Sources of Health Sources of Health Care FinancingCare Financing

How we pay for health care:How we pay for health care:

Private payPrivate pay Group health insuranceGroup health insurance Government sponsored plansGovernment sponsored plans

How we pay for health careHow we pay for health care

Private pay — payment directly from Private pay — payment directly from the client to the providerthe client to the provider

Group Health Insurance — pooling Group Health Insurance — pooling individual contributions for insurance individual contributions for insurance — purpose is to avoid financial — purpose is to avoid financial disaster (termed third-party coverage)disaster (termed third-party coverage)

Three examples: Blue Cross, Blue Three examples: Blue Cross, Blue Shield; commercial insurance; HMOsShield; commercial insurance; HMOs

How we pay for health care:How we pay for health care:

Government-sponsored plansGovernment-sponsored plans– Medicare:Medicare:

Federally sponsored since 1965Federally sponsored since 1965 Person must be over 65Person must be over 65 US citizenUS citizen Must have worked 10 years in medicare-Must have worked 10 years in medicare-

covered employmentcovered employment Has two Parts: “A” covers inpatient Has two Parts: “A” covers inpatient

hospitalization and includes a deductible, hospitalization and includes a deductible, coinsurance; “B” pays 80% of most chargescoinsurance; “B” pays 80% of most charges

How we pay for health care:How we pay for health care:

Government sponsored plans:Government sponsored plans:– Medicaid (medical assistance)Medicaid (medical assistance)

Federal and state money is administered by Federal and state money is administered by the statethe state

Developed out of welfare systemDeveloped out of welfare system Services low income familiesServices low income families

Prospective Payment PlansProspective Payment Plans

Began to contain rising costs of Began to contain rising costs of Medicare payments; others joined inMedicare payments; others joined in

Reimbursement plan in which each Reimbursement plan in which each diagnosis is given a “cost” of carediagnosis is given a “cost” of care

Hospitals are told in advance how Hospitals are told in advance how much money they will receive for this much money they will receive for this “cost” of care for individual diagnosis“cost” of care for individual diagnosis

Lead to Diagnosis-related groups Lead to Diagnosis-related groups (DRGs)(DRGs)

Diagnosis Related Groups Diagnosis Related Groups (DRGs)(DRGs)

Puts diagnosis and procedures into categories Puts diagnosis and procedures into categories and has set rates for what the government will and has set rates for what the government will pay for each — how much it SHOULD costpay for each — how much it SHOULD cost

Amount is paid to the facility without Amount is paid to the facility without considering the actual cost of caring for the considering the actual cost of caring for the patientpatient

Causes shorter hospital stays and fewer Causes shorter hospital stays and fewer admissionsadmissions

Over 500 DRGsOver 500 DRGs Private insurance companies now follow systemPrivate insurance companies now follow system

Managed careManaged care

Health care delivery system with cost Health care delivery system with cost controls – the goal is to match the patient’s controls – the goal is to match the patient’s needs with the appropriate treatment while needs with the appropriate treatment while monitoring delivery of care and outcome of monitoring delivery of care and outcome of services in a cost-efficient mannerservices in a cost-efficient manner– Health Maintenance Organization (HMO)Health Maintenance Organization (HMO)

Must see physician within HMOMust see physician within HMO Discourages lots of testsDiscourages lots of tests Focuses on preventative medicineFocuses on preventative medicine Usually all providers are within same building or serviceUsually all providers are within same building or service Services and costs are set by the HMOServices and costs are set by the HMO

Managed CareManaged Care

Preferred Provider Organization Preferred Provider Organization (PPO)(PPO)– Similar to HMOsSimilar to HMOs– Group of physicians who agree to work Group of physicians who agree to work

together and provide services at set together and provide services at set costs for memberscosts for members

– Physicians retain private practicePhysicians retain private practice

Reimbursement TrendsReimbursement Trends

Capitation – a set amount of money Capitation – a set amount of money received or paid outreceived or paid out– Monthly fee charged by the provider Monthly fee charged by the provider

(whatever is NOT used up in services, is (whatever is NOT used up in services, is kept by the provider as profit)kept by the provider as profit)

– Urges to keep costs down (no Urges to keep costs down (no unnecessary tests or treatments)unnecessary tests or treatments)

– Wellness encouragedWellness encouraged– No deductibles, co-paymentsNo deductibles, co-payments

Reimbursement TrendsReimbursement Trends

CapitationCapitation– PlusesPluses

Provider obtaining money up frontProvider obtaining money up front There is known amount of money allowing There is known amount of money allowing

budgeting of resources by the providerbudgeting of resources by the provider

– MinusesMinuses The provider assumes the entire financial The provider assumes the entire financial

risk (additional costs due to serious or risk (additional costs due to serious or chronic illnes)chronic illnes)

Reimbursement TrendsReimbursement Trends

Fee for service – providers are Fee for service – providers are reimbursed for chargesreimbursed for charges– Traditional methodTraditional method– Pay for the service you receivePay for the service you receive– Has lead to “deductibles” (amount you pay Has lead to “deductibles” (amount you pay

before your insurance coverage begins) and before your insurance coverage begins) and “co-payments” (percentage of bill you pay)“co-payments” (percentage of bill you pay)

– Some “preventative” tests and services are Some “preventative” tests and services are not paid for, but usually all “treatments” not paid for, but usually all “treatments” areare

– Emphasis on illnessEmphasis on illness

Reimbursement TrendsReimbursement Trends

Fee for serviceFee for service– PlusesPluses

the insurer assumes the financial riskthe insurer assumes the financial risk usually entails less administrative workusually entails less administrative work

– MinusesMinuses there is no incentive for the provider to be there is no incentive for the provider to be

cost effectivecost effective

Reimbursement TrendsReimbursement Trends

Per Diem – reimbursement of an Per Diem – reimbursement of an institution, usually a hospital, is based on institution, usually a hospital, is based on a set rate per day rather than on chargesa set rate per day rather than on charges– PlusesPluses

The provider knows the reimbursement amount and The provider knows the reimbursement amount and can plan accordinglycan plan accordingly

– MinusesMinuses Managed care organizations usually negotiate Managed care organizations usually negotiate

discounted with the providerdiscounted with the provider The consumer may use extensive resources costing The consumer may use extensive resources costing

more than the per diem rate will covermore than the per diem rate will cover

Reimbursement TrendsReimbursement Trends

Per Case – reimbursement is at a fixed Per Case – reimbursement is at a fixed rate, usually based on diagnosis or a rate, usually based on diagnosis or a procedureprocedure– PlusesPluses

Provider benefits financially if cases are managed Provider benefits financially if cases are managed effectively and efficientlyeffectively and efficiently

Provider knows initially what the payment will be and Provider knows initially what the payment will be and can monitor accordinglycan monitor accordingly

– MinusesMinuses Complications and delays can be costly to providerComplications and delays can be costly to provider Provider must be able to quantify all costs for a Provider must be able to quantify all costs for a

specific procedure to determine if adequate specific procedure to determine if adequate reimbursement is receivedreimbursement is received

Reimbursement TrendsReimbursement Trends

Diagnoses Related Groups (DRGs)Diagnoses Related Groups (DRGs)