Health Care Costs

1. Health Care Costs

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

3. How we pay for health care • 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) • Three examples: Blue Cross, Blue Shield; commercial insurance; HMOs

4. How we pay for health care: • 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: • 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 • 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 • 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 • Amount is paid to the facility without considering the actual cost of caring for the patient • Causes shorter hospital stays and fewer admissions • Over 500 DRGs • 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 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) • 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 • 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 • 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 • 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 • 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 • 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 • 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)

17. THANK YOU!