Mc-8,11,12 Part Two - Reimbursement

Front 1

Part Two – Reimbursing The Providers
summary

(Also includes material from SN 601 Ch. 1 and 4 and SN 105)


CAPITATION (PREPAYMENT)
Considerations in Developing a Capitation Contract With Providers

Back 1

Form of the Capitation Reimbursement
Other Factors
Scope of Covered Services; Carve-Outs
Size of Patient Base

Front 2

Form of the Capitation Reimbursement

Back 2

 Standard: PMPM
 Varying by Age and Sex of Enrollees
The blended capitation rate means the average capitation rate that the physician is essentially receiving per member.
 Varying By Other Factors
 health of the patients
 geog location
 practice type

 per subscriber per month
 Capitation as a % of Premium
Problems:
 cashflows are hard to predict
 premium shortfall gets passed onto the physicians.
 e.g. due to poor underwriting.

 Full Risk Capitation (Referral Risk):
 favored by large physician groups

Front 3

Other Factors

Back 3

 Exclusive Business rewards
 Copay levels (Benefit Design)
 should only shift costs, not change doctor’s income
 The Scope of Covered Services (see next section)
 The doctor’s patient base (see next section)

Front 4

Scope of Covered Services; Carve-Outs

Back 4

 A PCP’s capitation should include all services the PCP will deliver himself.
 Be careful about including the following services in a PCP’s capitation contract:
 services the PCP might not perform himself:
 surgeries, ancillary diagnostics
 services the PCP usually refers out
 prescriptions
 immunizations; obstetrics (cost is out of the control of the PCP)

 Carve-outs are used for services that the physician doesn’t have discretionary control over. They are paid Ffs.
 Carved out services will have higher utilization

Front 5

Size of Patient Base

Back 5

 easy to know for PCP’s in HMO plans
 difficult to estimate for PCP’s in POS plans
 difficult to estimate for Hospitals and Specialists

Advice for Making the Scope of Services and the Patient Base Easy to Identify:
 Contract with Single-Specialty groups
 Specialty-specific IPA’s or DM organizations
 use self-contained ancillary providers
 Apply the capitation to a specific region
 Restrict PCPs’ choices of Specialists to refer to
 Hire a Specialty Network Manager

Front 6

Converting from Fee-for-Service to Capitation

Back 6

 Utilization will drop after the switch
  must enforce UM before switching

Front 7

CAPITATION AS A METHOD OF REIMBURSEMENT — PROS AND CONS
Advantages Of Capitation To The MCO

Back 7

 encourages Utilz Control
 providers’ incentives match HMO’s
 Costs predictable
 easy & cheap to administer
 Physicians can't cheat by upcoding.

Front 8

Disadvantages Of Capitation To The MCO

Back 8

 Disliked by physicians
 hard for MCO to recruit new doctors
 encourages doctors to deny care (underutilize)
 poor societal perception
 exposure to lawsuits
 “Significant Financial Risk” laws
 UM can’t be used (b/c costs are fixed)
 The MCO must direct patients to the capitated providers
 Difficult to compute an appropriate capitation rate
 Difficult to compute age/sex/location variations
 Providers may fail to manage their risk and go bankrupt.
 Nondiscretionary costs must be carved out
 Capitation is difficult to use in POS and PPO plans (double payment)

Front 9

Advantages Of Capitation To The Providers

Back 9

 stable cash flow
 Providers who are good case managers are favored.

Front 10

Disadvantages / Risks Of Capitation To The Providers

Disadvantages / Risks Of Capitation To The Providers

Disadvantages

Back 10

 punishes the doctor for good service.
 Doctors with very few patients have volatile experience (Law of Small Numbers).

Solutions to the Problem of Small Numbers:
 Capitate Pools of Doctors instead of individually.
 Provide stop-loss insurance to the capitated doctors
 Pay Ffs until the physician has more than 50 patients
 Pay the greater of capitation and Ffs

Front 11

Risks

Back 11

 high utilization risk
 catastrophic case risk
 referral risk (under Full Risk Capitation)
 Misestimation Of: (in evaluating a capitation rate)
 # of services, cost per service
 administrative costs
 family size (in a Per-Subscriber-per-Month contract)
 demographics
 Solution: Use capitations that vary by the age and sex.
 Misuse of funds
 Misunderstanding the risk
 Failure by MCO
 to meet enrollment objectives
 to penetrate employer groups  Leads to antiselection.

Ways providers can manage (reduce) their Capitation Risk
See SN 601 Ch. 2, last list, entitled “Practice Management”.

Front 12

FEE-FOR-SERVICE
Forms of the Fee-For-Service Reimbursement

Back 12

 Straight Ffs (“Straight Charges”, “Billed Charges”) $$$$
 Discounted Ffs (“Discount from Billed Charges”) $$$
 UCR (aka Fee Maximums) $$
 Discount from UCR (“Fee Allowance”) $
 Usual = what the doctor would normally charge
 Customary = prevailing charges

Determination of the UCR Amount:
 Collect UCR data from the region
 Set “UCR Maximum” equal the 60th percentile
 Claims < UCR Maximum are paid in full.

Problem with UCR:
 Physicians raise their normal fees to the UCR.

 Performance-Based Fee-for-Service:
Fees vary by:
 the individual PCP's performance, or
 plan performance.

Front 13

Two types of Performance-Based Ffs:

Back 13

Budgeted Ffs
 maximum budget in each service category
 Ffs pmts reduced after budget is reached.
 Complicated to administer.

Sliding Scale Individual Fee Allowances
 Doctor’s reimbursement ranges from 70%UCR to 110%UCR
 More unnecessary services he performs, the lower the fees.

Front 14

Special Legal Requirements for Billing in a Fee-for-service system

Back 14

 coinsurance % must be applied to the actual reimbursement.
 No Balance-Billing

Front 15

FEE-FOR-SERVICE AS A FORM OF REIMBURSEMENT — PROS AND CONS

For MCOs

Back 15

Advantages Of Ffs To The MCO
 Doctors are happy
 Easy to negotiate, as opposed to a capitation rate.

Disadvantages Of Ffs To The MCO
 Doctors negate discounts by raising fees.
 Manipulation by
 churning
 upcoding
 unbundling

Solutions by MCO:
 Tight UM
 watch for anomalies in physicians’ charges
 automated "rebundling" software
 peer review
 penalize providers who bill incorrectly
 more structured Ffs (UCR or performance-based)

Front 16

For Providers

Back 16

Advantages Of Ffs To The Providers
 Easy to understand
 Much less financial risk than capitation
 Rewarded for good service

Disadvantages / Risks Of Ffs Or Indemnity Plans To The Providers
 Bad debt (patient fees, insurance claim hassle)
 Cashflows not steady
 MCO could fail to bring in enough patients.
 If patient can switch doctors, then treatment is not continuous.

Front 17

OTHER FORMS OF REIMBURSEMENT

Back 17

Reasons Why Combinations of Forms of Reimbursement Are Used Together, Rather Than Just One Method:
 Broad geog. area
 Merging MCO’s
 Different products
 Different services

Front 18

RELATIVE VALUE SCALES (RVS)

Back 18

 Each type of service has a relative value (based on ratios of UCR prices)
 payment = (monetary multiplier) * RVS

Advantage:
 only multiplier is negotiated (easy billing & payment)
 prevents unscheduled fee hikes

Disadvantages:
 Underlying UCR prices must be accurate
 procedural/cognitive imbalance
 Solution: RBRVS.
 reflects Time, Training, etc. needed to provide care

Front 19

PER DIEM (PER DAY)

Back 19

 Services the Hospital has no control over should be carved out of Per Diem (e.g. intensive care; maternity)

Problem with Per Diem
 Gives hospitals an incentive to keep patients there longer.

Solutions
 Reimburse 2nd and subsequent days at a lower rate than 1st day
 use Sliding Scale per diem payments based on volume
 Use Global Fees or Capitation instead
 Use risk/bonus or risk-sharing arrangements

Front 20

PER CASE (aka GLOBAL FEES) (aka CASE RATES) (aka DRG’s)
Scope of the Global Fee could be:

Back 20

 one provider; one procedure
 a whole episode over a time period (episode-based)
 multiple providers (bundled; package pricing)

Front 21

A hybrid of Capitation and Fee-for-service.

Back 21

Similarities to Capitation
 hospital takes on risk
 rewarded if resource use is low.
 Fixed fee per episode
 stabilizes costs to MCO

Similarities to Ffs
 The more services performed, the more the reimbursement

Front 22

Determination of the Global Fee for an episode

Back 22

 Gov't publications specify different DRG groups
 consider what services are needed, and with what probabilities.
 If too much variability, then split the DRG into more specific DRG’s.

Front 23

Advantages of Global Fees to the MCO:

Back 23

 Administration and billing is simpler than per diem
 protects against unbundling (but not churning; also, hospital can falsify its DRG’s)
 A compromise between Capitation and Ffs
 gives hospital incentive to manage its utilization.
 Useful for MCO's with poor UM
 Including new MCO's.
 Good for POS plans, where pure capitation fails.

Front 24

Disadvantages of Global Fees to the MCO:

Back 24

 Providers can use “churning” or falsify their DRG coding on their bills
 Case Mix risk: If higher-cost DRG’s occur too often, total cost will exceed MCO’s expectations.

Front 25

Advantages of Global Fees to the Hospital or Provider:
Disadvantages of Global Fees to the Hospital or Provider:

Back 25

Advantages of Global Fees to the Hospital or Provider:
 Similar to Capitation or to Ffs, whichever the provider likes best

Disadvantages of Global Fees to the Hospital or Provider:
 Length-of-Stay risk
 Severity Mix risk (complicated episodes of a particular DRG)
 Trend risk (fixed global fee doesn’t adjust for inflation)
 Unforeseen administrative costs
 negotiation risk – maybe the DRG’s global fee was improperly evaluated

Solutions Hospitals can Use
 Control length of stay
 Use prospective, concurrent, and retrospective utilization management
 Use rounding
 Instead of inpatient procedures, use alternative settings: Outpatient, nursing homes, in-home care, etc.

Front 26

CONTACT CAPITATION

Back 26

Contact Capitation, and other modern forms of provider reimbursement, are combined with my notes to SN 105..

Front 27

BED LEASING

Back 27

 MCO pays the hospital a monthly fixed amount per bed
 payment processing is easy.

Front 28

SALARY

Back 28

 Similar to capitation.

Front 29

RETAINER

Back 29

 MCO hires a specialist at a fixed rate (adjusted periodically)
 Useful if network is short in that type of specialist.

Front 30

RISK/BONUS REIMBURSEMENT and RISK-SHARING

Back 30

 Withholds
 Bonus Pools (aka Profit Shares)
 Risk-Sharing
 Capitation Pools for Specialist and Hospital Services
Advantages:
 PCP’s have a monetary incentive to limit referrals
 SCP’s have a monetary inventive to prevent hospitalizations

The Risk-Sharing Arrangement
 5 expense pools, each with its own target PMPM cost
 The risk-sharing agreement specifies how each pool’s surplus or deficit is shared among different classes of providers. For example:
Hospital pool: Surplus/deficit split 50% hospital / 25% SCP’s / 25% PCP’s

Variations
 Each PCP’s individual utilization could be considered
 The Hospital pool surplus might not be paid out completely
 May or may not include Pharmacy (since controversial)

Front 31

Warnings About Risk/Reward Systems

Back 31

 The following types of services should not be part of a risk/incentive program. That is, doctors should not be at risk for the following services:
 Capitated laboratory contracts
 services the PCP has no control over the cost of:
 obstetrics, immunizations, possibly drugs
 patients known to have chronic diseases

 scope of services must be clearly defined
 Problems with Risk/Incentive programs based on drug costs
 drug costs volatile
 only large groups can manage drug use
 no evidence that this lowers drug costs.

Front 32

Regulation of Physician Incentive Programs (PIP’s)

Back 32

 Significant Financial Risk laws
 Stop-loss protection req’d.
 Pooling must be used
 PIP’s disclosed to patients
 Any conflicts of interests disclosed.
 Similar laws govern capitation arrangements.

Front 33

TYPES OF RISKS BORNE BY PROVIDERS

Back 33

 Prepaid Risk (aka Service Risk)
 by capitated providers.
 “Opportunity cost” if the doctor’s capitated patients fill up his whole schedule.
 Financial Risk (Business risk; Administrative risk)
 voluntary risk-sharing
 default risk
 financial instability of the MCO (“affiliate risk”)
 Analytical Risk
 Underpricing/Overpricing
 Misestimation of expenses
 Includes random risks like catastrophes, epidemics, etc.

Front 34

Individual Risk Vs. Pooled Risk

Back 34

 Physicians with good experience prefer Individual risk/reward
 Physicians with poor (high-cost) experience prefer to be pooled.

Front 35

Individual Risk Programs
Adv and disadv

Back 35

Advantages
 easy to track individuals (Accountability)

Disadvantages
 "Law of Small Numbers" (luck has huge impact)
 PCP’s blame bad experience on bad luck
 not appropriate for Hospitals (costs too volatile)
 PCP’s have incentive to deny care
 or make their patients go out of network.

Front 36

Pooled Risk Programs
Adv and disadv

Back 36

Advantages
 reduces volatility

Disadvantages
 The impact of any individual PCP is hard to detect
 doesn’t elicit behavior change
 hard for MCO to give feedback.
 physicians with good experience resent having to subsidize poor physicians

Moral: The Pool must be large enough to have statistical integrity, but small enough to see individual doctors’ results.

Front 37

SUMMARY OF ALL THE REIMBURSEMENT METHODS

Back 37

Fee-For-Service
 Straight Ffs
 Discounted Ffs
 Sliding Scale Discount based on volume
 UCR
 Discount from UCR

Relative Value Scales
 RVS
 RBRVS

Performance-Based Ffs (the most structured type of Ffs)

Ffs-Capitation Hybrids
 Per Diem
 Sliding Scale Per Diem
 Higher First-day payment
 Global Fees (DRG’s)
 Contact Capitation (SCP’s only)

Capitation
 Straight capitation
 with carve-outs
 adjusted for age/sex
 PMPM or PSPM or As A Percent Of HMO’s Revenue
 Salary (staff model HMO’s only)

Risk/Incentive Programs
 Withholds
 Bonus Pools
 Risk-Sharing
 Capitated Pools for Nonprimary Services (PCP’s only)


POS / PPO PLAN DIFFICULTIES
Handling Capitation in POS Plans
 Method 1. Don't reduce capitation rates at all.
Problems:
 Double-paying
 PCP has incentive to push sick patients o-o-n.

 Method 2. Reduce capitation rates given to physicians
Problems:
 Puts physician at greater Service Risk
 Inequitable
 Law of Small Numbers

 Method 3. Retrospectively adjust the payment at the end of each month
Advantages:
 viable and equitable

Problems:
 Default risk: Hard for MCO to collect refund at end of month

 Method 4. Only use capitation for patients in the pure HMO plans; pay providers Ffs for services rendered to patients who are in the POS plan.
Advantage:
 viable

Problems:
 confusing to physicians.
 Ffs is more expensive than capitation.

 Method 5. Use Global Fees instead. Best.

Front 38

Handling Risk/Incentive Programs in POS plans

Back 38

 Trade-Off:
 PCP’s have no control over o-o-n costs
 But if PCP’s not held responsible for them, they will push sick patients o-o-n

 Solutions:
 spread out risk/reward among Pools of Doctors
 base incentives on nonutilization factors such as
 quality
 patient satisfaction
 efficiency and e-commerce use
 compliance.

Front 39

Handling Performance-based Fee-for-Service in POS plans

Back 39

 The problems are similar to those of Risk/Incentive programs.

Front 40

Summary: Recommendations for Reimbursement in a POS plan:

Back 40

 Use Standard Fee-for-Service (non-performance-based)
 Use Global Fees
 Use Capitation Method #3 or #4.
 Base risk-sharing bonuses on factors other than utilization.


Done.