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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,
Component 1 / Unit 5b 3Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 4Health IT Workforce Curriculum
Version 1.0/Fall 2010
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.
Component 1 / Unit 5b 5Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 6Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 7Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 8Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 9Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 10Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 11Health IT Workforce Curriculum
Version 1.0/Fall 2010
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)
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 12Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 13Health IT Workforce Curriculum
Version 1.0/Fall 2010
Global Payment
• Payer makes one payment for multiple providers treating a single episode of care
• Extends the concept of capitation to an larger group
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5b 14Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Component 1 / Unit 5b 15Health IT Workforce Curriculum
Version 1.0/Fall 2010
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)
Component 1 / Unit 5b 16Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Component 1 / Unit 5b 17Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Component 1 / Unit 5b 18Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Component 1 / Unit 5b 19Health IT Workforce Curriculum
Version 1.0/Fall 2010
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
Component 1 / Unit 5b 20Health IT Workforce Curriculum
Version 1.0/Fall 2010