Health Care Health Care Organization and Organization and

FinanceFinance

Unit 4 Unit 4

Town Hall SeminarTown Hall Seminar

Key Elements in the Debate Key Elements in the Debate Undegirding the Health Care Undegirding the Health Care

Payment System in the United Payment System in the United StatesStates

Key Events in the Evolution of the Key Events in the Evolution of the Health Care Payment System in Health Care Payment System in

the United Statesthe United States

Healthcare Industry: Inpatient FocusedFacility Growth

Bearer of Cost Risk: Provider and PatientGovernment: Mostly Uninvolved on Payment SideEmployer: Largely PassiveInsurance: Just Beginning (Indemnity Primarily)

Healthcare Industry: Still Inpatient FocusedSlower Facility GrowthTechnology Boom

Bearer of Cost Risk: Payor Government: Takes Major Role

Cost-Based Payment Employer: Concern about CostsInsurance: Indemnity Growth

Managed Care Catches On

Healthcare Industry: Outpatient Medicine Grows RapidlyCosts Skyrocketing Managing Care- Primary FocusQuality Control Technology Still Booming

Bearer of Cost Risk: Shift to ProvidersGovernment: Even More Aggressive RoleEmployers: Adjusting Benefits to Control CostsInsurance: Managed Care (HMOs/PPOs) Dominant

Early Years Middle Years Later Years

HistoryHistory In most payment systems in this era (1929–1965), the provider In most payment systems in this era (1929–1965), the provider

set the price. The payment the provider received was based on set the price. The payment the provider received was based on the price. Either the provider was paid on a discount off of that the price. Either the provider was paid on a discount off of that price, or the provider was paid in full for the services. price, or the provider was paid in full for the services.

After the early years, for about 20 years, the rise of Medicare After the early years, for about 20 years, the rise of Medicare and Medicaid led to additional payment systems. In these years, and Medicaid led to additional payment systems. In these years, the payment to the provider was shifting to a system based the payment to the provider was shifting to a system based upon the costs of the services, not the price the provider set for upon the costs of the services, not the price the provider set for the services. Under this system, the payor would look back on the services. Under this system, the payor would look back on the provider's costs and base future payments upon those costs. the provider's costs and base future payments upon those costs.

The modern era, from roughly 1983 to the present, managed The modern era, from roughly 1983 to the present, managed care has been the dominant theme. This era saw many different care has been the dominant theme. This era saw many different types of payment systems, including flat fee systems, capitation types of payment systems, including flat fee systems, capitation programs, diagnostic related groups systems, and prospective programs, diagnostic related groups systems, and prospective payment systems. The emphasis in this era was a shift in the payment systems. The emphasis in this era was a shift in the incentives to reduce costs from the payors to the providers. incentives to reduce costs from the payors to the providers.

Medicare and Medicaid Medicare and Medicaid Entitlement ProgramsEntitlement Programs

  Medicare Medicaid

Who Pays For Program? Federal Tax on Income Federal and State Tax on Income (Feds pay larger share based on State's per capita

income)

Who Is Covered? -People aged 65 and older - People with Disabilities

  -Some people with disabilities under age 65 - The Poor

  -People with End-Stage Renal Disease - Needy Women and Children

   

How Many Are Covered? 1980 - 28.5 Million

1981 - 20.2 Million

  1990 - 34.2 Million 1990 - 23.9 Million

  1999 - 39.9 Million 1999 - 42.2 Million

 

 

Percent Of Americans Covered 14% 15%

Percent Of Older Americans Covered (65+) 97% -

Expenditures1980 - $36 Billion

1980 - $24.7 Billion

  1990 - $108 Billion 1990 - $71.2 Billion

  1999 - $212 Billion 1999 - $159.2 Billion

 

 

Percent Of Total Healthcare Expenditures (1999) 17.6% 15.4%

Predicted Enrollment in 2010 46.6 Million (22% of total population) 46.7 Million (22.04% of total population)

Current Payment Systems Current Payment Systems

One system is a per-case reimbursement mechanism under which inpatient admission cases are divided into relatively homogeneous categories called diagnosis-related groups (DRGs). In this DRG prospective payment system, Medicare pays hospitals a flat rate per case for inpatient hospital care so that efficient hospitals are rewarded for their efficiency and inefficient hospitals have an incentive to become more efficient.

Flat Fee SystemsFlat Fee Systems Flat fee systems base reimbursement to Flat fee systems base reimbursement to

providers on a predetermined amount for providers on a predetermined amount for each service provided. This is usually each service provided. This is usually negotiated between the payor and provider negotiated between the payor and provider and can be a fee for each procedure, each and can be a fee for each procedure, each inpatient day, each admission, each inpatient day, each admission, each diagnosis, or other service. The theory diagnosis, or other service. The theory behind this system is that the payor (and behind this system is that the payor (and the employer) can more accurately project the employer) can more accurately project costs and limit possible liability. The costs and limit possible liability. The provider is responsible for managing costs provider is responsible for managing costs so that the service provided costs less than so that the service provided costs less than the amount reimbursed. the amount reimbursed.

Managed CareManaged Care Managed care is a concept that represents Managed care is a concept that represents

another attempt to shift the financial risk another attempt to shift the financial risk for health care from patients and payers to for health care from patients and payers to providers. The object of managed care is to providers. The object of managed care is to incentivize health care professionals to incentivize health care professionals to prescribe only necessary drugs, treatment, prescribe only necessary drugs, treatment, and tests and not overutilize any of these and tests and not overutilize any of these services or items. In general, managed care services or items. In general, managed care encompasses health promotion and disease encompasses health promotion and disease prevention among the patients insured or prevention among the patients insured or covered by a managed care plan. covered by a managed care plan.

Capitation ContractsCapitation Contracts

Under capitation an HMO or other Under capitation an HMO or other managed care organization pays the managed care organization pays the doctor a fixed amount of money for doctor a fixed amount of money for each member enrolled in the health each member enrolled in the health insurance plan each month. The insurance plan each month. The doctor is then responsible for any of doctor is then responsible for any of the plan's members who may need the plan's members who may need health care or medical services health care or medical services during that month.during that month.

Capitation ContractsCapitation Contracts

The physician becomes a mini-The physician becomes a mini-insurance company under capitation by insurance company under capitation by taking on the financial risk of service taking on the financial risk of service and resource utilization: the doctor and resource utilization: the doctor agrees to accept a premium payment, agrees to accept a premium payment, and the doctor provides the services and the doctor provides the services when required. Many doctors must when required. Many doctors must embrace capitation because many embrace capitation because many managed care organizations require it.managed care organizations require it.

Three Kinds of CapitationThree Kinds of Capitation

The first is fixed-rate per-member, per-The first is fixed-rate per-member, per-month (PMPM). For example, ABC HMO may month (PMPM). For example, ABC HMO may come to the doctor and say it has 7,500 come to the doctor and say it has 7,500 members in its plan and that it will pay the members in its plan and that it will pay the doctor $10.20 PMPM to provide services to doctor $10.20 PMPM to provide services to this population. Under this agreement, ABC this population. Under this agreement, ABC HMO will pay the doctor $76,500 per month, HMO will pay the doctor $76,500 per month, and doctor will assume the risk of providing and doctor will assume the risk of providing whatever care the doctor agrees to provide whatever care the doctor agrees to provide to ABC's 7,500 members whenever they to ABC's 7,500 members whenever they need it. need it.

Three kinds of capitation Three kinds of capitation

The second type of capitation The second type of capitation agreement bases the PMPM payment agreement bases the PMPM payment on the sex and age of the covered on the sex and age of the covered population. For example, for male population. For example, for male members aged 65 – 70, the PMPM members aged 65 – 70, the PMPM payment may be $7; for females aged payment may be $7; for females aged 65 – 70, $6; for males aged 70 – 85, 65 – 70, $6; for males aged 70 – 85, $21; for females 70 – 85, $10.50, and $21; for females 70 – 85, $10.50, and for both sexes aged 85 and over, $15. for both sexes aged 85 and over, $15.

Three kinds of capitationThree kinds of capitation

Under the third type of capitation Under the third type of capitation agreement, the payer offers doctor a agreement, the payer offers doctor a percentage of the insurance premiums it percentage of the insurance premiums it charges its members and their charges its members and their employers. For example, ABC HMO may employers. For example, ABC HMO may offer to pay doctor 9.4 percent of the offer to pay doctor 9.4 percent of the $108 premium it charges each enrollee $108 premium it charges each enrollee for membership in its health plan. That for membership in its health plan. That means doctor would get $10.20 PMPM means doctor would get $10.20 PMPM under this agreement.under this agreement.

PMPM PaymentsPMPM Payments

Determining whether PMPM payments are Determining whether PMPM payments are adequate is certainly among the most important adequate is certainly among the most important considerations when weighing capitation considerations when weighing capitation agreements. To calculate whether a PMPM agreements. To calculate whether a PMPM payment will be adequate, answer three crucial payment will be adequate, answer three crucial questions:questions:

How many members were in the health plans last How many members were in the health plans last year? year?

What was their utilization history? What was their utilization history? What will it cost you to meet that demand of What will it cost you to meet that demand of

resource utilization? resource utilization?

Example of Employee Benefits Using Example of Employee Benefits Using Co-Payments and DeductiblesCo-Payments and Deductibles Service Plan Coverage

     

  Participating Provider Non-Participating Provider

MD Office Visit 100% after Copayment 70% after Co-Payment

Emergency Room Visit 100% 100%

Inpatient Stay 100% after Deductible 70% after Deductible

Prescription Drugs 100% after Copayment 70% after Deductible

Service Employee Responsibility

     

  Participating Provider Non-Participating Provider

MD Office Visit $10 Copayment per Visit $25 Copayment per Visit

Emergency Room Visit Subject to Plan Approval Subject to Plan Approval

Inpatient Stay $200 Deductible per Stay/ $1,000 Maximum per Year $200 Deductible per Stay/ $1,000 Maximum per Year

Prescription Drugs $5 Copayment/Prescription $10 Copayment/Prescription

Premium Rate Setting Premium Rate Setting MethodologyMethodology

Population Demographics(Age,Sex, Type of Work, etc.)

Determine Total Number of Cases for Specific Diagnosis

Ex.-19.1 Colo rectal Cancer Cases

Negotiate Rate/Day with Provider and Multiply

by Number of Days($1,000/day X 124 = $124,000)

Length of Stay( 6.5 days)

Amount/Yearto Charge

Each Member($1.24/yr or 0.103/month)

Add this Amt/Yearto All Other

Identifiable Healthcare Needs($1.24+$.89 for Pneumonia+$3.45 for Heart Disease, etc)

Total HospitalDays

124 Days

X =

/ Number of Covered Lives

(100,000)

=

Final Amount/Year to Charge Members

(Average$1560/year or $130/month)

Other Factors AffectingFinal Amount

CompetitionGeographic Location

+

Administration and Profit

(15-25%)

13-10

Population Demographics(Age,Sex, Type of Work, etc.)

Determine Total Number of Cases for Specific Diagnosis

Ex.-19.1 Colo rectal Cancer Cases

Negotiate Rate/Day with Provider and Multiply

by Number of Days($1,000/day X 124 = $124,000)

Length of Stay( 6.5 days)

Amount/Yearto Charge

Each Member($1.24/yr or 0.103/month)

Add this Amt/Yearto All Other

Identifiable Healthcare Needs($1.24+$.89 for Pneumonia+$3.45 for Heart Disease, etc)

Total HospitalDays

124 Days

X =

/ Number of Covered Lives

(100,000)

=

Final Amount/Year to Charge Members

(Average$1560/year or $130/month)

Other Factors AffectingFinal Amount

CompetitionGeographic Location

+

Administration and Profit

(15-25%)

13-10

The Patient's Bill of Rights was created The Patient's Bill of Rights was created

with the intent to reach 3 major goals:with the intent to reach 3 major goals: To help patients feel more confident in the U.S. health care To help patients feel more confident in the U.S. health care

system; the Bill of Rights: system; the Bill of Rights: – assures that the health care system is fair and it works to assures that the health care system is fair and it works to

meet patients' needs meet patients' needs – gives patients a way to address any problems they may have gives patients a way to address any problems they may have – encourages patients to take an active role in staying or encourages patients to take an active role in staying or

getting healthy getting healthy 1)1) to stress the importance of a strong relationship between to stress the importance of a strong relationship between

patients and their health care providers patients and their health care providers 2)2) to stress the key role patients play in staying healthy by to stress the key role patients play in staying healthy by

laying out rights and responsibilities for all patients and laying out rights and responsibilities for all patients and health care providers health care providers

3)3) This Bill of Rights also applies to the insurance plans This Bill of Rights also applies to the insurance plans offered to federal employees. Many other health insurance offered to federal employees. Many other health insurance plans and facilities have also adopted these values. Even plans and facilities have also adopted these values. Even Medicare and Medicaid stand by many of them.Medicare and Medicaid stand by many of them.

Here is a summary of major Here is a summary of major differences between the proposed differences between the proposed

Senate bill and the legislation passed Senate bill and the legislation passed

by the Houseby the House The Senate bill contains a tax on The Senate bill contains a tax on

“Cadillac” insurance plans, with more “Cadillac” insurance plans, with more generous benefits and higher generous benefits and higher premiums than typical plans, a tax premiums than typical plans, a tax on the cost of cosmetic surgery and on the cost of cosmetic surgery and a Medicare payroll surtax of 0.5 a Medicare payroll surtax of 0.5 percent on wages over $200,000 for percent on wages over $200,000 for an individual, $250,000 for couples. an individual, $250,000 for couples.

Here is a summary of major Here is a summary of major differences between the proposed differences between the proposed

Senate bill and the legislation passed Senate bill and the legislation passed by the Houseby the House

The House bill contains none of these The House bill contains none of these provisions, but imposes a new 4.5-provisions, but imposes a new 4.5-percent surtax on incomes above percent surtax on incomes above $500,000 for single filers, $1,000,000 $500,000 for single filers, $1,000,000 for joint filers and surviving spouses. for joint filers and surviving spouses.

Here is a summary of major Here is a summary of major differences between the proposed differences between the proposed

Senate bill and the legislation passed Senate bill and the legislation passed by the Houseby the House

Both the House and the Senate bills Both the House and the Senate bills would mean substantial insurance would mean substantial insurance market reforms that would bar market reforms that would bar insurers from excluding people for insurers from excluding people for pre-existing conditions and prevent pre-existing conditions and prevent them from arbitrarily dropping policy them from arbitrarily dropping policy holders. holders.

Here is a summary of major Here is a summary of major differences between the proposed differences between the proposed

Senate bill and the legislation passed Senate bill and the legislation passed by the Houseby the House

The House bill requires more The House bill requires more generous benefits than the Senate generous benefits than the Senate bill. The Senate bill also allows bill. The Senate bill also allows insurers to offer less expensive insurers to offer less expensive catastrophic coverage to young catastrophic coverage to young people and those who get hardship people and those who get hardship waivers. waivers.

Here is a summary of major Here is a summary of major differences between the proposed differences between the proposed

Senate bill and the legislation passed Senate bill and the legislation passed by the Houseby the House

The House bill would allow insurers The House bill would allow insurers to charge older people up to twice to charge older people up to twice the amount they charge younger the amount they charge younger policy holders. The Senate bill would policy holders. The Senate bill would allow insurers to charge older people allow insurers to charge older people up to three times what they charge up to three times what they charge younger people. younger people.

Here is a summary of major Here is a summary of major differences between the proposed differences between the proposed

Senate bill and the legislation passed Senate bill and the legislation passed by the Houseby the House

Both bills would establish a new Both bills would establish a new government insurance program to government insurance program to compete with private companies on compete with private companies on proposed new state insurance proposed new state insurance exchanges.exchanges.

The Senate bill would allow states to opt The Senate bill would allow states to opt out of offering the federal health plan.out of offering the federal health plan.

Both bills also provide for creation of Both bills also provide for creation of nonprofit cooperatives to provide nonprofit cooperatives to provide medical coverage to members.medical coverage to members.

Both the Senate and the House require Both the Senate and the House require most individuals to obtain health most individuals to obtain health

insuranceinsurance The penalties on those who fail to get The penalties on those who fail to get

coverage are different. The House would coverage are different. The House would impose a 2.5 percent penalty tax on income impose a 2.5 percent penalty tax on income up to the average cost of an insurance policy. up to the average cost of an insurance policy. The Senate would phase in a maximum $750-The Senate would phase in a maximum $750-per-adult annual penalty. A slightly higher per-adult annual penalty. A slightly higher penalty would be imposed for failure to penalty would be imposed for failure to obtain coverage for children.obtain coverage for children.

The Senate bill allows those up to age 26 to The Senate bill allows those up to age 26 to stay on parents' policies, while the House bill stay on parents' policies, while the House bill would allow dependent coverage up to age would allow dependent coverage up to age 27.27.

EMPLOYER MANDATES EMPLOYER MANDATES

The House bill requires employers The House bill requires employers with payrolls above $750,000 to with payrolls above $750,000 to provide health insurance to workers. provide health insurance to workers. Those who fail to do so face a Those who fail to do so face a penalty of 8 percent of payroll. penalty of 8 percent of payroll. Employers with payrolls between Employers with payrolls between $500,000 and $750,000 pay fines on $500,000 and $750,000 pay fines on a sliding scale of 2 percent, 4 percent a sliding scale of 2 percent, 4 percent and 6 percent of payroll.and 6 percent of payroll.

EMPLOYER MANDATESEMPLOYER MANDATES The Senate bill has no employer mandate. The Senate bill has no employer mandate.

But firms with more than 50 workers would But firms with more than 50 workers would have to pay a fine of $750 annually per have to pay a fine of $750 annually per worker if any of their employees obtain worker if any of their employees obtain federally subsidized coverage on the federally subsidized coverage on the exchange. Workers who have employer-exchange. Workers who have employer-sponsored plans with costs that are sponsored plans with costs that are deemed unaffordable -- exceeding 9.8 of deemed unaffordable -- exceeding 9.8 of salary -- may drop that coverage and salary -- may drop that coverage and purchase federally subsidized insurance on purchase federally subsidized insurance on the exchange. In those cases, the employer the exchange. In those cases, the employer would have to pay a fine up to $3,000 per would have to pay a fine up to $3,000 per worker receiving the insurance subsidy. worker receiving the insurance subsidy.

ABORTION ABORTION

Both the Senate and the House bills Both the Senate and the House bills bar the use of federal funds to bar the use of federal funds to finance abortion.finance abortion.

The House bill contains tougher The House bill contains tougher language that would require anyone language that would require anyone seeking coverage for elective seeking coverage for elective abortions to purchase separate abortions to purchase separate insurance riders.insurance riders.

FINANCING FINANCING

The biggest difference between the The biggest difference between the two bills is in how they are financed. two bills is in how they are financed.

The House BillThe House Bill

The House bill would impose a 5.4 The House bill would impose a 5.4 percent surtax on individuals earning percent surtax on individuals earning more than $500,000 a year and couples more than $500,000 a year and couples making more than $1 million. It also making more than $1 million. It also raises money by imposing a 2.5 percent raises money by imposing a 2.5 percent excise tax on medical devices, by excise tax on medical devices, by ending some tax breaks for ending some tax breaks for multinational companies and by closing multinational companies and by closing a biofuels tax loophole for paper a biofuels tax loophole for paper companies. companies.

The Senate BillThe Senate Bill The Senate bill includes a 40 percent excise The Senate bill includes a 40 percent excise

tax on high- cost health insurance plans. It tax on high- cost health insurance plans. It also raises payroll taxes for Medicare, the also raises payroll taxes for Medicare, the government health insurance plan for the government health insurance plan for the elderly, to 1.95 percent from the current elderly, to 1.95 percent from the current 1.45 percent for individuals earning 1.45 percent for individuals earning $200,000 or more and for couples earning $200,000 or more and for couples earning $250,000 or more. The Senate bill includes $250,000 or more. The Senate bill includes special fees on insurers, drug companies special fees on insurers, drug companies and medical device makers and it imposes and medical device makers and it imposes a 5 percent tax on elective cosmetic a 5 percent tax on elective cosmetic surgery. surgery.

QuestionsQuestions

SourcesSources

http://oig.hhs.gov/oei/reports/oei-09-http://oig.hhs.gov/oei/reports/oei-09-00-00200.pdf00-00200.pdf

http://http://www.managedcaremag.com/archiveswww.managedcaremag.com/archives/9607/MC9607.plunge.shtml/9607/MC9607.plunge.shtml

http://http://www.jcsconsultants.com/articles/Autwww.jcsconsultants.com/articles/AutoAcctgandFin_BJSS.htmoAcctgandFin_BJSS.htm

http://http://www.reuters.com/article/idUSN20246www.reuters.com/article/idUSN2024615020091122?rpc15020091122?rpc=77=77