, and control costs.
A managed care organization or MCO is a business model that integrates financing and delivery of healthcare using managed care techniques. Managed care can be separated into two distinct functions, one the methodology and techniques used for provider reimbursement and the other, the provision of comprehensive quality medical care.
Managed care organizations share common features. All have controlled access to comprehensive care, manage care provided using various techniques designed to reduce costs yet improve the quality of care.
Patient concerns about rationing and the quality of care received through early health maintenance organizations resulted in new managed care models.
The prototype managed care organization was the health maintenance organization or HMO. These plans provided care during sickness and encouraged prevention and wellness. Original HMOs used capitation episode of care reimbursement methodology. New models of managed care organizations developed as concerns grew that care was being withheld at the expense of patients. The new models would mix-and-match reimbursement methodologies permitting greater patient choice of provider, but at the same time increasing the cost of care.
New models include the preferred provider organization (PPO), the exclusive provider organization (EPO), and the point of service (POS) plan. In a PPO, reimbursement is provided using a fee-for-service methodology with discounts for using network providers including lower deductibles, copayments, and coinsurance. A patient or insured is free to seek care from any provider they choose and receive some reimbursement.
The exclusive provider organization is similar to a PPO but care must be obtained only from network providers and no monies are reimbursable for care outside the network. In a PPO or EPO, no gatekeeper provider controls access to medical services.
The point of service plan combines elements of a HMO and a gatekeeper who controls care and access to all other providers. Referrals can be made out of network at the discretion of the gatekeeper.
In managed care reimbursement, MCOs contract with providers to limit fees. The MCO may use a fee-for-service methodology in which payments are made according to a discounted fee schedule, or and MCL may use an episode of care reimbursement such as a prospective or global payment.
Recently devised consumer driven health plan involves the purchase of a hypothetical insurance policy for catastrophic medical expenses combined with either an employer sponsored health reimbursement arrangement (HRA) or an individually funded health savings account (HSA). Consumers can seek low-cost care through a network of providers and stretch their medical expense dollars, or use the funds as a self-pay policy for qualified expenses.
Although not a managed care plan, consumer driven healthcare uses similar techniques to control costs.
In summary, healthcare organizations have a unique system for receiving payment for their services. Reimbursement is the process of receiving payment through submission of a claim to a third-party payer. Methodologies of reimbursement include fee-for-service, such as self-pay or traditional retrospective, or episode-of-care, such as capitation, global payment, and prospective payment methods. DRGs represent the Medicare prospective payment system for inpatient services provided.
Managed care is approved techniques designed to provide quality comprehensive care while reducing costs. Managed care organizations include the traditional HMO model and newer models called PPOs, EPOs, and POS plans. Consumer driven health plans have recently developed that allow consumer control and choice of healthcare services.
Component 1 / Unit 5A Healthcare IT Workforce Curriculum1
Version 1.0/Fall 2010