Rationale of Reimbursement Systems
Health care reimbursement systems in the United States (US) fall into three major categories: cost based, prospective payment, and managed care. The following paper will focus on types of prospective payment, specifically Medicare, and an analysis of the system’s effectiveness based on strengths and weaknesses in the United States health care system.
Enacted in 1965, Medicare is the first form of socialized heath insurance programs in the United States. The emergence of federal government regulated health insurance was in response to a perceived upward and uncontrolled spiral of rising healthcare costs, which accounted for a disproportionate amount of gross national product in the US as compared to other industrialized nations (York, LePore, Opelka, Steinberg, & Money, 2002). To ensure support by the American Medical Association, as well provide a socialized program, Medicare contains two main parts, funded separately. Medicare part A is true social insurance covering hospital and skilled nursing services supported mostly by payroll taxes. Medicare Part B is voluntary coverage for durable medical equipment, and physician, as well outpatient services, funded mostly by federal reserves, but also includes an elective 25% social security deduction. In 2006, Part D was added to subsidize the cost of prescription drugs.
Prospective payment is the system Medicare uses to pay hospitals and for inpatient hospital services and Part B and D services; based on the diagnosis related group (DRG) classification system. Prospective per-case payment rates are set at a level intended to cover operating costs in an efficient hospital for treating a typical inpatient in a given diagnosis-related group. Payments for each hospital are adjusted for differences in area wages, teaching activity, care to the poor, and other factors. Hospitals may also receive additional payments to cover extra costs associated with atypical patients (outliers) in each DRG (ProPAC, 1995).
Medicare, which has provided a healthcare solution for historically lower income individuals including the elderly and permanently disabled, has evolved over the past 40 years and its effectiveness is debated still today. Much of the debate of Medicare and prospective payment base health insurance falls among three main groups: healthcare professionals and medical providers, Medicare recipients, and the government.
Healthcare and medical providers have experienced severe reimbursement cuts from all insurance companies, typically initiated by Medicare allowing private pay insurances to adopt similar cost cutting benefits. DRG allows providers to have a clear understanding of covered and non-covered services, listed by procedure and diagnosis codes eliminated time associated with preauthorization and financial burden for denials after services are rendered, and are published each year by the Center for Medicare and Medicaid Services (CMS). The challenge over the past decade has been that reimbursable codes are declining yearly to control government health spending. Medicare Part A, responsible for inpatient and hospital-based services has become restrictive, limiting reimbursement to a flat global fee and denying reimbursement for preventative care. For example, if a Medicare recipient is admitted to the hospital for a total knee replacement, the inpatient hospital reimbursement is currently around $12,000. Medicare sets this payment rate to include routine medical devices, drugs administered, and addition services. In addition, Medicare may not reimbursement for preventative medical conditions such as bed sores.
Medicare Part B has become a new focus over the past decade with medical advancements shifting medical procedures from hospitals to outpatient facilities and physician offices. Increased outpatient-based procedures have created an increased interest in cost saving strategies beyond hospitals. In the early 1990s several reforms were made to Medicare to control spending, including physician services. Several studies have found that Medicare and other purchasers could realize substantial savings if a portion of patients switched from less efficient to more efficient physicians. In April 2005, CMS initiated a demonstration mandated by Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 to test the theory. One researcher concluded, based on his simulations that if five to ten percent of Medicare enrollees switched to the most efficient physicians, savings would be one to three percent of program costs (Steinwald, 2007). Most health care professions and policy makers would agree that efficiency equates into increased productivity and decreased cost. Practices included in the study included general practicing physicians and provided a financial incentive for meeting budget goals, which raised the concern of patients not receiving the best care and skipping medical testing steps to reduce Medicare spending. Specialists would argue transitioning to office-based procedures decreases spending and creates efficiencies, yet Medicare has consistently cut physician reimbursements, making office- based procedures a less than profitable service.
Medicare recipients are being affected by Medicare cuts by non-covered services and discrimination by providers. Non-covered services under Part B has led increased out of pocket of expenses on an already financially stressed population leading to refused treatment options and increased financial burden on family members to treat Medicare recipients. Sequential conservative treatments must fail before surgical intervention will be reimbursed, can prolong treatment and increase what many health care providers would argue as unnecessary spending, often leading to surgical intervention.
The future of Medicare holds more challenges with an increase in life expectancy keeping Americans eligible for government funded health insurance longer with higher risk of medical related complications. According to a new study completed in 2009 from the McArthur Research Network on an Aging Society, the current forecasts of the U.S. Social Security Administration and U.S. Census Bureau may underestimate the rise in life expectancy at birth for men and women combined, by 2050, from 3.1 to 7.9 years. The cumulative outlays for Medicare and Social Security could be higher by $3.2 to $8.3 trillion relative to current government forecasts. Current healthcare reform proposals raise the concern of whom and at what age will continue to receive the appropriate medical care, in addition who will dictate what is “appropriate medical care”? The projections indicate Medicare and other government funded health programs declining with an increase demand in the healthcare industry that is outperforming most industries in the US economy, leading to business, clinical, and ethical decisions in treating patients.
Rising healthcare costs have led to government to one main objective: control costs and eliminate unnecessary spending. Government intervention in the healthcare industry is an even more controversial topic with the recently passed health care reform bill. A prospective payment system allows the government to evaluate annually evaluate medically necessary procedure codes and provide a clear and concise coverage policy to providers. Eliminating “non medically necessary” codes allows the government t control the taxpayers spending, reserving funds for necessary medical procedures. Controlling spending prolongs funds for future Medicare recipients, but again questions the government for deciding what medical care should be provided
Procedure based systems provide an efficient and clear guide to reimbursement in the US health care industry. Current focus on a government run healthcare system has created an increased focus on the advantages and disadvantages of the reimbursement system. The above rationale discusses the effective of the current system on healthcare providers, government, and current and future Medicare/Medicaid recipients.
References
Prospective Payment Assessment Commission (ProPAC). Medicare and the American health care system. Report to the Congress, Washington, DC: Prospective Payment Assessment Commission, June 1995.
Medicare: Providing Systematic Feedback to Physicians on their Practice Patterns Is a Promising Step Toward Encouraging Program Efficiency. Testimony
Before the Subcommittee on Health, Committee on Ways and Means, House of
Representatives, May, 2007.
Olshansky, J.A., Goldman, D.P., Zehng, Y., &Rowe, J.W. Aging America in the twenty-first century: demographic research from the McArthur foundation research on an aging society. The Milbank Quarterly, 8, 842-862. Retrieved January 11, 2009 from http://www.politico.com/static/PPM41_agingsociety_pdf.html
York, J.W., LePore, M.R., Opelka, F.G., Steinberg, W.C. (2002). A decade of decline: an analysis of Medicare reimbursement for vascular procedures. International Journal of Vascular Surgery, 16: 115-120. doi: 10.1007/s10016-0010138-0
Health care reimbursement systems in the United States (US) fall into three major categories: cost based, prospective payment, and managed care. The following paper will focus on types of prospective payment, specifically Medicare, and an analysis of the system’s effectiveness based on strengths and weaknesses in the United States health care system.
Enacted in 1965, Medicare is the first form of socialized heath insurance programs in the United States. The emergence of federal government regulated health insurance was in response to a perceived upward and uncontrolled spiral of rising healthcare costs, which accounted for a disproportionate amount of gross national product in the US as compared to other industrialized nations (York, LePore, Opelka, Steinberg, & Money, 2002). To ensure support by the American Medical Association, as well provide a socialized program, Medicare contains two main parts, funded separately. Medicare part A is true social insurance covering hospital and skilled nursing services supported mostly by payroll taxes. Medicare Part B is voluntary coverage for durable medical equipment, and physician, as well outpatient services, funded mostly by federal reserves, but also includes an elective 25% social security deduction. In 2006, Part D was added to subsidize the cost of prescription drugs.
Prospective payment is the system Medicare uses to pay hospitals and for inpatient hospital services and Part B and D services; based on the diagnosis related group (DRG) classification system. Prospective per-case payment rates are set at a level intended to cover operating costs in an efficient hospital for treating a typical inpatient in a given diagnosis-related group. Payments for each hospital are adjusted for differences in area wages, teaching activity, care to the poor, and other factors. Hospitals may also receive additional payments to cover extra costs associated with atypical patients (outliers) in each DRG (ProPAC, 1995).
Medicare, which has provided a healthcare solution for historically lower income individuals including the elderly and permanently disabled, has evolved over the past 40 years and its effectiveness is debated still today. Much of the debate of Medicare and prospective payment base health insurance falls among three main groups: healthcare professionals and medical providers, Medicare recipients, and the government.
Healthcare and medical providers have experienced severe reimbursement cuts from all insurance companies, typically initiated by Medicare allowing private pay insurances to adopt similar cost cutting benefits. DRG allows providers to have a clear understanding of covered and non-covered services, listed by procedure and diagnosis codes eliminated time associated with preauthorization and financial burden for denials after services are rendered, and are published each year by the Center for Medicare and Medicaid Services (CMS). The challenge over the past decade has been that reimbursable codes are declining yearly to control government health spending. Medicare Part A, responsible for inpatient and hospital-based services has become restrictive, limiting reimbursement to a flat global fee and denying reimbursement for preventative care. For example, if a Medicare recipient is admitted to the hospital for a total knee replacement, the inpatient hospital reimbursement is currently around $12,000. Medicare sets this payment rate to include routine medical devices, drugs administered, and addition services. In addition, Medicare may not reimbursement for preventative medical conditions such as bed sores.
Medicare Part B has become a new focus over the past decade with medical advancements shifting medical procedures from hospitals to outpatient facilities and physician offices. Increased outpatient-based procedures have created an increased interest in cost saving strategies beyond hospitals. In the early 1990s several reforms were made to Medicare to control spending, including physician services. Several studies have found that Medicare and other purchasers could realize substantial savings if a portion of patients switched from less efficient to more efficient physicians. In April 2005, CMS initiated a demonstration mandated by Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 to test the theory. One researcher concluded, based on his simulations that if five to ten percent of Medicare enrollees switched to the most efficient physicians, savings would be one to three percent of program costs (Steinwald, 2007). Most health care professions and policy makers would agree that efficiency equates into increased productivity and decreased cost. Practices included in the study included general practicing physicians and provided a financial incentive for meeting budget goals, which raised the concern of patients not receiving the best care and skipping medical testing steps to reduce Medicare spending. Specialists would argue transitioning to office-based procedures decreases spending and creates efficiencies, yet Medicare has consistently cut physician reimbursements, making office- based procedures a less than profitable service.
Medicare recipients are being affected by Medicare cuts by non-covered services and discrimination by providers. Non-covered services under Part B has led increased out of pocket of expenses on an already financially stressed population leading to refused treatment options and increased financial burden on family members to treat Medicare recipients. Sequential conservative treatments must fail before surgical intervention will be reimbursed, can prolong treatment and increase what many health care providers would argue as unnecessary spending, often leading to surgical intervention.
The future of Medicare holds more challenges with an increase in life expectancy keeping Americans eligible for government funded health insurance longer with higher risk of medical related complications. According to a new study completed in 2009 from the McArthur Research Network on an Aging Society, the current forecasts of the U.S. Social Security Administration and U.S. Census Bureau may underestimate the rise in life expectancy at birth for men and women combined, by 2050, from 3.1 to 7.9 years. The cumulative outlays for Medicare and Social Security could be higher by $3.2 to $8.3 trillion relative to current government forecasts. Current healthcare reform proposals raise the concern of whom and at what age will continue to receive the appropriate medical care, in addition who will dictate what is “appropriate medical care”? The projections indicate Medicare and other government funded health programs declining with an increase demand in the healthcare industry that is outperforming most industries in the US economy, leading to business, clinical, and ethical decisions in treating patients.
Rising healthcare costs have led to government to one main objective: control costs and eliminate unnecessary spending. Government intervention in the healthcare industry is an even more controversial topic with the recently passed health care reform bill. A prospective payment system allows the government to evaluate annually evaluate medically necessary procedure codes and provide a clear and concise coverage policy to providers. Eliminating “non medically necessary” codes allows the government t control the taxpayers spending, reserving funds for necessary medical procedures. Controlling spending prolongs funds for future Medicare recipients, but again questions the government for deciding what medical care should be provided
Procedure based systems provide an efficient and clear guide to reimbursement in the US health care industry. Current focus on a government run healthcare system has created an increased focus on the advantages and disadvantages of the reimbursement system. The above rationale discusses the effective of the current system on healthcare providers, government, and current and future Medicare/Medicaid recipients.
References
Prospective Payment Assessment Commission (ProPAC). Medicare and the American health care system. Report to the Congress, Washington, DC: Prospective Payment Assessment Commission, June 1995.
Medicare: Providing Systematic Feedback to Physicians on their Practice Patterns Is a Promising Step Toward Encouraging Program Efficiency. Testimony
Before the Subcommittee on Health, Committee on Ways and Means, House of
Representatives, May, 2007.
Olshansky, J.A., Goldman, D.P., Zehng, Y., &Rowe, J.W. Aging America in the twenty-first century: demographic research from the McArthur foundation research on an aging society. The Milbank Quarterly, 8, 842-862. Retrieved January 11, 2009 from http://www.politico.com/static/PPM41_agingsociety_pdf.html
York, J.W., LePore, M.R., Opelka, F.G., Steinberg, W.C. (2002). A decade of decline: an analysis of Medicare reimbursement for vascular procedures. International Journal of Vascular Surgery, 16: 115-120. doi: 10.1007/s10016-0010138-0
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