Component 1: Introduction to Health Care and Public Health in the U.S. 1.5: Unit 5: Financing Health Care (Part 2) 1.5b: Reimbursement Methodologies and

Component 1: Introduction to Health Care and Public Health in the U.S.

1.5: Unit 5: Financing Health Care (Part 2)

1.5b: Reimbursement Methodologies and Managed Care

Section 1.5b: Objectives

• Review reimbursement or payment in healthcare

• Examine reimbursement methodologies– Fee-for-service – Episode-of-care

• Examine managed care reimbursement techniques and business models, as well as consumer driven health plans

Component 1 / Unit 5b 2Health IT Workforce Curriculum

Version 1.0/Fall 2010

The Business of Healthcare

• Revenue to HCOs different than typical business– Payments made by 3rd party

• 1st party – insured or patient• 2nd party – the HCO or provider• 3rd party – the insurance company or plan that

pays the HCO or provider

– The amounts paid depends entirely on the codes entered correctly or incorrectly on the bill or claim

Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,



The Business of Healthcare (2)

• Revenue (continued)– Payments for identical services may vary from

payer to payer– The government pays for approximately 47%

of all medical services rendered




Reimbursement & Claims

• Reimbursement: compensation or payment for healthcare services already provided

• Claim: itemized statement and request for payment of the costs of healthcare services rendered by a healthcare provider or organization

• Methods of reimbursement include fee-for-service and episode-of-care

Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006.



Reimbursement Methodology

• Fee-for-service (FFS)– separate payments made for each individual service provided– Traditional retrospective– Self-pay

• Episode-of-care – payment of one sum for providing all services or care during a illness or time frame – Capitation– Prospective payment– Global payment

• Managed care is a method of payment that may involve fee-for-service and/or episode-of-care methods




Traditional Retrospective

• Traditional retrospective payment: payment made after services have been provided– Method of reimbursement used by commercial or

indemnity health insurance policies– Fee schedule – list of allowable services and

procedures and amounts payable for each– Fee schedule developed using historical claims data

and provider “usual and customary” submissions– Resource Based Relative Value Scale (RBRVS)

physician payment based on the cost of services in terms of effort, overhead, and malpractice insurance




Fee-for-Service

• Self-pay: patients pay for healthcare and may seek reimbursement afterwards for the individual services received– Uninsured subset of self-pay– Costs possibly higher – Self-insured plan – large employers




Episode-of-Care Methodology

• Episode-of-care: one or more services provided by a HCO during the course of providing care related to a particular medical condition or situation

• Episode-of-care payment: one payment for the services provided during an episode of care

• Types of episode-of-care payments– Capitation– Prospective payment– Global payment




Capitation• HCO receives a fixed sum per person

enrolled in the plan and assigned to the HCO– Typical payment for a HMO - same amount paid

per length of time regardless of the number of plan patients requiring care, the frequency of visits, or the severity of an illness

– PMPM = per member per month– Payer knows costs in advance – Provider assumes some risk as the level of

services required is unknown




Prospective Payment Method

• Prospective payment method : payers establish reimbursement rates in advance for healthcare services to be provided over a specified time

• Based upon average resource use required to provide a level of care for a given set of conditions or a disease

• Same amount paid regardless of the costs incurred




Prospective Payment Types

• Per-diem payment: a fixed payment is made for each day of hospitalization i.e. based on unit of time

• Case-based payment : payment of a fixed amount for providing health services for a condition or disease (case)




Diagnosis Related Groups (DRGs)

• CMS case based in-patient prospective payment system– Based on diagnosis, procedures, age, sex,

comorbidities, complications, and discharge status

• Comorbidity - the presence of 2 or more conditions or diseases in the same patient which complicates a patient’s hospital stay leading to more resource use or longer length of stay




Global Payment

• Payer makes one payment for multiple providers treating a single episode of care

• Extends the concept of capitation to an larger group




Managed Care

• Managed care: generic term for techniques designed to control costs and improve quality

• Managed care organization (MCO) – a business model which integrates financing and delivery of health care using managed care techniques

• Features– Comprehensive care– Controlled access to care– Manage outcomes and improve quality care– Reduce costs

• Rationing and quality of care concerns



Managed Care Organizations

• HMO = Prototype using capitation• New models

– Mix and match reimbursement methodologies– Greater patient choice– Increased costs

• MCO Models– Health Maintenance Organization (HMO)– Preferred Provider Organization (PPO)– Exclusive Provider Organization (EPO)– Point of Service Plan (POS)



Managed Care Reimbursement

• Reimbursement– Contract with providers to limit fees

• Fee-for-service: discounted fee schedules• Episode-of-care: prospective payment

• Patient utilization control through– Financial incentives to use resources

effectively– Increased out-of-pocket expenses for non-

network use



Consumer Driven Health Care Plans (CDHC)

• CDHC - employer or individual funded medical expense accounts for routine healthcare expenses– Health Savings Account– Health Reimbursement Arrangement

• High deductible insurance policy• Managed care techniques such as networks of

providers, service limitations, and discounted fee schedules may be used

• Consumer (patient) controls the cost of care by selectively obtaining the medical care they need



Summary

• Healthcare organizations uniquely reimbursed

• Reimbursement methodologies– Fee-for-service

• Self-pay and traditional retrospective

– Episode-of-care• Capitation, global payment, and prospective

payment• DRGs – Medicare prospective payment system for

reimbursement of inpatient care



Summary

• Managed care– Techniques to manage care

• Provide comprehensive quality healthcare• Reduce costs using provider network • Use fee-for-service or episode-of-care reimbursment

– Managed care organizations• HMO, PPO, EPO, and POS

• Consumer driven healthcare– High deductible catastrophic policy– Medical expense account for routine expenses



Documents

Component 1: Introduction to Health Care and Public Health in the U.S. 1.5: Unit 5: Financing Health Care (Part 2) 1.5b: Reimbursement Methodologies and