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

1. 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

2. 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 Health IT Workforce Curriculum Version 1.0/Fall 2010

3. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

4. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

5. 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. Health IT Workforce Curriculum Version 1.0/Fall 2010

6. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

7. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

8. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

9. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

10. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

11. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

12. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

13. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

14. 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, Health IT Workforce Curriculum Version 1.0/Fall 2010

15. 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 Health IT Workforce Curriculum Version 1.0/Fall 2010

16. 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) Health IT Workforce Curriculum Version 1.0/Fall 2010

17. 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 Health IT Workforce Curriculum Version 1.0/Fall 2010

18. 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 Health IT Workforce Curriculum Version 1.0/Fall 2010

19. 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 Health IT Workforce Curriculum Version 1.0/Fall 2010

20. 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 Health IT Workforce Curriculum Version 1.0/Fall 2010