NR_552 Week 4 Discussion, Paying for Medical Services

Paying for Hospital Services NAME Chamberlain College of Nursing NR 552: Economics of Healthcare Policy Dr. Poirier DATE Compare and contrast the various methods of payment for hospital services. Which payment model do you feel best meets the criteria of cost efficiency, allocative efficiency, and cost containment? Explain your choice Week 4: Paying for Hospital Services Payment models should be helpful by promoting access to health care, quality health care services, improved equity, efficient and effective resource use, and cost containment (Langenbrunner et al., 2009). Based on these objectives, the approach to payment models can be made in three major ways (Langenbrunner et al., 2009). First, patients can make direct payments. Secondly, they can make direct payment but full or partial reimbursement is made later, and finally, direct payment through a financial intermediary where the patient only makes an informal charge or a copayment (Langenbrunner et al., 2009). From these three approaches, a number of payment methods emerge as discussed in the subsequent paragraphs. The first payment method is called fee-for-service. In this plan, the healthcare provider receives a reimbursement for every individual service offered (Langenbrunner et al., 2009). The method can either be output based or input based (Langenbrunner et al., 2009). For output based, the provider receives a fixed fee for predefined service irrespective of the costs incurred (Langenbrunner et al., 2009). For input based payment, providers charge patients for all incurred costs in the provision of each service (Langenbrunner et al., 2009). The merits of a fee-for-service method include easy development and implementation and it can improve access to health care in rural areas. However, it can increase health care expenditure (Langenbrunner et al., 2009). The second method is called a bundled payment. Here, a single payment is made for an entire clinical episode (Porte & Kaplan, 2016). The payment covers readmissions, post-surgical care, ED visits, and day-of-surgery care which may include the surgeon’s anesthesia, facility costs, and laboratory work. It covers the entire cost of full treatment for a given condition. This payment method holds the entire medical team to accountability for achieving the desired outcome (Porte & Kaplan, 2016). Medicare introduced the Bundled Payment for Care Improvement in 2011 to allow participants to enter into an agreement with a physician who will provide care during clinical trials (Centers for Medicare & Medicaid Services, 2015). However, this method does not apply to primary care, chronic diseases or nonsurgical conditions (Porte & Kaplan, 2016). The third method is called capitation. In this case, payment is not made for every single service but a single payment is made every month for each patient to a single health provider (Porte & Kaplan, 2016). It brings down the overall treatment costs for the entire population. However, patients are only interested in their own treatment rather than the whole population (Porte & Kaplan, 2016). Therefore, it is not aligned to efficient and better care for each patient’s condition. It also inhibits competition among providers and its costs restrict patient choice (Porte & Kaplan, 2016). Capitation meets the criteria for cost efficiency, allocative efficiency, and cost containment. For cost efficiency, it ensures preventive care and eliminates overprovision hence controlling the cost of healthcare (Liu, 2003). Since the provider receives fixed payments, he can come up with technology that reduces cost, use low-cost alternative treatment, and provide cost-effective healthcare (Liu, 2003). This can help in cost containment and improve allocative efficiency (Liu, 2003). The payment method motivates providers to offer preventive services, diagnostic services, health screening, and earlier detection to reduce treatment costs (Liu, 2003). These have the overall benefit to the patient To conclude, payment methods should meet the major objectives of payment methods. They should promote improved and quality health care services, control costs, improve allocative efficiency and ensure cost-effective treatment. Fee-for-service payment, bundled payment, and capitation are some of the payment models. Capitation meets all the criteria of cost-efficiency, allocative efficiency, and cost containment. Reference Langenbrunner, J. C., O'Duagherty, S., & Cashin, C. S. (Eds.). (2009). Designing and Implementing Health Care Provider Payment Systems: “How-to" Manuals. The World Bank. Liu, X. (2003). Policy tools for allocative efficiency of health services. World Health Organization. Porter, M. E., & Kaplan, R. S. (2016). How to pay for health care. Harv Bus Rev, 94(7/8), 88- 100. Centers for Medicare & Medicaid Services. (2015). Bundled Payments for Care Improvement (BPCI) initiative: general information. Available at https://innovation. cms. gov/initiatives/bundled-payments/View in Article PROFESSOR RESPONSE TO POST: Thank you, Carole. Are there disadvantages to capitation? RESPONSE TO PROFESSOR: Dr. Poirier, After doing some research I found that the top disadvantages to capitation include: • Encourages high patient-physician ratios. • Creates the potential for undertreatment. • Physician personal financial risk can be high if the care of complex or chronically ill patients is taken in. • It can restrict patients’ choice. Capitation is often viewed as a health purchasing system that can be helpful in the reduction of the overall cost of care. However, doctors are induced by the financial incentives to enroll many patients. Capitation creates incentives for physicians to minimize services provided to patients and to attract large numbers of patients to their practice (Sorbero, Dick, Zwanziger, Mukamel, & Weyl, 2003). A high enrollment gives little room for adequate physician-patient-interaction and examination. Thus, capitation results in shorter office visits and longer waiting times for appointments. Despite the intention of lowering costs, this system can be detrimental to clients who need advanced care since many complex cases are ignored to limit expenses. Capitation generates potentially strong financial incentives for physicians to care for patients that are healthier and less time-consuming, in order to keep costs down and profits up, and to avoid high-cost patients requiring extensive care (Sorbero, Dick, Zwanziger, Mukamel, & Weyl, 2003). The patient’s choice to a physician is restricted. If a primary care provider (PCP) leaves a network the patient must choose another PCP or pay out of pocket. Patient’s must obtain a referral before seeing a specialist or undergoing a procedure. Reference Sheehan, J. (1997). Capitation infatuation. Colorado Business Magazine, 24(11), 20. Sorbero, M. S., Dick, A. W., Zwanziger, J., Mukamel, D., & Weyl, N. (2003). The effect of capitation on switching primary care physicians. Health Services Research, 38(1 Pt 1), 191-209. RESPONSE TO PEER POST: Katherine, Thank you for your detailed information on capitation and fee-for-service (FFS) payment models. I have to admit before this week I never even heard of capitation payment. It’s been quite interesting reading and learning about both forms of payment along with other alternative forms of payment. In order to create, maintain, and grow a practice, it’s essential to have an effective payment system. I understand that FFS can create an uncertain financial climate for providers because finances depend on the number of services rendered. This potentially incentivizes providers to schedule more unnecessary medical procedures. FFS is also a volume-based system that can become costly and cumbersome for both the provider and the patient. On the other hand, capitation is a quality-based payment model and is intended to create a system that fosters efficiency and cost-control while providing incentives for better health care. Capitation payment is based on targeting population health management. Shared savings programs reward physicians for lowering the cost of care as well as improving quality. It seems that to me if the economics of value-based care is ever going to work, medical providers and insurance companies are going to have to align every stakeholder's incentives around driving quality, curbing costs, and improving the experience for both patients and providers.