Provider payment

Dr Wai Hnin Aye

Lecturer

Community Medicine Field Training Center

(Hlegu)

Health Systems Goals

• Better health outcomes

• More responsive health system

• Equitable health care

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Objectives of health care financing

• Provide resources for health services

• Ensure access to health care services

• Ensure equity in health care coverage

• Provide quality care

• Provide efficient care

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Healthcare Financing comprise :

1.collecting revenue

2. Pooling of risk

3. Purchasing

4.Financial Protection

Financial Issues in Healthcare System of Developing Countries

• limited amount of financial resources in health care

• distribution of resources is inequitable

• gross inefficiency in management of resources

• poverty is a major obstacle to access health care

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Reforms in the health care systems

of developing countries focus on

“getting the incentives right”

Aim

To use provider payments to optimize

the utilization of scarce health care

resources, transform clinical practice,

and improve the quality of care

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Purchasing

• Passive purchasing

– No selectivity of providers

– No quality control and monitoring

– Use of norms to set fees and related concerns

• Strategic purchasing

– Performance-based model

– Contestable contracts

– Ongoing quality control and monitoring

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Who Purchases: Organizational Forms

Government Private Sector

Ministry of Health

Regions

Social Insurance

Public

Enterprises

(Insurance or

Budget)

Insurer

Employer

Managed Care

Organization

Individual

(Medical Savings

Account)

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4 Performance Tools of Purchasing

For Whom to Buy? ”Coverage decisions”

What to Buy, in which form, and what to

exclude “Benefits Package”

From Whom, at what price and how much,

“Contracting”

How to Pay, and what incentives to meet,

which policy objectives. “Payment method”

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provider payment method

define as the mechanism used to

transfer funds from the purchaser of

health care services to the providers

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Why Payment Method is Important? Cost Containment Measures Efficiency Influence Provision of Services Incentives or disincentives Preventive vs Curative Services Basic Health Services Influence Quality of Care Technical Quality Client Satisfaction Viability of Health Financing Scheme Disbursement of funds

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Provider payment • focuses on providers’ incentives and

behaviour also affect payers’ behaviour and consumers’ behaviour (pts’ )

• way they practice with regard to:– staff mix (technical efficiency)– choice of technology (technical

efficiency)– choice of services (allocative efficiency)

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Provider Payment & Financial Risk

• financial risk is the potential to lose money,

earn less money, or spend more time or effort

without additional payment on a reimbursement

transaction

• whenever providers or patients are bearing little

risk, the system encourages higher levels of use

of resources

– e.g : OOP – Patient carries all the risk

– Health insurance- Insurer carries the risk13Dr.WHA

Payment Methods

1.Retrospective Payment

2.Prospective Payment

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Retrospective Payment

- payment rate is selected during or after the service has been rendered

- cost-based reimbursement

- well known for being cost enhancing rather than cost reducing.

• Fee-for-service • Payment per itemized bill • Payment per diem

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• fee-for-service (a typical form )

• but prices for each service set in

advance, providers are not limited by

predetermined agreement on the

types and number of services

rendered

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Prospective Payment

payment rate for a package of health

care services is negotiated and agreed

upon before the treatment takes place

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• increase the incentive for efficiency

• health provider faces higher financial

risk

These are-

• Capitation payment

• Global budget

• Case-mix payment 18Dr.WHA

Methods of Payments

Physician Hospitals

1. Payment per procedure: Fee for Service2. Payment per episode ofillness3. Payment per patient:Capitation4. Payment per time: Salary

1. Payment per procedure: Fee for Service 2. Payment per day: Per Diem3. Payment per episode ofhospitalization: DRG4. Payment per patient:Capitation5. Payment per institution:Global Budget

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Current trends in Provider Payment System

• Strategic Purchasing

• Performance based system

(payment linked to quality and out come)

• Shift financial risks to providers

• Bundling to avoid fragmentation

• Reduce Admin cost

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Payment Models for PHC in Malaysia

Health Centre / PHC Clinic

Doctors / Providers

Line Item Budget

Global Budget

Patient Visit

Fee-for- Service

Case-Payment

Capitation

Fee-For-Service

Salary

Salary plus Bonus

Capitation

Capitation plus

Bonus

Case payment 21Dr.WHA

Global Budget

• is a payment fixed in advance to cover

the aggregate expenditures of that

hospital over a given period to provide

a set of services that have been broadly

agreed upon (at the hospital level)

• based on either inputs or outputs, or a

combination of the two

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• determine on the basis of historical costs (in Canada and Denmark)

• incorporated measures of output, such as bed-days or cases, into global budgets for hospitals (France and Germany)

• Ireland introduced a case-mix adjustment to global budgets for acute hospital services in 1993

• nearly all EU countries use case-mix adjustment

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Payment per Procedure: Fee-for-Service

• traditional method of reimbursing physicians,

hospitals and other providers for their services

• provider is paid for each procedure or service

rendered

• each provided service associated with a

corresponding fee to be paid to the provider

• fees increase when more services are provided

or as more expensive services are substituted

for less expensive ones

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- may be either input-based or output-based

• input-based if services are not bundled, and

fee schedules are not set in advance

• providers are permitted to bill payers for all

costs incurred to provide each service(US)

• called “retrospective cost-based” payment

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• output-based if fees are set in advance

( Canada, Japan, and Germany)

• services are bundled to some degree

• provider is paid the fixed fee for the

pre-defined service regardless of the

costs incurred to deliver the service

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- economic incentive to perform more

services

- overconsumption of care

- not encourage physicians to consider the

cost of the treatments they provide to their

patients

- their remuneration is not tied to patient

health outcomes

- in US, rapid rise in health care costs due to it27Dr.WHA

• overwhelming reliance on FFS lead to source

of inefficiency in the health system

• physician expenditure is 2nd to hospital

expenditure

• to reduce health expenditures ,use alternative

payment mechanisms capitation, fund holding

(a more complete form of capitation), mixed

payments, pay-for-performance and profit

sharing28Dr.WHA

Payment per Episode of Illness

- payment by episode of illness or case

- physicians have the economic incentive to

reduce the volume of services provided per

illness episode or case

– transfers portion of the risk to the provider

– eg : Appendicitis episode

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Payment per Patient: Capitation

• insurer pays physicians a pre-

determined fixed amount and paid in

advance for each covered person

regardless of the type and number of

services used

• physician is responsible for delivering or

arranging the delivery of services of a

contracted persons 30Dr.WHA

- shifts the financial risk from the insurer to

the physician

(If he incurs costs > per capita budget, he is

liable for these costs)

(if the provider achieves efficiency gains and

incurs costs < per capita budget, the

provider can retain and reinvest this surplus)

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• output-based

• unit of output is coverage of all pre-

defined services for an individual for a

fixed period of time (one month or one

year)

• is not linked to the inputs the provider

uses or the volume of services provided

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- physicians have incentives to limit the

use of services and the use of

expensive resources and services

– rewards go to physicians who limit

referrals, stay within formularies, lessen

laboratory use and reduce average

hospitalization33Dr.WHA

Payment per Time: Salary

• fixed annual payment unrelated to workload

(one lump sum per month or yearly)

• as theory ,salary d/on performance

• in practice d/on yrs of service

• no risk carried by the physician

• Incentive undermine to work hard

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low income country, low salary leads

to

less work hard

need more hours of work

find additional ways of generating

income (informal ways)

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Per Diem • incentive no: of hospital days, bed

occupancy, and bed capacity • shifting outpatient and community-

based rehabilitation services to the hospital

• incentive to intensity of service provided during each bed-day

• high occupancy rates are achieved by increasing hospital admissions and ALOS

• incentive to ALOS > admissions( b/of ---incentive to inputs/day--- hospital days early in a hospital stay is

more expensive than later in stay) 36Dr.WHA

• average per diem rate is easy and quick to calculate

• =

• adjusted with characteristics of patients, clinical specialty and variations in case-mix across hospitals

total historical annual hospital costs

total number of bed-days

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• appropriate intermediate step for

transition to a case-based system

• administratively simple to implement

• used to begin collecting the data that

are necessary to design a case-based

system

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Case-Based

• incentives to no: of cases

• to minimize the inputs used on each

case (because providers have more

control over resource use per case than

the total no: of treated cases)

• to control costs and reduce capacity in

the hospital sector

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provider treats a patient with a broken arm

-- for fee for service the provider is paid for

each treatment ($40 for consultation, $25

per x-ray, and $35 for cast)

-- in the case-based model the provider is

paid a flat fee for the illness ($100 to fix a

broken arm)

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Case-Mix (DRG)

classification of patient treatment episodes

designed to create classes which are

relatively homogenous in respect of the

resources used and which contain patients

with similar clinical characteristics

(George Palmer, Beth Reid,2000)

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Line Item Budget

• allocation of a fixed amount to a health

care provider to cover specific line items,

or input costs for a certain period of time

(e.g., personnel, utilities, medicines and

supplies)

• offer strong administrative controls,

often valued by government-run systems

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• technical and allocative efficiency of health interventions by manipulating the government budget lines over time to increase delivery of cost-effective health interventions and decrease delivery of less cost-effective interventions

• governments can track and understand the right combination to achieve these outputs

• in reality, lack of good monitoring information

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• according to heterogeneity among health care providers, diversity of institutions, practices, and preferences ,health care systems in developing countries divides into 3 patterns

• in Nepal, Tanzania, many of the smallest and poorest nations in sub-Saharan Africa

• large public hospitals are in the capitals and a few in largest cities

• smaller public hospitals, clinics, and health posts are scattered in rural areas

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• physicians and nurses are salaried • supplement their incomes by selling goods

and services under the table• pt with varying severity crowd emergency

rooms• little medical information is passed from

one facility to another• shortages of supplies • in rural ,use traditional healers, drug

sellers, and semi- trained health providers (they work isolated from the public facilities)

• pay out-of-pocket or thin insurance market

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• 2nd pattern is as Pakistan and Kenya

(poor countries with larger and more

concentrated populations)

• resembles the first with one exception:

• semi-trained private providers

dominate the supply of health care in

most rural and marginal urban areas

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• private providers utilize a mix of Western

and indigenous medical concepts

• make money purchasing and reselling

drugs from local chemists

• engage in agricultural or other activities

part time

• limited contact with the formal, public

health care system

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• pt are usually uninsured

• out-of-pocket

• about three-quarters of HE in India

come directly from households

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• 3rd pattern is middle- income countries

(Chile, Mexico, Thailand, South Africa)

• risk-pooling (finance with formal sector

payroll taxes)

• government- managed social security

organization collects taxes

• pays physicians and hospitals(either

public or contracted private providers) 58Dr.WHA

• general revenue financed hospitals

and clinics for informal sector workers

• growing or already substantial private

insurance markets for the relatively

well-off

• many countries’ systems are hybrids,

with different patterns

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payment methods may be used in

combination to enhance or mitigate

the incentives that are created by

each method individually

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Reference• Daniel Maceira, M.S:1998 . “ Provider Payment Mechanisms in Health

care :Incentives, Outcomes, and Organizational Impact in Developing Countries “,major applied research 2, working paper 2 from www.phrproject.com (Accessed 2nd October 2011)

• JOHN C. LANGENBRUNNER, CHERYL CASHIN, AND SHEILA O’DOUGHERTY ,2009 ,“Designing and Implementing Health Care Provider Payment Systems How-To Manuals “ from www.rbfhealth.org (Accessed 2nd October 2011)

• Pierre-Thomas Léger ,2011, “Physician Payment Mechanisms: Overview and options for Canada” Canadian health service research foundation from www.chsrf (Accessed 2nd October 2011)

• Varun Gauri “Are Incentives Everything? Payment Mechanisms for Health Care Providers in Developing Countries” Development Research Group ,The World Bank

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