Test 2 Flashcards
Chapters 6 & 7
Market Structure
- Most healthcare markets are regional in nature
- There are travel limits beyond which most consumers will not venture
- Greater share of the market leads to greater leverage when negotiating health plans.
Charge Description Master (CDM)
A list of all items for which a firm has established specific prices.
Cost Shifting
The increasing payment from payers to cover losses from governmental and charity patients.
Discounts from Billed Charges
A negotiated reduction from list price granted to a health plan or uninsured patient.
Uncompensated Care Percentage
The cost of care provided to indigent patients after subtracting any payment.
Outlier Provision (Stop-Loss)
A provision that specifies that the hospital may pay on a basis other than per diem or case if charges exceed a specific limit.
Payment Basis
Defines how the actual payment will be made.
Three Primary methods:
1) Cost
2) Fee Schedules
3) Price-related
Unit of Payment
Defines how the services provided are consolidated into an actual claim.
Two Primary Methods:
1) Specific Services- Individual items listed in a claim
2) Bundled Services- Specific services listed in a claim are paid on some aggregated basis (i.e. DRG, per diem)
Factors Influencing Pricing
The establishment of CDM prices and the negotiation of managed care contracts.
Three Factors Driving Policies:
1) Required Net Income
2) Competitive Position
3) Market Structure
CDM Price Setting (4 Elements)
4 Factors must be mathematically reflected in prices.
1) Average Costs
2) Losses on 3rd-party fee-schedule payments
3) Write-offs on billed-charge patients
4) Reasonable return on investment
-Failure to incorporate these will lead to financial failure.
Factors that Increase Prices
- Increase in costs
- Government programs that pay less than cost
- Managed-care plan fee schedules that do not pay above cost
- Increases in required profit
- Reduction in charge-paying patients
- Increases in uninsured patients
Reasonableness of Charges
2 Ways of determination:
1) Return-on-investment adequacy
2) Comparison with other health care firms
Reasonableness of Charges: ROI Adequacy
ROI = (Revenue - Cost)/Investment
Issues:
- Is ROI reasonable?
- Are costs reasonable?
- Is investment reasonable?
Reasonableness of Charges: Comparison with Competitors
Compare prices with similar hospitals and hospitals within the same region
Managed Care Contract Negotiations
-Critical to continues financial solvency
2 Key Areas:
1) Contract language
2) Payment rates
Four Health Plan Activities: Underwriting
HP’s receive premium from buyers and make payments to providers.
Four Health Plan Activities: Utilization Review
- Medical Necessity
- Case Management
Four Health Plan Activities: Claims Administration
- Validate coverage and payment terms
- Coordination of benefits
Coordination of Benefits
The process of assigning payment responsibility when multiple insurers exist.
Point of Service (POS)
A hybrid between an HMO and a PPO in which patients are given the incentive see to providers participating in a defined network but may see non-network providers, usually at an additional cost.
Primary Care Gatekeeper
Primary care physician serves as a central triage point for the referral and approval of services.
Four Health Plan Activities: Marketing
Selling insurance polices through the use of various media and salespeople
Major Types of Health Plans: Staff Model HMO
Physicians are employees of the HMO or they provide most of their services to HMO members through a contractual relationship.
-Most importantly, Primary Care Physicians
Major Types of Health Plans: Group Model HMO
HMO contracts with one or more medical groups to provide all necessary services to its members.
-Physicians must come together and transfer all or most of their practice assets and liabilities to the group entity.
Major Types of Health Plans: Individual Practice Associations (IPA) Model
Loose affiliation of independent physicians who have not come together and integrated their practices in any substantive way.
Major Types of Health Plans: Network Model HMO
- Hybrid of Staff, Group and IPA.
- Must be able to access a pool of cost-effective physicians who can manage care.
Major Types of Health Plans: Conventional/Indemnity Plans
-Highest freedom of choice
Major Types of Health Plans: Point of Service (POS) Plans
- Hybrid HMO
- Allows visits outside of recommended physicians.
Major Types of Health Plans: Preferred Provider Organizations (PPO) Plans
Allow for out-of-network visits but require members to pay for these benefits in the form of higher co-payments and deductibles.
-Similar to HMO with a POS option
Major Types of Health Plans: High Deductible Health Plans with Savings Option Plans (HSA)
Individuals can fund medical bills using pretax dollars.
-Initial payment from HSA, until deductible is met.
-aka: Consumer-directed health plans
Per-Member-Per-Month (PMPM)
The most common way in which providers receive capitated payments.
Integrated Delivery Systems (IDS)
“A strategic alliance among doctors, hospitals, and other ancillary providers to deliver care to a defined population.”
- May vary in the nature of services they provide.
- Some have developed their own health plans.
Factors Leading to IDS Growth
- Payer Negotiation
- Fewer payers drives providers to integrate
- Outpatient Service Growth
- Integrated Data Systems
- Emergence of EHR
- Productivity
Control Alternatives to IDS
- Physician Hospital Organization (PHO)
- Medical Service Organization (MSO)
- Physician Organizations (PO)
Provider Payment in IDS
- Capitation:
- Usually PMPM
- Must define covered benefits
- Salary/Budget
- Only when providers are owned by IDS
- Fee For Service
- Payment related to utilization
- No risk for utilization variance
Factors in Setting PMPM Rates
- What services are included?
- Should stop-loss coverage be purchased?
- What provisions for adverse selection should be included?
- How to capture “incurred but not reported” (IBNR) liabilities
Legal and Regulatory Issues
- Antitrust: Price fixing
- Increment: “Commercially reasonable”
-Licensure as an Insurer:
Is an IDS required to be licensed as an HMO?
- Incentives to reduce services by physicians
- Intentional Torts
