The report discusses the financial management system within the healthcare setting, and three methods that healthcare organizations determine their payment basis. They include cost-payment basis, price related basis and fee schedule payment basis. The paper also discusses various strategies that providers employ to control their revenues and the strategies include price setting, contract negotiation and billing/coding management.
Financial Management
Discussion on the Three Payment-Determination Basis.
The payment system describes the method by which the healthcare organizations such as Medicaid, Medicare, Commercial Health Plan and others determine the amount to be paid for a certain health program. The three payment determination bases are as follows:
Cost-payment basis
Fee schedule payment basis
Price related basis. (Cleverley, Cleverly, & Song, 2010).
A cost payment basis shows that provider's cost is the underlying method of payments and the rules to determine the costs are the contract between the healthcare provider and payer. For example, cost-payment basis is referred as the cost of provider's ratio multiply by total charges for specific healthcare claims. Payment for the claim reaching $1,000 charge is the 50% of $1,000, which is the cost ratio that providers charge and would be $500 payment, which is equivalent to 50% times $1,000
A fee schedule is the actual payment that is predetermined and unrelated to either provider's actual price or provider's actual costs. For example, Medicare payment for a patient in the hospital for the Reattachment of Lower Extremity or Major Joint Replacement has a predetermined payment such as $14,500. The actual charge or the costs are not relevant once DRG assignment has been carried out. Thus, physician's payment on the service is the fee schedules and the fee schedules are negotiated and are accepted since providers are participating in Medicaid and Medicare.
A price related basis is the payment system where the providers are paid for the services delivered based on the total charge for service delivered to patients. A payer may negotiate for the 75% billed charge with healthcare provider and there could be a total charge of $7,500, which is 75% of $10,000.
While the report discusses the different payment method, there are still other payment services called bundle services and specific services. Thus, the report provides difference between bundle services and specific services.
Differences between Specific Services and Bundle Services
Payment Basis
Difference between Specific services and Bundled services
Unit of Payment
Cost
Fee Schedule
Price Related
Specific services
High-cost of drugs Devices
Resource-based relative to value scale and Ambulatory payment classifications
No contract
Self-pay
Outpatient
Bundled services
Some government assists clinics payments on an annual budget
DRGs
Per diem
Outpatient surgery groups
Outliers
Bundle services are the aggregate service delivered to patients with one payment for the healthcare system. For example, some healthcare implement healthcare contract plan where there is a payment for inpatient service on DTG or per day basis. In Bundle services, payments for the services delivered are fixed in advanced and based on the agreed service delivered. For example, there could be $1,000 per day that cover all services delivered, which is bundled into unit of payment since the provider's payment is the same regardless level of the ancillary medical service delivered per day.
On the other hand, specific services payment is the individual services delivered to patients within an encounter of care, which is not in aggregate. For example, a contract for the payments made for outpatient services is based on discount-billed charge, which is 75% of bill charged. Typically, this type of outpatient provision related to the provider's prices is based on prices of specific services delivered. These services include lab test, radiology procedures and other procedures delivered to patients.
The specific services are different from bundle services on the ground that health plan are not on negotiated contract with a provider. In this case, the payment method is based on billed charge, which is related to the specific services delivered to patients. In specific services, the apportionment of payment responsibility needs to be worked out between the health plan and their patients because patients may be out of network and hospital will require payment based on billed charges. Unlike the specific services, bundle services implement health contract plan that pay hospitals on a DRG basis with a specific provision for outliers.
Moreover, specific services are associated with high costs of drugs, however bundled services are associated with low costs of drugs because governments assists some government clinics with the payment of drugs and the provision is included in the annual budget.
American Medical Association (2013) argues that Bundle payments are a type of single payment that covers services delivered by two or more health providers and being delivered over a specific period. For example, a patient having cardiac bypass surgery will pay bundle payment rather than making one payment to surgeon, another payment to hospital and third payment to the anesthesiologist. Common examples of bundle payments are global surgery periods or global payments for obstetrical care.
Method Providers Control their Revenue
Providers use three methods to control their revenue in contemporary economic environment, and these strategies include:
1. Price setting
2. Payer contract negotiation
3. Billing/coding management
Price setting is the process by which healthcare providers establish specific price for the service delivered. Typically, a healthcare provider could actually fix a large price, and pricing is the critical revenue element for many healthcare firms. However, in some healthcare firms, pricing may not be related to prices. For example, a nursing home may derive 80% of its revenue from Medicare and Medicaid on fee schedule basis while the remaining 20% of the revenue derived by the nursing home may be affected by the set prices that may affect the nursing home's profit and loss.
Payer contract negotiation is another strategy that healthcare providers control their revenue. Many healthcare providers derive substantial portion of their revenue from commercial insurers through contract negotiation. Any provider is able to negotiate a payment schedule to lower costs of operations. (Gesme, & Wiseman, 2010).
Billing and coding is another method that healthcare providers control their revenue. Billing and coding is very critical in the contemporary healthcare payment environment, and providers who fail to deliver their services will not be paid for those services. For example, if a provider administers injectable drugs to a patient and the drug is not coded, there would be a lost payment. Cleverley et al. (2010) argue that information regarding the services delivered is recorded in the health medical records, which are used for billing process.
"The Health Insurance Portability and Accountability Act (HIPAA) of 1996 designated two specific coding systems to be used in reporting to both public and private payers" (Cleverley et al. 2010 P. 17). The coding system is as follows:
1. "International Classification of Diseases, and Clinical Modification (ICD-9-CM)." (Cleverley et al. 2010 P. 17).
2. " Healthcare Common Procedure Coding System (HCPCS)." (Cleverley et al. 2010 P. 17).
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