Financial Management Discussion on the Three Payment-Determination Research Paper

Excerpt from Research Paper :

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


Fee Schedule

Price Related

Specific services

High-cost of drugs Devices

Resource-based relative to value scale and Ambulatory payment classifications

No contract



Bundled services

Some government assists clinics payments on an annual budget


Per diem

Outpatient surgery groups


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,…

Sources Used in Document:


AMA (2013). Bundled Payments. American Medical Association. USA.

Carver, J. (2010).Healthcare Common Procedure Coding System (HCPCS) Level II

Coding Procedures. Centers for Medicare & Medicaid Services.

Cleverley, W.O. Cleverly, J.O. & Song, P.H. (2010). Essentials of Health Care Finance. Jones & Bartlett Publishers,

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