Healthcare Payment Methods Notes
OBJECTIVES
Define the different methods of payment.
Identify and define the 4 different methods of provider payment.
Identify and define the 5 different methods of hospital payment.
Understand who is at risk under each payment arrangement.
Determine which payment methods are used in pharmacy.
METHODS OF PAYMENT FOR HEALTHCARE PROFESSIONALS AND HOSPITALS
Healthcare Professionals
Payment per Procedure: Fee-for-Service (FFS)
Payment per Episode of Illness
Payment per Patient: Capitation
Payment per Time: Salary
Hospitals
Fee-for-Service (FFS)
Per diem payments
Diagnosis-Related Group (DRG)
Capitation
Global Budget
RISK UNDER PAYMENT ARRANGEMENTS
Financial risk refers to the potential loss of money, earning less, or additional time without reimbursement.
Providers' financial incentives depend on payment methods, impacting their willingness to provide services or reduce utilization.
METHODS OF PAYMENT DEFINED
Fee-for-Service Payments
Paid per visit or procedure; providers receive fees for services like office visits, X-rays, lab tests.
Only payment type based on individual healthcare components.
Types of Fee-for-Service
Usual and Customary Rates (UCR): Maximum reimbursement for tests based on provider charges analysis.
Discounted Fee-for-Service: In-network providers accept negotiated payments as full payments.
Resource-Based Relative-Value Scale (RBRVS):
Each procedure assigned a total relative value unit (RVU) based on physician work, practice expenses, and liability insurance.
Current Procedural Terminology (CPT) provides a uniform language for services.
Implemented by CMS in 1992, with 77% of payers adopting its components.
PAYMENT BY EPISODE OF ILLNESS
Fixed sum for all services delivered during one illness; DRG assigned at discharge for fixed hospital payment.
PER DIEM PAYMENTS
Predetermined payment for each day of inpatient treatment; varies by service types.
Example:
Medical-surgical stay: $1800/day
Obstetrics: $2000/day
Mental Health: $2200/day
CAPITATION
Fixed per-person payment covering all healthcare services over a defined period.
Example: Provider receives $60 per member/per month, regardless of service utilization.
CAPITATION STRUCTURES
Two-Tiered Structure
Payment goes from health plan to Primary Care Provider (PCP); referral services paid separately.
Three-Tiered Structure
Capitation from the health plan to PCP; additional referral services reimbursed separately.
Financial risk varies depending on model:
Model A: Risk spread among members of Independent Practice Association (IPA).
Model B: IPA bears risk; more services result in budget liabilities.
SALARY
Providers carry minimal risk; risk on the prepaid group practice or plan if expenses rise.
HOSPITAL PAYMENT METHODS
Fee-for-Service: Itemized billing for services during hospital stays; often discounted.
Per Diem: Bundling of services for a patient’s daily care (e.g., $1600/day).
Diagnosis-Related Groups (DRGs): Fixed payments based on diagnoses (e.g., $7000 for certain conditions).
Capitation: Rare due to risk burden on hospitals.
Global Budget: One payment for all annual services; hospital manages within budget constraints.
PHARMACY REIMBURSEMENT
Typically reimbursed via fee-for-service, including immunizations and Medication Therapy Management (MTM).
Pharmacists often compensated through salary.
VALUE-BASED PURCHASING (VBP) PROGRAM
Incentive payments for hospitals based on care quality, adjusting DRG payment amounts based on performance metrics.
Approximately 3000 hospitals participate, with 2% of Medicare payments withheld per hospital.
QUESTIONS?
Feel free to ask for clarifications or further explanations on the material.