Cost accounting is one of the most challenging areas in accounting to understand. “A cost accounting system is a system for recording, analyzing and allocating cost to the individual services provided to patients (e.g., medications, procedures, tests, room and board) (Becker’s Hospital Review, 2014). The healthcare industry has been working toward the goal of correlating cost with quality.
Read
Porter, M. E., & Lee, T. H. (2016). From volume to value in health care: the work begins. Jama, 316(10), 1047-1048.
Discuss how healthcare providers and patients can benefit when cost is correlated with quality of the healthcare services provided.
Post an original discussion of a few paragraphs and support your statements with research
Additional Resource
Week #2: OVERVIEW
Health Insurance, Managed Care and Reimbursement Methodologies
We examine the basic methodologies via which both health care organizations and health care providers are paid for the goods and services they provide. On the institutional side, the main source of revenue for most healthcare organizations is from employer sponsored health insurance (e.g., Cigna, United, Blue Cross & Blue Shield, Anthem, etc.) and government payers (Medicare, Medicaid, Tricare, Indian Health, and the Veterans Health Administration). One would think that each insurance carrier and government health care payment system would follow the same basic methodologies. In reality, there are some areas of overlap, but there are many areas of difference as well. This creates a requirement within the hospital setting to maintain oversight on each patient record to ensure the requirements for reimbursement are met so the organization can be properly reimbursed. However, regardless of payer, only a limited number of payment methods are currently used to reimburse for healthcare services.
PAYMENTS TO HOSPITALS
Methods for hospital payments fall into several broad classifications, listed below:
Fee-for-service: In fee-for-service (FFS) payment methods, of which many variations exist, the more services provided, the higher the reimbursement. The three primary fee-for-service methods of reimbursement are cost based, charge-based, and prospective payment. Ninety-five percent of all payments are provided based on a FFS basis as recently as 2013. See the link below.
Fee-for-Service Still Dominates in United States: https://www.medscape.com/viewarticle/860003
(requires free registration)
a. Cost-based Reimbursement: In cost-based reimbursement, the payer agrees to reimburse the provider for the costs incurred in providing services to the insured population. Cost based reimbursement is retrospective in the sense that reimbursement is based on what has happened in the past. This type of reimbursement is limited to allowable costs, usually defined as costs directly related to the provision of healthcare services. For all practical purposes, cost-based reimbursement guarantees that providers costs will be covered by revenues generated from the delivery of those services. The nuances of the cost-based reimbursement system as applied in the Critical Access Hospital (CAH) setting is discussed in the link below.
Critical Access Hospital Finance 101 Manual: https://www.ruralcenter.org/sites/default/files/CAH%20Finance%20101%20Manual.pdf
b. Charge-based Reimbursement: In charge-based reimbursement, payers pay billed charges according to a fixed rate schedule called the charge master, which is established by the provider. To a certain extent, this reimbursement system places payers at the mercy of providers, especially in markets where competition is limited. Some private insurers negotiate rates with hospitals for services provided to a defined beneficiary group at some reduction from the charge master rate. Beginning in 2019, all hospitals are now required to post their charge master in digitally readable format. Examples for the state of California can be located at the website below.
Hospital Charge masters: Hospital Charge masters – OSHPD (ca.gov)
c. Prospective Payment Reimbursement (PPS): In prospective payment reimbursement, the rates paid by payers are determined by the payer before the services are provided. Furthermore, payments are not directly related to either costs or charges. The common units of payment used in prospective payment systems are: (1) Per procedure, (2) Per diagnosis and (3) Per diem (per day). The Center for Medicaid Services (CMS) currently maintains several prospective payment system models, including both the Inpatient Prospective Payment System (IPPS) and the Outpatient Prospective Payment System (OPPS). In addition to these, several other PPS methods are used for different health care settings including Home Health, Hospice, Inpatient Psychiatric, Inpatient Rehabilitation, Long Term Care, Skilled Nursing, Federally Qualified Health Centers (FQHCs). A complete list of PPS programs and the data used by CMS to support each one of them can be found at the link below.
Prospective Payment Systems General Information: Prospective Payment Systems – General Information | CMS
2. Capitation:
Capitation is an entirely different approach to reimbursement than fee-for-service. Under capitated reimbursement, the provider is paid a fixed amount per covered life per period (usually a month), regardless of the amount of services provided. Capitation payment, which is used mostly by managed care organizations to reimburse primary care physicians, dramatically changes the financial environment of healthcare providers. Regardless of how the payment is distributed, the capitation sum is applied to cover the costs incurred in providing a predetermined set of services to a pool of capitation patients. By providing a fixed budget with which to treat a pool of patients, physicians are motivated to minimize healthcare costs. Note that here, the topic of RISK surfaces. Unlike in fee-for-service models, with capitation-based reimbursement, the risk transfers from the insurer to the provider. If costs are ineffectively managed to stay within the fixed payment amount, healthcare providers may experience unsustainable financial losses. The American College of Physicians provides a good review of the capitation reimbursement methodology at the website below.
Understanding Capitation: Capitation Payments | Understanding Capitation | ACP (acponline.org)
3. Value Based Care
In recent years, escalating cost pressures and health care quality concerns have driven employers, payers, and patients to seek alternative methods to incentivize and reimburse health care services. The site RevCycleIntelligence.com reports, Value-based care is a form of reimbursement that ties payments for care delivery to the quality of care provided and rewards providers for both efficiency and effectiveness. This form of reimbursement has emerged as an alternative and potential replacement for fee-for-service reimbursement which pays providers retrospectively for services delivered based on bill charges or annual fee schedules. In order to transform how healthcare providers are reimbursed for services rendered, the Centers for Medicare & Medicaid Services (CMS) has itself introduced an array of value-based care models, such as the Medicare Shared Savings Program and Pioneer Accountable Care Organization (ACO) Model. Private payers have in turn adopted similar models of accountable, value based care. While the traditional fee-for-service reimbursement model promoted quantity of services, federal officials have proposed several reimbursement programs that reward healthcare providers for the quality of care that they give to patients. Value-based care aims to advance the triple aim of providing better care for individuals, improving population health management strategies, and reducing healthcare costs. In more basic terms, value-based care models center on patient outcomes and how well healthcare providers can improve quality of care based on specific measures, such as reducing hospital read missions, using certified health IT, and improving preventative care.
Read more about this evolutionary change in health care reimbursement at the site below.
What Is Value-Based Care, What It Means for Providers? (revcycleintelligence.com)
PAYMENTS TO PROVIDERS
According to the American Medical Association, a bit more than half (52.5 percent) of physician compensation came from salary in 2016, almost a third (31.8 percent) came from personal productivity, 9 percent came from practice financial performance, 4.1 percent came from bonuses, and 2.5 percent came from other sources. There is, in general, a gradual trend toward alternative payment methods being used to compensate practices. But on the individual-physician level, personal productivity remains a key driver of compensation.
Read more about the physician compensation at the site below.
This is how physicians get paid. See where you fit. | American Medical Association (ama-assn.org)
In alignment with the recent value-based changes to hospital reimbursement, there are also modifications emerging to the provider reimbursement methodology. These changes are moving providers away from the traditional personal productivity driver of compensation mentioned above.
MACRA
MACRA is the Medicare Access and CHIP Re-authorization Act. MACRA replaces the current Medicare reimbursement schedule with a new pay-for-performance program thats focused on quality, value, and accountability. The Centers for Medicare and Medicaid Services (CMS) stated that MACRA enacts a new payment framework that rewards health care providers for giving better care instead of more service. President Obama signed into law the Medicare Access and CHIP Re-authorization Act. (MACRA) on April 16, 2015. It passed with a 392 to 37 vote in the House of Representatives, and a 92 to 8 vote in the Senate. That bipartisanship indicates the legislative support for MACRA and the significance of the bill in U.S. healthcare reform. MACRA combines parts of the Physician Quality Reporting (PQRS), Value based Payment Modifier (VBM), and the Medicare Electronic Health Record (EHR) incentive program into one single program called the Merit-based Incentive Payment System, or MIPS.
MACRA Explained: Do MACRA, MIPS, and APMs Have You Confused? Let’s Clarify the Future of Healthcare Reimbursement
Merit-based Incentive Payment System (MIPS)
MIPS is the name of a new program that will determine Medicare payment adjustments and is an acronym for the Merit-Based Incentive Payment System. Using a composite performance score, eligible professionals (EPs) may receive a payment bonus, a payment penalty, or no payment adjustment. The Composite Performance Score is based on four performance categories:
Quality
Resource use
Clinical practice improvement activities
Meaningful use of certified electronic health records (EHR) technology
Performance for MIPS was set to start on January 1, 2017 and continues to evolve. Recent legislation has extended some and will annually measure eligible providers in four performance categories to derive a MIPS score (0 to 100). The MIPS score can significantly impact a providers Medicare reimbursement in each payment year from -9% to +27% by 2022. The four performance categories are weighted as indicated below. The points provided for each category will shift over time to place an increasing focus on more resource use.
50% for quality (PQRS/VBM)
25% for Meaningful Use
15% for clinical practice improvement
10% for resource use
For more information on the MIPS program, review the website below.
Merit-based Incentive Payment System (MIPS) Overview – QPP (cms.gov)
Alternate Payment Models (APMs)
An APM is a payment model that deviates from traditional fee-for-service. The traditional process for reimbursing physicians for their services under Medicare Part B is to pay for services according to the Physician Fee Schedule (PFS). Under this approach, practices are paid a set fee for each service delivered. Under the Value Modifier (VM) for 2018 and under MIPS in 2019, payments can be adjusted either up or down depending on scores in each program. If an organization adopts one of CMS APMs, they agree to be paid according to the rules of that payment model, which is some variation of the PFS or a new model all together. APMs require healthcare organizations (often a hospital and affiliated physician practices) to align themselves with the goal of taking better care of a population of patients, often defined by a geographic region. A common example of an APM is a Medicare Shared Savings Plan (MSSP) also known as an Accountable Care Organization (ACO). Under an MSSP, if the organization can realize savings by providing high-quality and low-cost care to a defined group of Medicare beneficiaries seen by the providers participating in the MSSP, Medicare will share the savings with the ACO. This payment structure incentivizes physicians to work together to improve the care of patients.
For more information on the APMs, review the website below.
Alternative Payment Models (APMs) Overview – QPP (cms.gov)
Last Completed Projects
| topic title | academic level | Writer | delivered |
|---|