Compensation of Providers in Managed Health Care

(Reimbursement)

Prepared by : Dr. Alber Paules

Introduction
In the US, private financing (mainly through employers) accounts for approximately 55% of total health care expenditures; the government finances the remaining 45%.

Introduction
MCOs are referred to as third-party payers; who are the other two parties?

Payment made by third-party payers to the providers is called reimbursement.

Reimbursement Under Managed Care

Managed Care Organizations reimburse providers (facilities and practitioners) through several methods.
Reimbursement methods

Prospective Payment System (PPS)

Straight Salary

Discounted Fee-for-service (FFS)

Prospective Payment Systems

Reimbursement systems that provide healthcare providers with a pre-negotiated fixed set of payment rates.

Types of PPSs:
1. Capitation: pre-payment for services with a fixed amount of money on a PMPM (Per Member Per Month) basis. 2. Case rate/Flat rate/Global fee: common with costly procedures and surgeries at tertiary hospitals (e.g.) CABG Transplantsetc. It is a pre-negotiated fixed payment. It is paid regardless of the actual resources (time & effort) used.

Types of PPSs: (continue)

In obstetrics, for example, many plans use the same flat rate for either a vaginal delivery or a Caesarian section, therefore eliminating any financial incentives to prefer one over the other; this has been associated with a decrease in the CS rate. In some plans, payment for a surgery may include the cost of operation + pre- and post-operative care + one or more followup office visits. Fee paid here is called Global fee.

Types of PPSs: (continue)

3. Per diem charges: Reimbursement of a hospital on the basis of a set (agreed-upon) rate per day rather than on charge. Per diem reimbursement can vary by service/setting (e.g.) medical/surgical, obstetrics, and intensive care.

CAPITATION

Commonest with PCPs. A prepayment for services on a per-member per-month basis (PMPM). In other words, a PCP is paid the same amount of money every month for a member regardless of whether the member receives services or not, and regardless of how expensive those services are.

CAPITATION
Calculation of capitation payments: (rough calculations)

If a PCP receives 45$/visit and his/her visitation rate per member per year is estimated as 3 primary care visits. then, 3x45/12 = $11.25 (revenue per member per month) = capitation rate.

CAPITATION
Capitation payments may be affected by many factors that affect the utilization of medical services; these include: 1- Scope of covered services 2- Age and gender

CAPITATION
For example, capitation rate for a member younger than 18 years is usually high and this rate is reduced gradually till the age of 45, then starts to rise again. For the age group (18-45), that rate is higher for female members than that for male ones; this reflects the higher costs for women in their childbearing period.

CAPITATION
There are 2 broad categories for risk for capitated PCPs:
1) Service risk: If service volume is high, PCP receives relatively lower income per encounter. It is common for PCPs to feel that their capitation patients are abusing the service by coming in too frequently.

CAPITATION
There are 2 broad categories for risk for capitated PCPs:
2) Financial risk:
Withholds: a % of primary care capitation that is withheld every month and used to pay for cost overruns in referrals (SCPs) and institutional (hospitals) services at the end of the year. If not needed/used, the withholds are returned back to the PCPs.
(e.g.) if rate paid to PCP is 10$ PMPM [-2], then the PCP receives only 8$ PMPM

Problems with Capitation

Chance: Bad luck may rise from the presence of many members who need relatively expensive medical interventions (e.g.) chronic hepatitis patients.
Inappropriate under-utilization: this is dangerous and should be avoided. Plan management must make sure that the plan physicians are not following this tenet through monitoring their performance.

Discounted Fee-For-Service (FFS)

This is a modified form of fee-for-service. After services have been delivered, the provider can bill the MCO for each service separately. Here, the provider makes discounts for the MCO (i.e.) discounts off the regular fees the provider would otherwise charge. Providers agree to discount their fees in exchange for volume of patients the MCO brings them.

Discounted Fee-For-Service (FFS)

FFS results in distribution of payments on
the basis of expenditure of resources (i.e.) a physician who is caring for sicker patients will be paid more, reflecting the physician's greater investment of time, effort and skills.

Problems with FFS in Managed Health Care Plans

The most significant problem with using FFS in managed health care plans is: Churning: this means that physicians perform more procedures than are really necessary and schedule patient re-visits at frequent intervals. Solution: switching to capitation or developing peer review committees to review utilization of those physicians.