Week 4: Cost Control and Capitation Flashcards
What is the definition of : Fee for service, Per diem, Episode of illness, Payment per capitation?
What is risk and Who is at risk in each of these modes of payment? How?
Risk: The potential to lose money, earn less money, spend more time with no additional payment
Fee-for-service: both insurance company and individual pay each time for each procedure
■ At risk: person (insurer, government agencies, insurance company) at risk for paying
the bill (the more times a person is seen, the more times the person has to make
copayments)
Payment by episode of illness: one sum is paid for all services during one illness (diagnostic
related groups for hospitals; all people diagnosed with an illness receive the same amount)
■ At risk: both the provider and the insurer; hospitals & surgeons want to decrease stay
so care might not be provided completely
Per Diem Payment to Hospitals: a fixed amount where a hospital is paid for services
delivered in one day (bundling of services)
■ At risk: provider (# of tests) and insurer (length of stay)
Capitation Payment: provider is paid one payment for every patient cared for during a
month or year
■ At risk: provider (insurance company only pays one time)
● Only incentive for MD to sign up healthy people (to avoid multiple visits
with no additional payment)
How may adding OTs into the intensive care unit (ICU) help with cost
containment?
○ More OT’s in ICU (more salary, but decreased length of stay)
○ More outpatient, community service, and home care
○ Inpatient Rehab
■ Decrease LOS important for cost containment
■ More complex patients-‐ less complex going right to subacute
○ Repeal of the 20-year therapy cap for Medicare B
What is the major difference between the British health care system and the
United States health care system?
PCP can refer to referral services (specialists, diagnostics)
■ The IPA then pays the referral service as Fee for service
■ If there is extra money at the end of the year, the PCP gets a bonus (incentive for
decreased referrals and diagnostics)
What methods are used to improve efficiency while containing cost?
*Cost Containment Strategies and Techniques - Concept of Better Health
○ Improved longevity & quality of life
○ Reduced mortality & morbidity rates
○ Relief of pain and suffering
○ Enhanced ability to function independently
○ Reduction of fear of illness & death
Cost Control Strategies
○ Controlling price Inflation
■ Prices of meds 50% higher in US than other countries
■ Specialist physician incomes increased rapidly
○ Eliminating Ineffective & Inappropriate Care
■ Controlling Quantity
■ Unnecessary care and procedures
○ Eliminating Administrative Waste
■ Admin costs to insurance, marketing, bills/claims, utilization review and not clinical
services
○ Innovation
■ Services provided by MD can be provided by nurse practitioners/PAs
■ Procedures done on out–patient basis
■ New drug that are less expensive and equally efficacious and well tolerated
○ Prevention–childhood vaccines
○ Prioritization & Analysis of Cost Effectiveness
■ Redistribution of resources—choosing the most cost effective way to address an
illness (e.g. Prevention of heart disease):
● $1000 for education on smoking cessation
● $165,000 for treating elevated cholesterol
■ Must be used with caution
● Inaccurate data-‐ the conclusions may not be correct
● May discriminate against people with disabilities (Researchers are likely to
assign less worth to a year of a disabled person (Menzel, 1992))
*Cost Containment Strategies & Techniques
Mechanisms for Controlling Costs: 2 Approaches
● Financing - controlling the flow of dollars (premium & taxes) from individuals and employers to the
health insurance plan
○ Regulatory Strategies - Government regulation of taxes serve as control over public
expenditure for health care. (e.g., Medicare Part A, Manufacturers tax, Individual Mandate
Penalty Tax)
○ Competitive Strategies - Make employers, employees, and individuals more cost-conscious in
their health insurance purchasing decisions
● Reimbursement - controlling the flow of dollars from insurance plans to physicians, hospitals and
other providers
Reimbursement controls:
○ Price Controls
■ Uniform Fee Schedule
○ Utilization (quantity) control
■ Changing the unit of payment
LEAD I Final Exam 3
■ Patient Cost Sharing - Making patients pay directly out of pocket for some portion of
their health care by using deductibles, copayments & uncovered services as part of
reimbursement transaction
What are the types of managed care plans and what do they cover?
3 Types
○ Fee for Service w/Utilization Review (UR)
■ Power to authorize/deny payment & services
○ Preferred Provider Organizations (PPO)
■ Insurers contract w/limited number of MDs/Hospitals on a discounted FFS w/UR
○ Health Maintenance Organizations (HMO)
■ pts required to receive care with providers in HMO
How is OT impacted by cost containment strategies?
○ More OT’s in ICU (more salary, but decreased length of stay)
○ More outpatient, community service, and home care
○ Inpatient Rehab
■ Decrease LOS important for cost containment
■ More complex patients‐ less complex going right to subacute
○ Repeal of the 20-year therapy cap for Medicare B
