1. PAYMENT METHODS: Managed Care and Indemnity Plans
Chapter 5
PAYMENT METHODS: Managed Care and Indemnity Plans

2. PAYMENT METHODS: Managed Care and Indemnity Plans
Learning Objectives
Discuss the major types of health plans and how the various structures affect the payments that patients owe for medical services.
Describe three ways in which payments to physicians are set.
Compare the calculation of payments for participating and nonparticipating providers, and describe how balance-billing rules affect the charges that can be collected from patients.
List the types of charges for which a patient may be responsible at the time of a visit.
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3. Key Terms Allowed charge Balance billing Capitation Excluded services
Family deductible
Fee schedule
Health maintenance organization (HMO)
Individual deductible
Nonparticipating (nonPAR) physician
Out-of-pocket expenses
Participating (PAR) physician
Point-of-service (POS) plan
Preferred provider organization (PPO)
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4. Key Terms (cont’d) Primary care physician (PCP) Referral number
Relative value scale (RVS)
Resource-Based Relative Value Scale (RBRVS)
Usual, customary, and reasonable (UCR)
Usual fee
Walkout receipt
Write off
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5. Types of Health Plans Managed Care Plans
Preferred Provider Organizations (PPOs)
Health Maintenance Organizations (HMOs)
Point-of-Service (POS) Plans
Indemnity Plans – An insurance company’s agreement to reimburse a policyholder a predetermined amount for covered losses.
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6. PPOs (Preferred Provider Organization)
Leading type of Managed Care Organization (MCO)
Plan contracts with providers
Providers agree to accept reduced fees
Plan provides a large pool of potential patients
Patients pay premiums and copays
Patients may visit providers outside plan
Plan pays lower benefits
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7. HMOs (Health Maintenance Organization)
Patients must use plan’s providers
Patients enroll by paying a fixed premiums, and a small (or no) copays when they need service
PCP/gatekeeper may be assigned to each patient
Referral number may be required from PCP to see specialist
Providers may or may not be employees of plan
Capitation - Is a method of insurance reimbursement to physicians based on the number of patients seen rather than the service performed.   
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8. POS Plans Least restrictive for providers and patients
Patients may visit providers outside plan
Patients may pay increased fees, such as larger copays
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9. Indemnity Plans Fee-for-service plans Patient may choose any provider
Fees physicians receive is based on their regular charge for service.
Many payers and physicians negotiate fees as in a PPO or POS plan
Patient may choose any provider
Require annual premiums, deductibles, and coinsurance
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11. Setting Fees
Fee Schedule – a list of fees for the procedures and services that physician frequently performs. The fees called “usual fees”.
Usual Fees
Those fees that physician charged to most of their patients most of the time.
Payers also set the fees that they pay providers.
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12. Setting Fees
Most payers use one of three methods to set fees that the health plan will pay physicians
Usual, Customary, and Reasonable (UCR)
Relative Value Scale (RVS)
Resource-Based Relative Value Scale (RBRVS)
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13. UCR Method Usual, Customary, Reasonable
Usual fee - an individual physician charges for service
Customary fee charged by most physicians in the community.
Reasonable fee for the service.
In indemnity plans, allowed charges are often based on the (UCR).
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14. Relative Value Scale Based on Nationwide Research
Scale assigns a numerical value to each Medical Service
The values reflect the amount of skill and time the procedure require of the physicians
Calculated by multiplying RVS by a dollar conversion factor.
Example: in an obstetrics practice, a hysterectomy has a higher RVS number than a D&C, because the hysterectomy takes longer to do and is considered to require more skill.
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15. Resource-Based Relative Value Scale
Established by CMS for setting Medicare Fee Schedule
Build on the RVS method by adding factors for the provider’s expenses.
Instead of valuing just the skill and time, the RBRVS also have factors for:
how much office overhead the procedure involves; and
for relative risk that the procedure presents to the patient and to the provider
Example: The cost of renting an office is higher in Chicago than in rural areas of ILLINOIS, therefore, the compensation is different in these two locations.
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16. Resource-Based Relative Value Scale
Mathematical Formula used to calculate charge for every procedure/service
The factors are multiplied by a dollar conversion factor
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17. Methods of Setting Fees
Usual, Customary, Reasonable
Payment is based on Fee/Service
Relative Value Scale
Payment is based on Skills/Time
Resource-Based Relative Value Scale
Payment is based on Skills/Time & Provider’s Expenses
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18. Payment Methods
After setting the fees for schedule benefits, health plans work out various payment arrangements with providers.
EXAMPLE: In some cases, physicians agree to discount their usual fees. In other cases, physicians receive payment for each patient rather than services.
Most payers use one of three methods of paying Providers:
Allowed charges
Contracted fee schedule
Capitation
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19. Payment Under an Allowed Charge Method
Maximum amount policy covers for each service
Determined by policy guidelines
Example:
The payer’s allowed charge for a new patient’s evaluation & management service is $160 (CPT 99204)
Provider A Usual Charge = $180
Payment = $160
Provider B Usual Charge = $180
Payment = $140
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20. Allowed Charges (cont’d)
Participating Providers (PAR) – are physicians/providers who agree to provide medical services to a payer’s policyholders according to the terms of the plan or program’s contract.
Participating Providers (PAR)
PAR = accept assignment
Provider accepts amount paid by plan as payment in full
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21. Balance Billing
Balance Billing - Charging the patient for the difference between a provider’s higher fee and a lower allowed charge
PAR (participating providers) – can not ” balance bill” the patient.
PAR (participating providers) must “write-off” the difference
Write-offs - Different between provider’s charge and the allowed charge.
Can not bill patient for this amount (no balance billing)
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22. Allowed Charges (cont’d)
Nonparticipating Providers (nonPAR) – A physician or other Health Care Provider who chooses not to join a particular government or other program or plan.
Nonparticipating Providers (nonPAR)
NonPAR = does not accept assignment
Provider may often balance bill patients
Provider collects difference between higher fee and lower allowed charge from patient
Balance Billing is prohibited by Medicare & other government-sponsored programs.
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23. Contracted Fee Schedule
Payers establish fixed fees with their PAR providers
With this method, payer’s allowed charge and provider’s charge are the same
Contract sets fees for covered procedures and services
Fees vary for different geographical areas
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24. Capitation
Capitation – is a method of insurance reimbursement to physicians based on the number of patients seen rather than the service performed.
Used by HMOs
Cap rate/Capitation Rate is the fixed payment for each plan member in a capitation contract.
Cap rate is set by the HMO that initiates contract with provider
Paid to provider regardless of number of patient visits
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25. Patients’ Charges Individual Financial responsibility:
Periodic premiums
Possible out-of-pocket expenses
Deductibles
Copayments
Coinsurance
Excluded and over-limit services
Balance billing
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26. Deductibles, Copays, Coinsurance
Amount patient must pay for covered services before insurance benefits are due.
Benefits begin after deductibles are paid
Individual or family deductibles
Copay
Small fee paid at time of service
Coinsurance
Portion for covered services the patient must pay beyond the deductible
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27. Payments Due at Time of Service
Usually Collected during visit
Copayments
Usual fees for:
Excluded services under patient’s plan
Services by nonPAR providers
Services by HMO out-of-network providers
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28. Estimating Patient’s Charges
Contact patient’s plan and verify:
Patient’s deductible amount and whether paid in full
Covered benefits
Coinsurance or other obligations
Payer’s allowed charges or fee schedule for anticipated services
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29. Quiz A Patient’s insurance policy states: Annual Deductible: $300.00
Coinsurance:
This year, the patient has made payments totaling $ to all providers. Today, the patient has an office visit (fee: $80.00). The patient presents a credit card for payment of today’s bill. What is the amount that the patient should pay?
30% of $80.00, or $24.00
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30. Quiz
A Patient is a member of a health plan with a 15 percent discount from the provider’s usual fees and a $10.00 copay. The days’ charges are $ What are the amounts that the plan and the patient each pay?
The discounted rate the Physician receives is $ %, or $
The Patient pays $10.00
The Plan pays $398.00
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31. Quiz
A Patient is a member of a health plan that has a 20 percent discount from the provider and a 15 percent copay. If the day’s charges are $210.00, what are the amounts that the plan and the patient each pay?
The discounted rate the Physician receives is $ %, or $
The Patient pays $25.20
The Plan pays $142.80
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32. Critical Thinking
Describe the difference between PAR and nonPAR providers.
PAR providers accept the payment from the insurance carrier as payment in full for the covered service (after deductible, copays, and coinsurance). Differences are written off.
NonPAR providers may bill the patient for the difference between the insurance payment and the allowed charge.
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