Healthcare Financing in the US: History, Role of Insurance, and Cost Containment

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

2. Objectives • Describe healthcare financing in the US and the history and role of the health insurance industry • Understand the payment process in healthcare and concepts of reimbursement, billing and coding of claims using appropriate code sets during the billing process • Review factors responsible for escalating healthcare expenditures in the US • Describe methods of cost containment Health IT Workforce Curriculum Version 2.0/Spring 2011

3. Lecture 5-1 Goals • Examine total healthcare expenditures in the United States • Review the growth and development of the health insurance industry in the US • Describe the revenue cycle and the billing process including charge capture and coding in the cycle that ensures appropriate reimbursement • Review the use code sets and electronic data interchange transactions used in the claims process Health IT Workforce Curriculum Version 2.0/Spring 2011

4. National Health Expenditures 2008 Total Healthcare Expenditures (billions) 2339 Private 1232 Public 1107 Federal 817 State and Local 290 U.S. Population in Millions 305 GDP in Billions 14441 National Health Exp. Share of GDP (%) 16.2 Adapted from: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.gov/NationalHealthExpendData/ (Historical) Health IT Workforce Curriculum Version 2.0/Spring 2011

5. U.S. Healthcare Expenditures (2008) • Average $7,668 per person • 16.2% GDP 2008/19% GDP by 2018 • 23% paid out of pocket • 64% paid by private health insurance • Private health insurance developed during last 80 years Adapted from: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.gov/NationalHealthExpendData/ (Historical) Health IT Workforce Curriculum Version 2.0/Spring 2011

6. History of Healthcare Financing • Late 19th and early 20th century • Care provided at patient’s or doctor’s home • Self-pay/charity payment for services • Increasing advancement of medicine as a science especially in surgery and infectious disease • AMA standardizes medical education and quality of care improves • Medical care for illness moves out of the home to doctor’s office, surgical care at hospitals • Commercial health insurance not available due to unpredictability of health and “moral hazard” Adopted from: Thomasson, M, Health Insurance in the United States, available at http://eh.net/encyclopedia/article/thomasson.insurance.health.us Health IT Workforce Curriculum Version 2.0/Spring 2011

7. Early Hospital & Physician Health Plans • In 1929, 1300 Dallas school teachers contract with Baylor Hospital for 21 days hospitalization for 50¢/month each • Hospital service plans - steady stream of income • Exempt from most state insurance regulations • Later becomes Blue Cross • Physicians fearing loss of control form own associations • In 1939, California physicians form pre-paid healthcare services plan • Blue Shield Association Adapted from: History of Blue Cross and Blue Shield available at http://www.bcbs.com/about/history/ Health IT Workforce Curriculum Version 2.0/Spring 2011

8. Employer Pre-paid Plans • Ross-Loos Medical Group provided pre-paid care to Los Angeles County employees • Believed to be first HMO in US • Focus on quality of care including preventive care • Surgeon Dr. Sidney Garfield starts pre-paid medical practice • 1930s – Organizes employer pre-paid plan for construction workers on the Los Angeles Aqueduct and Grand Coulee Dam and Kaiser Shipyards during WWII • Fixed payment per employee per month • Subsequently, formed Permanente Health Plan • Open to the public • Union support boosts growth Health IT Workforce Curriculum Version 2.0/Spring 2011

9. Commercial Health Insurance • Commercial insurance carriers offer group health insurance • Compete against the Blues • Employer (group) enrollment spreads risk and addresses “moral hazard” • Experience rating vs. community rating – lower rates for young healthy individuals Health IT Workforce Curriculum Version 2.0/Spring 2011

10. Factors Influencing Development of Commercial Health Insurance • WWII wage controls • Employers offer health insurance as a benefit to attract skilled employees • IRS favorable tax treatment • Employer – free of payroll tax • Employee -- no income tax • Employer sponsored health contracts non-cancellable • 1949 – Unions may negotiate health insurance benefits as part of wages Adopted from: Thomasson, M, Health Insurance in the United States, available at http://eh.net/encyclopedia/article/thomasson.insurance.health.us Health IT Workforce Curriculum Version 2.0/Spring 2011

11. HMO Plans • Health Maintenance Organization Act of 1973 • Federal grants and loans to encourage HMOs • Required employers offering traditional health plans to offer HMO option • HMO offers comprehensive, prepaid health coverage for hospital and physician services through specific health care providers • Gave pre-paid health plans access to the employer based insurance market Health IT Workforce Curriculum Version 2.0/Spring 2011

12. Healthcare Plans Today • 85% of the population have health care insurance • Future challenges increasing demand and driving costs include • Aging of the population • Chronic disease • Increased government spending Health IT Workforce Curriculum Version 2.0/Spring 2011

13. The Revenue Cycle and Medical Billing • Revenue Cycle - standard set of activities and events that produce revenue or income for a healthcare provider. • Medical billing - the process of submitting claims to insurance companies in order to receive payment or reimbursement for services rendered by a healthcare provider. Health IT Workforce Curriculum Version 2.0/Spring 2011

14. Coding and Code Sets • Coding: process of translating the written diagnosis and procedures relating to a patient encounter into a numeric classification or code • Code set: group of numeric or alphanumeric codes used to encode descriptive data elements • Tables of terms, medical concepts, medical diagnostic codes, or medical procedure codes • A code set includes the codes and the descriptors of the codes Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006, Health IT Workforce Curriculum Version 2.0/Spring 2011

15. HIPAA Code Sets • Health Care Common Procedure Coding System (HCPCS) & Current Procedure Terminology (CPT) – AMA • ICD-9-CM Volumes 1 & 2 (diagnosis codes) & ICD-9-CM Volume 3 (procedures) – National Center for Health Statistics, CDC • National Drug Codes (NDC) – DHHS and drug manufacturers • Code on Dental Procedures and Nomenclature (CDT) – ADA Available at: : http://www.cms.gov/HCPCSReleaseCodeSets/01_Overview.asp; last accessed July 27, 2010 Health IT Workforce Curriculum Version 2.0/Spring 2011

16. Update to the ICD-9 • ICD-10-CM & ICD-10-PCS • Replaces ICD-9-CM Volume 1 & 2 & ICD-9-CM Volume 3 • Compliance set for October 1, 2013 Health IT Workforce Curriculum Version 2.0/Spring 2011

17. Billing Definitions • Charge capture: process of documenting all services, procedures, and supplies provided • Charge description master = price list - Database of prices for services provided used by HCOs during the billing process • Electronic data interchange (EDI): the structured transmission of data between organizations by electronic means using standard transaction sets - A transaction set: an electronic model of a paper transaction or form Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006, Health IT Workforce Curriculum Version 2.0/Spring 2011

18. Revenue Cycle Overview • Appointment scheduled • Registration: Demographic and insurance info • Services provided • Charge capture • Coding • Claim submission: paper or electronic • Reimbursement received • Final settlement with patient Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006, Health IT Workforce Curriculum Version 2.0/Spring 2011

19. Registration • Practice management software or hospital management software • Demographic information • Accurate patient and responsible party information • Insurance information • Confirm terms of coverage • Determine deductibles, copayments, and coinsurance • Accurate claim identification by third party payer Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006, Health IT Workforce Curriculum Version 2.0/Spring 2011

20. Charge Capture • Charge capture: the process of collecting a list of all services, procedures, and supplies provided during an encounter or in the course of care • Charge description master = the price list • Database used by healthcare facilities • Paper based forms • Superbill, encounter form, or charge ticket • Electronic capture • Automatic – improved accuracy • Manual Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement. Chicago, IL: American Health Information Management Association; 2006, Health IT Workforce Curriculum Version 2.0/Spring 2011

21. Coding • Clinical terminology - diagnosis and services converted to a standard code, for example • Diagnosis • Upper respiratory infection = 461.9 (ICD-9-CM) • Service, procedure or test • New patient, office visit, level II = 99202 (CPT) • Biopsy of skin, subcutaneous tissue and/or mucous membrane(including simple closure), unless otherwise listed; single lesion = 11100 (CPT) • Immune globulin 10 mg = J1564 (HCPCS Level II) Health IT Workforce Curriculum Version 2.0/Spring 2011

22. ICD-9-CM Diseases of the circulatory system( 390-459) Ischemic heart disease (410-414) (410) Acute myocardial infarction (410.0) MI, acute, anterolateral (410.1) MRI, acute, interior, NOS Health IT Workforce Curriculum Version 2.0/Spring 2011

23. Claim Code Sets • Physician - Inpatient and outpatient • Diagnosis – ICD-9-CM • Procedure – CPT • Hospital Facility – inpatient • Diagnosis – ICD-9-CM • Procedure – ICD-9-CM volume 3 • Hospital Facility – outpatient • Diagnosis – ICD-9-CM • Procedure – HCPCS (CPT Level I and HCPCS Level II) Health IT Workforce Curriculum Version 2.0/Spring 2011

24. Claim Submission • Claim elements • Demographic and insurance identification information • Encounter elements • Dates • Diagnosis • Procedure • Identifiers • Claim: paper or electronic • Paper: physicians – CMS Form 1500 facility – CMS Form 1450 • EDI: 837 Transaction Health IT Workforce Curriculum Version 2.0/Spring 2011

25. Electronic claims-transactions • Electronic data interchange (EDI) • HIPAA privacy rules/Transactions Rule • 837 Healthcare claims or equivalent encounter information • 835 Healthcare payment and remittance advice • 270/271 Eligibility for a health plan • 276/277 Health claims status • 278 Referral certification and authorization Available at: http://www.cms.gov/TransactionCodeSetsStands/01_Overview.asp#TopOfPage, last accessed July 27, 2010 Health IT Workforce Curriculum Version 2.0/Spring 2011