Features of Third-Party Payers: How reimbursement and coding affects the healthcare system

The healthcare services market is a very unique entity from the perspective of an economist. Unlike conventional markets, where consumers can very easily compare prices, patients face a very opaque market where costs are largely concealed from them. This is further complicated by the fact that the majority of consumers do not pay for their healthcare directly; rather this payment is mediated through third-party payers in the form of for-profit or not-for-profit private health insurance companies or, in the case of Medicaid and Medicare, state and federal agencies ("Chapter 3," n.d., p. 64). Some patients obtain their care through Health Management Organization (HMOs) and Managed Care Organizations (MCOs) (both of which usually created by insurance companies), which use a system of rationed services and gatekeeping to manage costs within their network. The theory is that by integrating preventative and rehabilitative services with conventional medicine there is less of an incentive to over-treat and over-screen for conditions and thus encourage cost savings ("Chapter 3," n.d., pp. 64-65).

Reimbursement methods may include fee-for-service models: in this method the greater the number of services and the more costly they are, the higher the level of reimbursement. The criticism of this model, however, is that unlike the HMO approach, it encourages more heroic and unnecessary measures because reimbursement...

Cost-based fee-for-service models reimburse based upon what happened in the past, as the name indicates ("Chapter 3," n.d., p.66). Reimbursement is retroactive. In contrast, with charge-based models "when payers pay billed charges, they pay according to a rate schedule, called a chargemaster, established by the provider" which places payers more at the mercy of providers in terms of how much they will receive back ("Chapter 3," n.d., p.67). When fee-for-service models are used today they are usually only used when insurers have negotiated more favorable terms ("Chapter 3," n.d., p. 67). Insurers with managed care plans often have greater bargaining power because of the large number of patients they bring to a provider, so they can negotiate discounts that generally range from 20% to fifty percent ("Chapter 3," n.d., p. 67).
In contrast, in a prospective payment method, reimbursement rates are determined by the payer before the services are provided in the form of payment per procedure or payment per diagnosis. Some institutions are paid on a per diem basis based upon how many days of service are provided for the patient; global reimbursement takes place when a single payment covers all payments made for a patient's single, health-related condition ("Chapter 3," n.d., p. 67). These methods are less likely to incentivize simply providing as many services as possible to make money.

Thanks to the demands…