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

2. Health IT Workforce Curriculum Version 2.0/Spring 2011
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 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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
hco whether hospital, doctors office, long term care facility, laboratory, nursing home,
As with any business, healthcare organizations must manage revenues and expenses.
During the budgeting process, project revenues and expenses to earn a profit. (Non-profit organizations have “surplus”, not profit, which is used to further the mission and goals of the organization.) Expense side of the equation similar to any traditional business, manage expenses so they do not exceed revenues
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement.
Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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
hco whether hospital, doctors office, long term care facility, laboratory, nursing home,
As with any business, healthcare organizations must manage revenues and expenses.
During the budgeting process, project revenues and expenses to earn a profit. (Non-profit organizations have “surplus”, not profit, which is used to further the mission and goals of the organization.) Expense side of the equation similar to any traditional business, manage expenses so they do not exceed revenues
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement.
Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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.
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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,
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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
Discounted fee schedule: managed care technique
Adapted from: Castro, AC and Layman, E,. Principles of Healthcare Reimbursement.
Chicago, IL: American Health Information Management Association; 2006,
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

8. Health IT Workforce Curriculum Version 2.0/Spring 2011
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 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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,
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

10. Health IT Workforce Curriculum Version 2.0/Spring 2011
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 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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,
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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,
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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,
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

14. Health IT Workforce Curriculum Version 2.0/Spring 2011
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 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

15. Health IT Workforce Curriculum Version 2.0/Spring 2011
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 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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)
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

17. Managed Care 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 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

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
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

19. Health IT Workforce Curriculum Version 2.0/Spring 2011
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 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011

20. Health IT Workforce Curriculum Version 2.0/Spring 2011
Summary
Managed care
Techniques to manage care
Provide comprehensive quality healthcare
Reduce costs using provider network
Use fee-for-service or episode-of-care reimbursement
Managed care organizations
HMO, PPO, EPO, and POS
Consumer driven healthcare
High deductible catastrophic policy
Medical expense account for routine expenses
Component 1 / Unit 5-2
Health IT Workforce Curriculum Version 2.0/Spring 2011