VBM1 Task 1 Examining Healthcare Reimbursement Systems

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1 VBM1 Task 1 Examining Healthcare Reimbursement Systems Rebecca Rudd College of Health Professions, Western Governors University Diana Gardner May 5, 2023

2 VBM1 Task 1: Examining Healthcare Reimbursement Systems A: Components of Insurance Plans Indemnity plans offer the most flexibility for subscribers in seeking care. This coverage option is often referred as a fee-for-service plan (White, 2017). The ability to seek care without the constraints of other plan options comes with a higher cost to subscribers. Higher premiums accompany this plan type, and often subscribers will incur higher deductible ranges to lover monthly premium costs. Due to lack of control of where subscribers seek care, the administrators of these plan have limited contract negotiation points. Subscribers pay a monthly premium for coverage. Often there are deductible thresholds to be met for individuals along with a family deductible. Deductibles are required annually and start over with each calendar year. Once the deductible is met, indemnity plans typically pay a percentage of normal and customary charges. The remaining percentage is the patient’s responsibility. The providers of care are not required to write-off balances unpaid by insurance. Depending upon the plan, either the provider or patient will be required to submit claims for payment. Patients need to understand when a payment is sent to them personally it is their responsibility to in return pay the provider of services rendered. Managed care plans provide insurance coverage for subscribers through a network of contracted providers and medical service entities. By contracting with service providers, these types of plans provide medical care at a substantially lower cost. Allowable fee schedules are part of the contract with providers who are credentialed with the plan and drive reimbursement at for rate of customary and usual care. There are four major types of managed care plans available on the market. Health maintenance organizations (HMO) are more restrictive and requires the subscriber to coordinate medical care with a dedicated primary care provider (PCP) and network.

3 Premiums for HMO plans are often the lowest than other plans, and when offered through employers have added desirability for lower ranges of deductibles and maximum out-of- pocket maximums (Davis, 2020). Some services can also be paid for with no co-insurance or cost- sharing from the patient, such as annual preventative physical exams and well child exams. Preferred provider organizations (PPO) encourage coordination of care with a PCP and in- network services, however, will offer some level of coverage when subscribers seek care outside of the network. Unlike HMO plans, PPO plans provide coverage for both in-network and out-of- network services without referrals and are less restrictive. Premiums come at a higher monthly cost, and cost sharing ranges can also be higher than other managed care plans. Subscribers are responsible for co-insurance and any charges that are not paid when seeking care outside of network (Community Health Advocates, n.d.). Point of service (POS) plans allows the subscriber to determine either an HMO or PPO level of coverage for each episode of care. The subscriber needs to fully evaluate provider of services to understand their monetary responsibility for non- covered services or balance billing that may be incurred. Exclusive provider organizations (EPO) are the most restrictive and requires subscribers to only seek care with a network of providers and does not offer any coverage for out of network services (Davis, 2020). Health care coverage provided by the government can be either state, federal, or combination of state and federally funded. Medicaid coverage is managed by individual states for those who meet eligibility requirements. Benefits will vary based upon the state. Medicare eligibility is most common for those who reach age sixty-five or greater, but also available for those who were employed by the railroad system, or have end-stage renal disease, or have a disability. Providers of service apply to become Medicaid and Medicare providers and must meet federal government requirements to become credentialed to render services to patients with

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4 coverage. Medicaid patients do not have any premiums, deductibles, or co-insurance when they seek care from credentialed providers due to their financial poverty level determined at time of eligibility. Medicare is composed of different components for coverage. Providers and providing entities are responsible for informing patients when services are or may not be covered by Medicare in advance of services being rendered. Medicare requires an advanced beneficiary notification (ABN) form be reviewed with the patient including costs that the patient may incur for non-covered services and the patient must sign acknowledging their understanding. When this process is not followed and the service is denied for coverage, the patient can appeal to not be responsible for the outstanding balance. Medicare Part A provides coverage for inpatient hospital services and skilled nursing care. This part also covers a portion of hospice care for terminal diagnosis of enrolled patients. In general enrollees do not pay a premium for Part A because either them or a spouse has paid this through payroll taxes as part of employment. Part B is the typical medical service portion of Medicare. There is a monthly premium for this component and often a twenty percentage of the customary or usual fee co-insurance due from the patient. Medicare Part D is the portion for prescription coverage. Patients incur a monthly premium for the coverage. There are additional costs for co-pays and co-insurance based upon the patient’s selected plan. Government sponsored plans also offer hybrid managed care plans as part of the value- based care program. These plans function like typical managed care plan options, however, are supported by state and federal governmental agencies. For Medicaid, services are provided through contractual agreements with individual states and managed care organizations. The managed care groups receive a per patient per month set fee for payment. Medicare managed care plans are an option for Medicare eligible patients. When selected the managed care plan

5 takes place of Medicare Part A and Part B. Private companies that regulated by Medicare oversee the program. These plans are desirable for some patients as they cover additional services not covered by Medicare or have lower monthly premiums. These plans are referred to as Medicare Part C. High deductible health plans (HDHP) have become more popular over recent years. These are enticing for some as they allow saving money for healthcare related costs using pretax funds in a health saving account (HSA). Often this type of coverage is tied to a conventional health plan (Cleverly & Cleverly, 2018, p. 175). Subscribers pay a lower monthly premium for coverage, however the deductibles that must be met before coverage begins are considerably higher. The major difference from the traditional managed care design, is that the patient must meet a monetary amount from their own pocket or HSA account prior to the traditional coverage beginning. Depending upon the managed care structure of the coverage, the in-network and out- of-network benefits would vary as outlined above. B: Restrictions of Insurance Plans Indemnity plans are the least restrictive of insurance plan options. Providers of service may require the patient to pay for services and seek reimbursement from the plan administrator. This can lead to patient burden of filling their own claims for payment. Depending upon the plan administrator, some services may not be covered such as preventative care. Managed care plan restrictions vary based upon the type of coverage. HMO is the most restrictive. The subscriber must select a dedicated primary care provider (PCP) from a contracted list of credentialed providers. Referrals for care are required for HMO plans when seeking care outside of the PCP office. Out-of-network services are typically only covered at a percentage when in an emergency situation or with prior authorization. Like an HMO plan, PSO subscribers

6 must select a PCP and, in some instances, receive prior approval for certain identified services. EPO and PPO options do not require patients to select a PCP. Referrals are typically not required under these plans, however select services will require pre-authorization. The EPO option does not provide any coverage when seeking care outside of the provider network. Government facilitated plans are highly regulated by either state, federal or both entities. Patients must receive care from providers and care entities who have met regulatory requirements and are credentialed to deliver services. Since Medicaid is administered through individual states, the level of covered services can vary. Also, patients need to understand that coverage is not transferrable from state to state. Seeking care out of state could led to the patient being financially responsible for any cost incurred. Patients must also requalify for coverage periodically and notify Medicaid of any changes in their financial status. Medicaid managed care plans can require patients to elect a PCP and follow guidelines similar to traditional managed care plans. Medicare coverage is applicable across the country, however if a patient is covered under a Medicare managed care plan, they must evaluate the plan options of their new residence. Not all Medicare Part C plans are offered geographically across the nation. Managed care versions of coverage can have strict provider and network restrictions. High deductible health plans follow the guidelines of the conventional plan. Patients can use health saving accounts to pay for health-related costs that assist in meeting deductibles. Annual deductibles must be met prior to coverage beginning, unless for carve out services such as covered preventative care. Depending upon the architecture of the plan, primary care providers may be required along with a dedicated network of providers. The Internal Revenue Service (IRS) sets new deductible limits annually and typically a rise in the out-of-pocket cost to

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7 subscribers. In the same token, the IRS also dictates the amount that can be contributed to HSA accounts annually. C: Reimbursement Process The reimbursement process for indemnity plans can vary based upon the provider of services. Some service providers will file the claim for patients, while others may require the patient to pay cost up front and seek reimbursement from the health plan. This also translates to who receives the payment for services. While some payments will be sent to the providers of care, others will provide payment to the patient who then in return pays the provider of service. This type of plan is referred to as a fee-for-service where the insurance company has a dedicated pre-determined percentage of usual and customary charges for services. Patients are responsible for any remaining amounts that are not covered by the plan. For patients who have a secondary payer, any remaining amounts can be submitted for review by secondary payer for consideration of coverage and payment. Managed care plans leverage contractual agreements with service providers. The provider of service files claims for care rendered usually electronically. Electronic claims submittal promotes streamlined processing and faster payment transmission to the providers. Since there are several types of managed care plans, the reimbursement process can vary. There is an allowable fee schedule based upon the coverage of the plan for fee-for-service plans. The HMO model is based upon reimbursement with a capitated payment for many services. In this model, the provider will receive per patient per month payment and holds the PCP responsible for coordinating care for the patients. PPO plan reimbursement may follow a discounted fee-for- service model or an allowable fee schedule. With the push of value-based care, the nation is seeing a rise is capitated payment arrangement that also consider the quality-of-care metric

8 scores of providers in determining payment rates. POS plan reimbursement is dependent upon the provider selected and if they are in-network or out-of-network. The EPO model will not provide any reimbursement when members seek care outside of the network. The managed care plan will have agreements with providers who are contracted for contractual write-offs, except for co-pays and deductibles. The explanation of benefit will clearly define the charge, amount covered, amount paid, contractual write-off, and patient responsibility. When patients have a secondary insurance, any remaining balances not covered by the primary payer may be submitted to review and payment. Government sponsored plans can be at the state, federal, or combination of both levels for reimbursement. Medicare reimbursement will be discussed in a later section. Claims are filed by the providers or entities rendering services for payment. The patient never receives any payment for the services, as the payment is provided to the service provider directly. Since Medicaid benefits are managed by individual states, the allowable fee schedules can vary state to state. States can establish their own payment rates with either a fee-for-service or managed care model arrangement. There is an exception for reimbursement processes for federally qualified health care centers (FQHCs). FQHCs are paid using a prospective payment system (PPS) indicating they are paid a fixed rate per visit for services rendered. This rate will vary according to geographic location of the health center. Patients are not balanced billed for any services that are in scope of care. Medicaid is also the payer of last resort, indicating that if the patient has any other types of insurance coverage they first must be billed, and any payment applied prior to Medicaid considering the claim. High deductible health plans can be attached to a managed care insurance. It is best for the providers of services to submit claims to the insurance plan for review so patient

9 responsibility can be recorded for deductibles. Once the deductible is met or if a service is covered under the plan scope, payments are sent directly to the provider of care. Following suite of managed care plans, there will be an allowable fee schedule for contracted providers with contractual write-offs for usual and customary charges. If a patient seeks care for non-covered services or a non-covered provider of service, they can be fully responsible for payment of charges. If a patient has a secondary insurance, claims can be submitted for review. Several types of secondary insurance plans can be used to assist in covering out-of-pocket costs for deductibles and copayments. D: Medicare Reimbursement Process Credentialed providers rendering services to Medicare patient are required to accept the payments as defined by the government and cannot balance bill the patient for any remaining amounts after the patient has paid any co-insurance that might be due. A co-insurance is often associated with Medicare Part B and can be twenty percent of the usual and customary acceptable charge. Federal Qualified Health Centers (FQHCs) are required to offer a sliding fee program based upon federal poverty levels that can assist patients who meet eligibility requirements to cover the co-insurance due. The differences must be considered a contractual write-off. The providers of service are responsible for submitting claims for payment within one year of the service date. Medicare reimburses medical costs directly to the provider. If a patient would seek care from a non-Medicare provider, the patient may need to request coverage for services by completing necessary forms and providing itemized statements along with explanation of why they are filing a claim to Medicare if the provider will not submit the bill as non-credentialed. Medicare will review the claim request and if approved will cover based upon eligibility and typical reimbursement. This could leave the patient owing the remainder of the

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10 charges since they elected to seek care from a provider who is not credentialed to accept Medicare assignments. If a patient has a secondary insurance to Medicare, claims can be submitted for review once Medicare has reviewed and determined payment for the services. An example would be a patient who has their own Medicare plan and is also covered by a spouse’s insurance plan. Medicare Part A covers inpatient, home health, skilled nursing care within facilities and hospice related care and when a patient seeks care from a credentialed provider the provider submits the claim directly to Medicare. Payment for inpatient services is based upon the Medicare Severity Diagnosis Related Groups (MS-DRGs) under the prospective payment system (PPS). Medicare uses a specific formula for calculating the relative weight of the MS-DRG using a grouper (White, 2017, p. 139). The inpatient prospective payment rates are adjusted for case mix and geographic location for providing services. The Case-Mix groups (CMGs) system is a classification of patients with similar characteristics identified by diagnosis related groups. CMG is a key indicator for assisting in net revenue budgeting for organizations. This type of system allows Medicare to pay a flat rate based upon the diagnosis complexity and the care that is required for a similar patient population. Some institutions will receive additional incentives when they treat a higher number of indigent patients or are recognized as a teaching hospital (Centers for Medicare & Medicaid Services [CMS], n.d.). CMS updates the weight of MS-DRG groups annually. Medicare Part B covers physician services, both outpatient and inpatient, diagnostic testing and other miscellaneous services. Under the PPS system for outpatient services, three components comprise payment system. Ambulatory patient groups (APGs) were developed for the facility cost of outpatient care. APGs promote the diversity of caring for patients in an

11 outpatient setting by allowing multiple APGs to be assigned when needed. Fee schedules assign Medicare approved reimbursement based upon HCPCS codes. Cost based reimbursement related to pharmaceuticals and select new devices (White, 2017, p. 143). In some instances, for a complex visit with multiple services, ancillary packaging for reimbursement may be applied. In these cases, the payment for the APG includes the ancillary services rendered. Medicare Part B services for physicians is based upon the resource-based relative value scale (RBRVS). This reimbursement architecture considers the physician work, practice expense, and professional liability insurance. CMS publishes relative value units (RVU) for CPT or HCPCS codes in the Federal Register. The three components of total RVUs, geographic practice cost indices (GPCIs), and conversion factor (CF) are used to calculate reimbursement. RVUs can also vary by place of service and are broken down into two categories of either non-facility or facility. RVUs have also become standard for reimbursement in other payer systems outside of Medicare. Some organizations offer physician incentive programs based upon RVUs and performance for identified quality of care metrics to demonstrate the complexity and quality of care the organization is providing to their patients. As mentioned above, the providers of care submit claims directly to CMS. Payments are dispersed from CMS to provider directly. Ambulatory services are often subject to the patient owing twenty percent of the acceptable and customary charge. In this instance, the patient would directly pay the twenty percent to the service provider. E: Impact of Stark II In 2001, phase one of the Stark II self-referral statute was issued (Chase, 2001). This statute prohibited referrals for care to any entities in which a physician or an immediate family member had a financial relationship tie to whether direct or indirect. This legislation built upon

12 the prior Stark I regulations for clinical laboratory services for Medicare programs. Violations are subject to civil penalties and even removal from participation in all federal health care programs. Under this law, there can be ramifications even when the provider inadvertently refers patients for services without intent to break the law. Regardless of the rationale, the provider is liable for their actions. In December 2020, Department of Health and Human Services (HHS) Office of Inspector General (OIG) released the final rule. The Stark Law and Anti-Kickback Statute (AKS) creates a regulatory environment with differences between the two (American Medical Association [AMA], 2020). With the new requirements value based payment agreements are afforded some protection. The Stark II law does not encompass the regulatory reviews that are outlined in the AKS or false claims act. The increased monitoring of kickback activities related to referrals identified inefficiencies in our healthcare system, along with practices that were not always in the best interest of the patient. Those with vested interest were benefiting from specific routing of care to entities for their own financial benefit. These activities brought attention to other activities where providers where being enticed in numerous ways to steer the course of care for patients, including prescribing patterns. F: Anti-Kickback Statutes The Anti-Kickback Statute (AKS) is a federal law that bans kickbacks in federal health care programs. The Office of the Inspector General (OIG) oversees enforcement. Under this law physicians and hospitals cannot offer to pay or solicit for patient referrals for care, this also includes the ban on receiving anything of value or reward from those who refer business to the organization. Both the person receiving the kickback and the entity providing the kickback can be prosecuted under this law. The intent of the action for a violation must be proven to knowing

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13 and willful. Violating the AKS can lead to compromising the clinical decision making of providers and hospitals, rather than non-biased decision on treatment care plans. OIG publicly reports offenders to the public which can impact community trust in their healthcare provider. When this regulation was released, physicians were required to consider how they were being enticed or incentivized for providing care for patients. In some instances, their physical office space was being provided by another organization at reduced fees or something free of cost to gain referrals for patient services. It was not uncommon in the early 90 ’ s for pharmaceutical companies to offer gifts and other compensation for prescribing specific medications. While office staff enjoyed free lunches and gifts, these types of activities led to the possibility of influencing healthcare decisions. As healthcare reform continues to strive for reducing cost of healthcare services, there is concern among providers that they could be in violation of fraud and abuse laws. The Medicare Shared Savings Program (MSSP) is a program that promotes groups of providers or supplies to work together to control costs for Medicare patients (Cleverly & Cleverly, 2018, p.107). Accountable Care Organizations (ACO) must be approved by CMS by meeting key components for structure and design. CMS has created waivers for providers who are participating in a MSSP program to assist in reducing their concern for participation. In addition, safe harbors are also available for providers when an agreement fully complies. Anyone violating the AKS law can be subject to imprisonment, fines, or both, and exclusion from participating in any federal health care programs. Physicians should fully investigate pending contractual agreements to ensure compliance with regulations, and routinely perform risk audits to ensure ongoing compliance. G: Third-Party Payment Calculations

14 Healthcare organizations need to be aware of the payer mix for their group to effectively project revenue for budgeting and strategic planning. Understanding that the amount billed is often not the actual revenue the practice will gain is key to budget processes. When contracting with payers it is key to fully investigate the payment structure, along with a listing of customary and usual charges that will become part of the contract. Reimbursement is based upon allowable fees for services, and for contracted services will contain some portion that the organization will need to adjust off as contractual differences. When contracted with the payer, these fees can not be passed along to the patient. If the agreement is a prospective payment agreement (PPS), reimbursement rates are defined before the service is rendered. PPS agreements can be based upon procedure, diagnosis, per diems and bundled. A bundled rate example is when a patient is having a procedure and the cost of the procedure, supplies, and post-operative care is all lumped into the same payment. Providers are incentivized to reduce costs of healthcare in PPS systems while managing care to meet the quadruple aim of healthcare. Another way to consider impact is to review an example of the reimbursement from current procedural terminology (CPT) code 99212. An office bills the managed care $110.00 for CPT 99212. The allowable amount for the code is $92.18. The patient has a copay of $30.00 for all office visits. The office submitted the claim for $110.00. Their contractual write off for the claim was $17.82. Since the patient owed a $30.00 copay for the visit, the managed care company paid the provider $62.18 for the claim. The remaining $30.00 was paid by the patient at time of service. Systems need to be established to ensure all patient responsibility amounts are part of the revenue cycle. This could include the setup for billing statements when an explanation of benefits indicates a patient responsibility that has not been received from the patient for the claim. The provider must take into consideration the contractual write-offs when projecting

15 incoming revenue for the practice. Failure to do so will lead to incorrect budget projections for strategic plans and financial operations.

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16 References American Medical Association (AMA). (2020). A Brief Summary of the Stark Law and Anti- Kickback Statute Reforms (Final Rules) . https://www.ama-assn.org/system/files/2020- 12/stark-law-aks-summary-final-rules.pdf Centers for Medicare & Medicaid Services (CMS). (n.d.). Acute Inpatient PPS . CMS.gov. https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS Chase L. (2001). The Stark II regulations: an analysis. The Western Journal of Medicine , 175 (4), 263 – 266. https://doi.org/10.1136/ewjm.175.4.263 Cleverley, W., & Cleverley, J. (2018). Essentials of Health Care Finance . (Eighth edition). Jones & Bartlett Learning Community Health Advocates. (n.d.). Different Types of Managed Care Plans . Community Health Advocates. https://communityhealthadvocates.org/healthcareqa/how-do-i-use-my- health-insurance/different-types-of-managed-care-plans/ Davis, E. (2020). HMO, PPO, EPO, POS - Which Plan Should You Choose?. Verywell Health. https://www.verywellhealth.com/hmo-ppo-epo-pos-whats-the-difference-1738615 White, S. (2017). Principles of Finance for Health Information and Informatics Professionals (2nd ed.). American Health Information Management Association (AHIMA). https://wgu.vitalsource.com/books/9781584265931

VBM1 Task 1 Examining Healthcare Reimbursement Systems

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