Abstract
The healthcare systems comprise of many services that can lead to the successful delivery of treatment to the patients. Patients can receive their treatment and then the member or the hospital can contact the third party payer to reimburse them. There are numerous reimbursement methods and clients chose one that they. The methods include; the Value-Based Purchasing Medical Reimbursement, pay for performance, fee-for- service and episode-of-care payment. Each method has both its advantages and disadvantages to either the patient or the hospital. An acute care hospital which provides quality treatment to the patients within a short period utilizes the inpatient reimbursement methods. The providers give the patients the services they require either on a daily basis but those services do not take extended periods of time. They later send their claims to the insurer who refunds them after following appropriate procedures. The different reimbursement methods can either positively or negatively impact the hospital’s financial responses and revenue cycle management. The hospital management should strive to work towards maintaining their revenue cycle and ensuring that the hospital is making profits while delivering quality services.
Keywords: reimbursement, costs, health care, hospital, insurer
Healthcare Reimbursement
1.0 Introduction
The system of healthcare reimbursement is an entirely complex structure of getting the payment for the services. The challenge is that the rules which are governing the healthcare payment and reimbursement change frequently. Sometimes the government payers opt to change on a daily basis. Reimbursement in health care is a term which means compensation that a health care reimbursement plan provider remits to the patients for the settling of eligible health care expenses incurred. It entails getting refunds for the previously sustained expenses or for services that the providers gave in a healthcare setting. Payment for the hospital services can take place through different means such as the direct and indirect or public and private modes. Each of the payment methods has numerous direct implications to the financial health of the hospitals. This paper will evaluate the healthcare payment and reimbursement methods for an acute care hospital. It will also discuss how the payment methods affect financial responses and revenue cycle management.
1.1 Characteristics of the reimbursement methodologies
The reimbursement methodologies have various characteristics. They include the level of financial risk for those parties that are present, the time orientation and the unit of payment. The unit of payment can involve payment for every service like laboratory tests. Adjustment of time is prospective vis a-vis retrospective. The retrospective recompense mode ensures that third party payers pay for the health services after the client is done receiving his or her treatment and in the relevant payment methodology, the patient pays for the services before receiving them. Financial risk comes in when the health providers have to project the finances of giving the patients treatment into the future. The provider is at a risk because the patient can opt not to pay and the client assumes the risk because they have to pay the costs in higher percentages (Casto, & Layman, 2006).
The health insurance payers have various plans for healthcare reimbursement, and they carry contracts with the health systems and individual practices. They can periodically renegotiate the contracts, and this is a source of change in that system. There can be a particular price for the services occurring in the healthcare system which is contractual with the insurer and a different price for those services taking place outside that system. The fee that the patients pay for the services is not the standard retail price which the provider charges (Kennedy, 2009). The insurers have a set maximum payment that the insurer can allow for each CPT code, and this is the determining point of the amount that they will pay.
1.2 Reimbursement mechanism in acute care hospital
An acute care hospital is a health center where those who are ill receive a short-term active treatment for different conditions like urgent medical condition or recovery from surgery to mention a few. Medicare usually reimburses the hospitals based on Diagnostic Related Group of the patient. It receives a lump sum amount depending on the client’s diagnosis (Casto and Layman, 2006). The hospital can lose a lot of money if the patient stays for a longer period without being discharged and if the health center provides more services from the expected ones. Conversely, the hospital will receive a similar amount of cash, and it stands to be ahead if the patient stays in that institution for a shorter period that the expected one. However, some private payers will have an exception to this rule because they can negotiate the rates with the acute care hospital, self-pay patients and uninsured clients who will have to pay one hundred percent of the charges from their pockets (Casto and Layman, 2006).
1.3 Inpatient hospital reimbursement
An acute care hospital accepts inpatient patients, therefore, it can benefit from the inpatient payment methods. The hospital that takes this system agrees to the insurer predetermined rates so as to serve the patients. They receive the payments on a per-case or a per discharge basis. The hospital can assign the release to the diagnosis-related groups; they sort them depending on the similarity of the presenting clinical conditions and procedures that the hospital administers as they stay there. The hospital accepts payment methods which promote transparency (Kennedy, 2009). The hospital should publicly display a list indicating their standard charges, or they should give their policies so that the public can see those costs in case they want to make any inquiry.
2.0 Reimbursement Methods
2.0.1 Fee-for-Service Reimbursement
It is a reimbursement method where the providers of health care have to be paid for every treatment that they render. It is a common method that people use in calculating healthcare reimbursement. The medical insurance company pays the service providers the amount of money they are demanding for the services that they gave the patients. People for have a health insurance that reimburses in this mode have a greater advantage of great independence. The plan allows them to make major decisions like which hospital to visit and the type of condition that can get treatment. The provider or patient can submit a claim to them and if they cover for the service that they are demanding in their policies the provider or patient will immediately receive reimbursement (Blount & Waters, 2001). Fee-for-service has a disadvantage to the clients because they have very high copayments or deductibles, unlike other insurance types.
2.0.2 Self-pay
It is a fee-for –service type of fee in the acute care hospital because the guarantors or patients pay a certain amount of money the particular service that they receive (Koch, 2002). The guarantors or clients pay the service providers and then later they seek reimbursement from the government agency or the private health insurance that covers the benefits of their health. The patients who do not seek reimbursement from their insurance companies end up bearing the burden of their healthcare costs. Other payments opt to this method because they do not have a health insurance cover (Koch, 2002).
This type of reimbursement technique has an uncertainty drawback in the health insurance plans. The reimbursement cost that the providers will receive is unknown because the patients are likely to receive services that are also unknown. On the other hand, if the providers at any time increase the fee for the services that they are offering, or the clients receive high services that those in their plan, the costs are likely to increase. The cost will also increase if there is a substitution of less expensive services with services that are costly. Examples of this payment services are retrospective payment, self-pay and managed care (Blount & Waters, 2001).
2.0.3 Retrospective payment
The method pays the hospital and those delivering the services after rendering those services to the patients. In this payment system, the medical practitioners receive reimbursement for every service that they provide. The third party payer is responsible for establishing a fee schedule. The allowable charge stands for the maximum or average amount of money that they will refund the providers. The insurer can negotiate the reduction of price for all of its members so that it can easily control the costs. Making the payments when there is a decrease in fee is known as discounted fee-for-services (Blount & Waters, 2001).The method has a significant disadvantage of high uncertainty. The paying companies are not able to exactly know the total charges that they are likely to incur and the exact amount to compensate the providers.
2.0.4 Managed care method
In this technique, the reimbursement party, i.e., the insurance firm controls the healthcare charges together with its ensuing aftermaths. The third party implements some provisions so as to govern the healthcare expenses and maintain excellent standard of care. One way in which they control the costs is by instructing the patients to obtain early approvals for surgeries. Its standard features include; the control of costs, comprehensiveness, assessment of quality, education of providers and patients and planning and coordination (Koch, 2002). The forms of managed care include; exclusive provider organizations, well-being preservation establishments, ideal benefactor groups, and the point-of-treatment strategies. The critics argue that this method severely limits the patients’ capability of accessing care and their freedom to choose the healthcare provider that they prefer. It also restricts the ability of the provider to order therapeutic tests and diagnostic tests.
2.1 Episode-of-care Repayment
It is a payment mode where the providers of health care services get lump sum payment for the services that relate to a disease or a condition that they deliver. When it takes place, the episode is the unit of the amount and not the health service of each. Therefore, this method automatically eliminates individual charges or fees. It attempts to correct the fault perceptions that are there regarding the fee-for-service payment method. It controls the costs on a regular or grand scale. They define an episode as the exact number of days for delivery of services. It is applicable in the acute care hospital because the patients receive treatment for a specific number of days (Wouters, 1998). The various forms of episode of care compensation include prospective payment, comprehensive disbursement, and capitation.
2.1.1 Capitated payment method
It is common for different treatments where the health care reimbursement provider compensates the hospital a permanent constant amount of money over a particular time. According to this mode, per capital refer to per person or head. The members have to pay a monthly fee for this health insurance plan. The intensity or volume of services that the providers give to the patients has no significant effect on the reimbursement. Capitation has no modifications regarding the extent or complexity of services provided. Its advantage is that there are no uncertainties from the third party payer, and there is a guarantee in the customer base from the provider (Wouters, 1998). The third party payer has an idea about the group healthcare costs, and the provider has an assurance that members of a particular group will be their customers. However, there is significant uncertainty on the provider’s side because the range of services that the customers will receive and the cost of services that the practitioners will offer is unknown (Wouters, 1998).
2.1.2 The global payment method
In this approach, the insurance payer makes a combined amount which has an aim of covering various services of many providers who work together to treat and care for a single episode. It consolidates all the healthcare payments. The providers do not demand an additional payment when they offer high proportions of treatments or complex and affluent services. Medicare reimbursement system and the household health services are good illustrations of this disbursement technique. The method can cover the following services in an acute care hospital occupational therapy, physical therapy, and speech therapy. There is a comprehensive version known as total-episode-of-care in this payment method. For any incident of care, this version is a solitary fee covering all the charges across the specrtrum of care (Koch, 2002). The prices include; physician’s professional fee for consultation, surgery, and anesthesia. Facility costs, fee for the professional and technical procedures and the home care costs. It also has a less comprehensive version which includes only inpatient costs or only ambulatory costs. The global surgical package is another less comprehensive version that encompasses the topical or local anesthesia, postoperative or preoperative clinical visits, the operation and the postoperative follow-up (Koch, 2002).
2.1.3 Prospective payment methods
The third party payer has to establish the payment rates for the healthcare services of a particular period in advance. They predetermine the rates by considering the average level of the use of resources for given types of healthcare (Getzen, 2010). When dealing with individual patients, the services providers can make or lose money, but, over a specified period, the practitioners should evenly come out. They can determine the payment by examining the average patient’s resource needs over a given time, and they also consider the disease or certain illnesses. The reimbursement systems signifying the dual conditions are case-based refund and per-diem compensation.
The per day or diem payment method is where the third party payer has to reimburse the provider on a fixed day that the member spends in the hospital. The providers and the third-party payer have to consider many factors s as to establish this payment rate. The factors include severity of the patient’s illness, the length of services, the costs and the volumes of service. Critics of this method argue that this approach can encourage the benefactors to upsurge the amount of their client’s hospital charges and to outspread the stay length in the hospital. For the case-based payment, the third party payer gives reimbursement to the providers by considering each case and not per-diem each service. They determine the payments by assessing the average ancient reserve desires for clients for a specific disease or disorders. The critiques argue that this system booties efficient and effective conveyance of activities, and it reprimands the inefficient and ineffective distribution. Providers that effectively and efficiently treat patients receive costs are below average (Averill et al., 2002).
2.2 Value-Based Purchasing Medical Reimbursement
Many researchers propose that the fee-for-service payment method overburdens the healthcare payers, especially on Medicaid and Medicare expenditures. The Medicaid and the Medicare team together with the Congress policymakers came up with the value-based purchasing so that it can be part of the Act of Affordable care. It has an aim of moving Medicare from passive purchaser to a purchaser who is ongoing inefficient quality care. This reimbursement method incorporates the use of quality medical technologies such as PHR and HER. It helps to support the patient partnerships and consumers have a right of making informed decisions concerning their health care because they have a chance of seeing different information about care quality and cost. Additionally, it encourages the health providers and physicians by proving them with additional incentives so that they can produce the best care (Cleverley & Cameron, 2007). The method increases transparency because the hospital has an obligation of publicly reporting any care that is dealing with pneumonia, heart attacks, operating care, and other health-related illnesses.
2.3 Pay for Performance
Many insurers are creating new reimbursement systems which openly the physicians and health providers for offering certain services and doing certain things. Those compensation systems are known as pay for performance (P4P).The insurers give an extra amount of money to the provider meets certain standards that have an association with quality care. For example, a health practitioner in an acute care hospital can receive additional reimbursement if ninety percent of the patients that are diabetic are on medication, and they come for the quarterly blood tests. That hospital can get reimbursement if it is among the lowest ten hospitals that are having minimal hospital-acquired infections and a reduction in the medical errors (Cleverley & Cameron, 2007). The agenda here is to ensure that the hospital provides better quality health care something that in the short run will cost the insurers but will yield positive long-term results of reduction in the medical expenses. Sometimes they can make the provider incur the cost by reducing the payments to those performing poorly and using the payments to pay the good performers.
3.0 Effect of the payment methods on the financial responses and the revenue cycle management.
The efficiency of the reimbursement methods has a critical impact on the hospital’s financial performance and revenue cycle management. It is essential to determine the ultimate insurer whether it is a third party company or a house team (Getzen, 2010). The hospital’s revenue cycle encompasses numerous steps beginning with the patient making an appointment to the time when the insurer has cleared the bills, and there is no balance on that client’s account. It consists of the front-end office tasks such as insurance eligibility verification and appointment scheduling; clinical care related tasks such as charge capture and coding and the back office tasks such as managing the denied claims, statement processing, payment posting and the claims submission (Crocker, 2006).
The efficiency and speed of turning the reimbursement dues into cash determine whether the hospital will thrive or it will fall (Gapenski, 2005). A hospital should have an active demand management which understands how to negotiate the contacts of the insurers and is familiar with the restrictive and complex rules of different insurance companies. The claims that receive reimbursement that is below the contractual rates or services which do not get billings because of certain billing process inefficiencies can have an adverse impact on the hospital’s revenue cycle management. When a claim receives adjudication, it can turn out to be a highly expensive proposition on the hospital (Gapenski, 2005).
The self-pay payment system leads o confusion among the hospital staffs and the patients regarding the amount that is available currently and what they will owe or bill later. It negatively impacts the revenue cycle management, and it can be challenging to implement different financial management decisions because it can be difficult to make an approximation of the exact amount that is currently available in the hospital (Averill et al., 2002). Health insurance systems have complex insurance filing procedures can make the hospital have many clients at a given time, but those patients end up carrying balances which they settle later within an unknown period.
If an acute care hospital has a billing team with appropriate experience, the hospital’s revenue is likely to increase. The reimbursement and payment methods can increase the hospital’s profits because they usually receive a lump sum amount immediately after processing all these documents. The billing team with relevant knowledge can bill for highest revenues, and they can implement practices which are likely to reduce any audits. They can apply principles that are advanced so as to make clear distinction in the flow of cash in the hospital (Crocker, 2006). By following all those procedures, the hospital can have an improvement in the revenue cycle management, and it can result in any financial response.
The prospective payment method has a significant effect on the acute care hospital financial responses and revenue cycle management because they can end up incurring extra costs as they get pre-established rates (Crocker, 2006). The method can make the hospital incur a lot of losses in many patients are using it. However, this cannot happen because the clients present various reimbursement methods. Some methods are likely to give the hospital profits which can cover up for the losses made through other means. By using the payment methods, the hospital’s financial responses and its revenue cycle management are always working so that they can appropriately address and make claims to the third party insurer or patients (Crocker, 2006).
4.0 Conclusion
In conclusion, reimbursement methods are necessary because they enable the client to receive the services at an acute care hospital, and the hospital can later make the claim to get a refund for those services. The payment or reimbursement methods include; Value-Based Purchasing Medical Reimbursement, pay for performance, payment for treatment and incident-of-care reimbursement. The methods can be applicable in the acute care hospital because the hospital can get payment for the service they offer or some days that the patient is in the hospital. The payments methods can have a positive and adverse impact on the hospital’s financial responses and its revenue cycle management. If hospitals thrive to adapt modern technology and employ personnel with relevant experience, they can financially benefit from the different reimbursement methods. For appropriate administration of the hospital revenue cycle process, the medical practice needs to monitor the cycle of income aspects continuously from the scheduling point to zero balance in their account.
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