HI 225 Ch01 pp ts.ab202017

1. © 2018 American Health Information Management Association© 2018 American Health Information Management Association
Principles of Healthcare Reimbursement
Sixth Edition
Anne B. Casto, RHIA, CCS

2. © 2018 American Health Information Management Association
Chapter 1
Healthcare Reimbursement Methodologies
• Learning Objectives
– Distinguish between the three national models of healthcare
delivery
– Describe the size and complexity of the US healthcare delivery
sector
– Recognize the influence the federal government is in the US
healthcare sector
– Define health insurance
– Compare the types of healthcare reimbursement methodologies
– Differentiate retrospective reimbursement from prospective
reimbursement
– Define the terms associated with healthcare reimbursement
methodologies
– Examine healthcare spending trends in the US
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3. © 2018 American Health Information Management Association
Introduction to Healthcare
Reimbursement
• You should learn it
– Assist patients and clients
– Garner accurate revenue for health organizations
– Help yourself and family
• You can do it
– Step-by step
– Terms, jargon, and abbreviations
– Payers’ policies and procedures
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4. © 2018 American Health Information Management Association
National Models of Healthcare Delivery
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Social
Insurance
Model
AKA Bismark model
Universal healthcare
coverage for a set of
benefits defined by the
national government
Amount of contributions
are proportionate to
workers’ and
employers’ incomes
National Health
Insurance
Model
AKA Beveridge model
Government owns the
clinics and hospitals
and pays the doctors
and health personnel
who work in these
public facilities
Single payer system
financed by country’s
general revenues
(taxes)
Private Health
Insurance
Model
United States
Many private health
insurance companies
exist in addition to
federally run programs
Private insurance
companies determine
premium but it is not
based on incomes,
rather past health/risk
assessment

5. © 2018 American Health Information Management Association
US Healthcare Sector
• Three
characteristics
– Size
– Complexity
– Intricate payment
methods and rules
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“…an administrative monstrosity,
a truly bizarre mélange of
thousands of payers with
payment systems that differ for no
socially beneficial reason, as well
as staggeringly complex public
systems with mind-boggling
administered prices and other
rules expressing distinctions that
can only be regarded as weird.”
Henry J. Aaron, noted healthcare
economist
Aaron, H.J. (2003). The costs of health care
administration in the United States and Canada —
questionable answers to a questionable question. New
England Journal of Medicine, 349(8):801-803.

6. © 2018 American Health Information Management Association
Dominance of Federal Healthcare
Payment Methods
• Medicare is the largest single payer
• Medicaid, joint federal-state program, is
largest source of federal revenue for states
• First-mover
– Demonstration projects to advance healthcare
reimbursement methods and models
– Changes in federal payment systems are adopted
by other payers in commercial environment
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7. © 2018 American Health Information Management Association
Health Insurance
• Health insurance
– Reducing a person’s exposure to risk of loss by having
another party assume the risk
• Reimbursement
– Compensation or repayment for healthcare services
already rendered
• Distribution of risk across poll to account for varying
health statuses (estimate of average costs)
– Risk: Probability of incurring loss
– Risk pool: Group of people who will be covered by a
healthcare insurance plan
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8. © 2018 American Health Information Management Association
Health Insurance Premiums
Dollar amount that policy holder or certificate holder must periodically
pay a healthcare insurance plan in return for healthcare coverage
Insurance company assumes insureds’ exposure to risk of loss in
return for premium
Actuarial data used to calculate the amount of premium needed to
cover all group’s potential health costs
Insurance company pools premiums to ensure that the pool is large
enough to pay losses for the entire group
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9. © 2018 American Health Information Management Association
Historical Perspectives
• In the early 1900s individuals purchased
sickness funds instead of health insurance
– Sickness funds are like today’s disability
insurance
• Many European countries had adopted forms of
nationalized health insurance by the 1920s,
however, in the US efforts for the compulsory,
nationalized health insurance were opposed by
physicians, pharmaceutical firms and insurance
companies
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10. © 2018 American Health Information Management Association
Historical Perspectives
• US development and evolution
– 1929 first insurance offered by BCBS to
school teachers in Texas
– 1940s and WWII
• Executive and judicial acts to address labor
shortage
• Became the basic structure of US insurance
• Why insurance is linked to employment in US
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11. © 2018 American Health Information Management Association
Health Insurance and Employment
• For larger employers health insurance is part
of an employment benefit package
• When people experience a job loss, they
often experience a loss in their health
insurance
– COBRA
• Extend health insurance
– ACA
• Enroll in federal marketplace
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12. © 2018 American Health Information Management Association
Insurance Coverage
• Single coverage
– Healthcare coverage for the employee
• Dependent (family) coverage
– Healthcare coverage for a spouse, partner or
children
• Employer may pay a portion of the
employee’s premium for healthcare insurance
– Employee must pay remaining portion plus
premium for all dependents
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13. © 2018 American Health Information Management Association
Third Party Payment
Term Meaning
1st Party Person receiving services or
responsible for person receiving
services: Patient, Client, Resident,
Guarantor
2nd Party Entity rendering services: “Provider,”
such as physician, hospital, home
health agency, nursing home, clinic,
DME supplier, or other
3rd Party Uninvolved party that pays for health
services: payer, such as health
insurance companies, workers’
compensation, and Medicare
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14. © 2018 American Health Information Management Association
Reimbursement Process
Claim – request for payment for services provided to the patient
Charge – set dollar amount that is the price for the item (aka fee)
Adjudication – process in which the payer verifies that all billing
requirements have been met and determines which services are
eligible for reimbursement
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15. © 2018 American Health Information Management Association
Types of Healthcare Reimbursement
Methodologies
Retrospective
Based on actual resources expended
Total amount of resources not known until after
delivery
Risk is on the payer because payer costs are
unknown until after service delivery
Prospective
Providers receive predetermined amount for all
services provided during an episode of care
Provider faces fiscal loss if costs exceed
reimbursement. Provider achieves profit if costs are
less than reimbursement
Risk is on the provider side because payment rates
are established in advanced and fixed for a specified
time frame
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16. © 2018 American Health Information Management Association
Retrospective – Fee Schedule
• Predetermined list of fees that the payer
allows for payment for a set of healthcare
services
– Allowable charge is the average or maximum
amount the payer will reimburse providers for a
service
• Contracting unit is an individual service
• Total volume of services are unknown until
the visit or encounter is completed
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17. © 2018 American Health Information Management Association
Retrospective – Percent of Billed
Charges
• Payer has negotiated to pay a reduced fee
for services provided to their insureds
• Contracting unit is the claim
• Example:
– Payer A pays 70% of billed charges for
chemotherapy services
• If charge equals $1,000, then reimbursement is
$700
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18. © 2018 American Health Information Management Association
Retrospective – Per Diem
• Payer reimburses the provider a fixed rate for
each day a covered member is hospitalized
– Prevalent for the inpatient setting
– Fixed rate may vary by type of service or room
(for example, ICU bed versus general surgery
bed)
• Contracting unit is an inpatient day
• Retrospective because the total number of
days at each level of service is unknown until
after the care is provided
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Prospective - Capitation
• Payer reimburses the provider a fixed, per
capita amount for a defined period
– Per member per month
• Contracting unit is the person or covered life
• Volume or intensity of service has no impact
of reimbursement level
• Providers can attempt to control utilization by
engaging in population health
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20. © 2018 American Health Information Management Association
Prospective – Case Rate
• Payer reimburses the provider one amount
for the entire admission or encounter
regardless of the number of services or
length of admission.
• Contracting unit is the episode
• Providers earn profit or experience loss
based on the cost of providing care
– Encourages cost control
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Prospective – Global Payment
• One combined payment to cover the
services of multiple providers who are
treating a single episode of care
– Typically used for physician services and
outpatient care
• Contracting unit is the episode
• Example – outpatient dialysis
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22. © 2018 American Health Information Management Association
Prospective – Bundled Payment
• Predetermined payment amount is provided
for all services required for a single
predefined episode of care.
– Lump sum payment amount is designed to pay
for multiple providers coordinating care
• Contracting unit is the episode
• Typically a service or onset of a condition
initiates the episode of care
– Example in text: MD Anderson Head and Neck
Cancer Bundle
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23. © 2018 American Health Information Management Association
Types of Healthcare Reimbursement
Methodologies - Criticisms
Retrospective
Few incentive to control costs
Little incentive to order less expensive services
Rewards providers for more services regardless
of whether such service are warranted
Prospective
Creates incentives to substitute less expensive
procedures and tests
Creates incentives to delay or deny procedures
and treatments
No quality component
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Trends in Healthcare Reimbursement
• Constantly increasing healthcare spending
• Efforts to reform the healthcare system
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25. © 2018 American Health Information Management Association
Constantly Increasing Healthcare
Spending
• In 2015, $3.2 trillion was spent on
healthcare
• 17.8 percent of gross domestic product
(GDP) in 2015
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Healthcare Reform
• The exact parameters and framework of
healthcare reform are on ongoing debate
– Increased spending on healthcare
– Unsafe, inequitable and poor quality of care
– Health disparities, lack of access to care
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Affordable Care Act
• Patient Protection and Affordable Care Act
of 2010
• Health Care and Education Reconciliation
Act of 2010
• Collectively known as the Affordable Care
Act (ACA)
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28. © 2018 American Health Information Management Association
ACA
Purposes
• Decelerate the
rate of increase
in healthcare
costs
• Improve
population
health,
healthcare
access, and
healthcare quality
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Title I
Quality, Affordable
Healthcare for All
Americans
Title II
Role of Public
Programs
Title III
Improving the Quality
and Efficiency of
Health Care
Title IV
Prevention of Chronic
Disease and Improving
Public Health
Title V
Health Care Workforce
Title VI
Transparency and
Program Integrity
Title VII
Improving Access to
Innovative Medical
Therapies
Title VIII
CLASS – Community
Living Assistance
Services and Support
Title IX
Revenue Provisions
Title X
Strengthening Quality,
Affordable Care for All
Americans