Hospital Reimbursement Models and Revenue Maximization

Introduction to Reimbursement and Pay-for-Performance

Hospital administrators must take into consideration the role of reimbursement by health insurance companies when allocating finite resources and in assessing how patients will evaluate different treatment options. One of the most common examples of this is the rise of pay-for-performance incentives. "A pay-for-performance program provides a bonus to healthcare providers if they meet or exceed agreed-upon quality or performance measures — for example, reductions in hemoglobin A1c in diabetic patients" ("Pay for Performance," 2012, par. 9). The underlying concept behind pay-for-performance is that rather than encouraging providers to offer more tests and treatments that may be unnecessary, providers are instead rewarded for patient improvement, including making diabetic patients less, rather than more, dependent upon medications.

Pay-for-performance is also used to encourage wellness promotion and to support the treatment of chronic conditions before they require expensive tertiary-level interventions. "For example, the Medicare program no longer pays hospitals to treat patients who acquire certain preventable conditions during their hospital stay, such as pressure sores or urinary tract infections associated with use of catheters" ("Pay for Performance," 2012, par. 10). Under such revenue reimbursement structures, hospitals must effectively pay for their own mistakes, theoretically discouraging errors.

Limitations and Risks of Pay-for-Performance

While the advantage of pay-for-performance from the patient's perspective is that more patients do not automatically generate more revenue — thus encouraging a manageable patient load — there are also concerns that certain types of patients, such as the very sickest or those on Medicaid or Medicare, may not be accepted by providers. This can occur when institutions seek to create a statistical impression of higher-quality care by selectively admitting patients who are less likely to experience poor outcomes.

Fee-for-Service, Bundled Payments, and Capitation Models

In terms of reimbursement methods, fee-for-service models tend to be preferred by physicians, given that all methods of care are directly reimbursed without concern as to type or patient population. Physicians believe that this straightforward model places the maximum trust in their expertise as providers ("What Payment Models Exist," 2017). The trouble with such a model, however, is that it encourages more rather than less utilization of services. From a macro-level perspective, pay-for-performance might seem superior for keeping costs down and maintaining high levels of quality.

Other common models include episode-of-care payments, in which "bundled payments reimburse healthcare providers for specific episodes of care such as an inpatient hospital stay," leaving only "a set amount of money to pay for the entire episode of care" ("What Payment Models Exist," 2017, par. 4). Arguably, this may discourage the provision of needed services. Even when a patient requires more services, there are no additional funds available, raising concerns that rationing will be used by the institution — a practice that can significantly impact quality of care.

Another reimbursement method is partial or full capitation, which actively discourages providers from offering care. "In this healthcare payment model, patients are assigned a per member per month (PMPM) payment based on their age, race, sex, lifestyle, medical history, and benefit design" ("What Payment Models Exist," 2017, par. 7). A major criticism of this method is that it discourages providers from accepting certain sicker patients, given the limited payments available to fund their care. When a patient is likely to utilize more care than is allocated, the provider may feel compelled to ration what he or she considers appropriate treatment.

Conclusion

Finally, institutions can take proactive actions to reduce the likelihood that claims will be denied, thereby reducing financial pressures on both patients and revenue collection departments. Financial triage — the practice of scanning patient records for errors and determining insurance company and patient responsibility before treatment begins — is one effective approach (Riley, 2015). Working with patients to determine the most affordable care plan given the applicable reimbursement structure will produce the best outcome for all parties involved. This process may be as straightforward as determining whether a generic rather than a brand-name drug is covered under the patient's plan.