1. Health Care Costs

2. How we pay for health care: Private pay Private pay Group health insurance Group health insurance Government sponsored plans Government sponsored plans

3. How we pay for health care Private pay — payment directly from the client to the provider Private pay — payment directly from the client to the provider Group Health Insurance — pooling individual contributions for insurance — purpose is to avoid financial disaster (termed third-party coverage) Group Health Insurance — pooling individual contributions for insurance — purpose is to avoid financial disaster (termed third-party coverage) Three examples: Blue Cross, Blue Shield; commercial insurance; HMOs Three examples: Blue Cross, Blue Shield; commercial insurance; HMOs

4. How we pay for health care: Government-sponsored plans Government-sponsored plans –Medicare:  Federally sponsored since 1965  Person must be over 65  US citizen  Must have worked 10 years in medicare-covered employment  Has two Parts: “A” covers inpatient hospitalization and includes a deductible, coinsurance; “B” pays 80% of most charges

5. How we pay for health care: Government sponsored plans: Government sponsored plans: –Medicaid (medical assistance)  Federal and state money is administered by the state  Developed out of welfare system  Services low income families

6. Prospective Payment Plans Began to contain rising costs of Medicare payments; others joined in Began to contain rising costs of Medicare payments; others joined in Reimbursement plan in which each diagnosis is given a “cost” of care Reimbursement plan in which each diagnosis is given a “cost” of care Hospitals are told in advance how much money they will receive for this “cost” of care for individual diagnosis Hospitals are told in advance how much money they will receive for this “cost” of care for individual diagnosis Lead to Diagnosis-related groups (DRGs) Lead to Diagnosis-related groups (DRGs)

7. Diagnosis Related Groups (DRGs) Puts diagnosis and procedures into categories and has set rates for what the government will pay for each — how much it SHOULD cost Puts diagnosis and procedures into categories and has set rates for what the government will pay for each — how much it SHOULD cost Amount is paid to the facility without considering the actual cost of caring for the patient Amount is paid to the facility without considering the actual cost of caring for the patient Causes shorter hospital stays and fewer admissions Causes shorter hospital stays and fewer admissions Over 500 DRGs Over 500 DRGs Private insurance companies now follow system Private insurance companies now follow system

8. Managed care Health care delivery system with cost controls – the goal is to match the patient’s needs with the appropriate treatment while monitoring delivery of care and outcome of services in a cost- efficient manner Health care delivery system with cost controls – the goal is to match the patient’s needs with the appropriate treatment while monitoring delivery of care and outcome of services in a cost- efficient manner –Health Maintenance Organization (HMO)  Must see physician within HMO  Discourages lots of tests  Focuses on preventative medicine  Usually all providers are within same building or service  Services and costs are set by the HMO

9. Managed Care Preferred Provider Organization (PPO) Preferred Provider Organization (PPO) –Similar to HMOs –Group of physicians who agree to work together and provide services at set costs for members –Physicians retain private practice

10. Reimbursement Trends Capitation – a set amount of money received or paid out Capitation – a set amount of money received or paid out –Monthly fee charged by the provider (whatever is NOT used up in services, is kept by the provider as profit) –Urges to keep costs down (no unnecessary tests or treatments) –Wellness encouraged –No deductibles, co-payments

11. Reimbursement Trends Capitation Capitation –Pluses  Provider obtaining money up front  There is known amount of money allowing budgeting of resources by the provider –Minuses  The provider assumes the entire financial risk (additional costs due to serious or chronic illnes)

12. Reimbursement Trends Fee for service – providers are reimbursed for charges Fee for service – providers are reimbursed for charges –Traditional method –Pay for the service you receive –Has lead to “deductibles” (amount you pay before your insurance coverage begins) and “co-payments” (percentage of bill you pay) –Some “preventative” tests and services are not paid for, but usually all “treatments” are –Emphasis on illness

13. Reimbursement Trends Fee for service Fee for service –Pluses  the insurer assumes the financial risk  usually entails less administrative work –Minuses  there is no incentive for the provider to be cost effective

14. Reimbursement Trends Per Diem – reimbursement of an institution, usually a hospital, is based on a set rate per day rather than on charges Per Diem – reimbursement of an institution, usually a hospital, is based on a set rate per day rather than on charges –Pluses  The provider knows the reimbursement amount and can plan accordingly –Minuses  Managed care organizations usually negotiate discounted with the provider  The consumer may use extensive resources costing more than the per diem rate will cover

15. Reimbursement Trends Per Case – reimbursement is at a fixed rate, usually based on diagnosis or a procedure Per Case – reimbursement is at a fixed rate, usually based on diagnosis or a procedure –Pluses  Provider benefits financially if cases are managed effectively and efficiently  Provider knows initially what the payment will be and can monitor accordingly –Minuses  Complications and delays can be costly to provider  Provider must be able to quantify all costs for a specific procedure to determine if adequate reimbursement is received

16. Reimbursement Trends Diagnoses Related Groups (DRGs) Diagnoses Related Groups (DRGs)