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Subject: Reimbursement Models in Healthcare (BHA4009 – u02a1)
Introduction
Advanced knowledge of the United States (US) healthcare reimbursement systems enables healthcare professionals to effectively guide their patients, and families through the financial aspects of healthcare interactions. Reimbursement refers to the remuneration or compensation for healthcare services that have already been provided (Koleva-Kolarova et al., 2022). This memorandum will delineate the attributes and distinctions of reimbursement methods. I will undertake a comparative analysis of contemporary developments and conventional payment methods within the healthcare sector. Also, I will elucidate conventional payment techniques, contemporary developments in healthcare payment, cross-model comparisons, and their associated quality issues.
The primary model of payment includes out-of-pocket payments, private health insurance, group insurance provided by employers, and government funding. Out-of-pocket payments are the most straightforward method of payment, although they are not the most common type of payment. Throughout the first part of the twentieth century, the predominant model of payment was out-of-pocket cash payment, which involved the direct acquisition of items or services by the consumer (Jalali et al., 2021). Private health insurance involves the inclusion of a third party, the insurer, in addition to the patient and the medical professional, who are the primary participants in the health management transaction. Paying for private insurance involves two transactions: the individual pays the premium to the insurance plan, and the insurance plan pays the provider (Jalali et al., 2021). This is in contrast to the out-of-pocket payment method, which only allows for one financial transaction.
Out-of-pocket payments were monitored and rewarded through the direct financial exchange between the consumer and the provider, ensuring immediate payment for services rendered (Jalali et al., 2021). In contrast, private health insurance models were monitored and rewarded through a dual transaction system where insurers tracked premiums and reimbursements. Insurers further incentivize providers to deliver quality care to maintain favorable insurance and customer satisfaction. Employers often cover a significant portion of health insurance premiums for their employees, which are tax-deductible for the employer but not considered taxable income for the employee. Government funding primarily supports the impoverished and elderly (Jalali et al., 2021). The shift from community rating to experience rating has particularly impacted the elderly, who had previously benefited from community-supported premiums.
Emerging trends in third-party payments and reimbursement models are driving improvements in healthcare quality. Two key mechanisms are retrospective and prospective reimbursement. Retrospective reimbursement involves the third-party payer determining compensation based on actual resources used after services are provided (Fainman & Kucukyazici, 2020). For example, while a patient may be scheduled for preoperative laboratory tests, the specific tests performed and the total extent of services, such as hospital admissions, are only confirmed after the services are completed (Fainman & Kucukyazici, 2020). This approach establishes cumulative reimbursement after the patient has received the care.
Prospective reimbursement is a contractual payment system in healthcare where providers are given a fixed sum for all the services they deliver during a specified period. The prospective payment approach aims to address perceived shortcomings of the retrospective reimbursement technique by motivating providers to deliver more economically efficient treatment at a predetermined rate (Fainman & Kucukyazici, 2020). An episode of care refers to the health services provided to a patient for a particular health condition or illness, or during a consistently ongoing period of treatment from a healthcare professional.
Retrospective reimbursement was monitored and rewarded by reviewing and compensating providers based on the actual resources and services used after the fact, ensuring that providers were reimbursed for the full extent of care delivered (Shurson & Gregg, 2020). In contrast, prospective reimbursement was monitored and rewarded by providing a fixed payment for all services within a defined period or episode of care, incentivizing providers to deliver cost-effective care while adhering to predetermined payment rates.
In traditional payment models, such as out-of-pocket payments, and private health insurance, providers were compensated based on the volume of services delivered rather than the quality of care. Out-of-pocket payments, although simple, did not link financial rewards to the effectiveness of care, focusing solely on direct transactions (Le, 2022). Whereas, current payment models, including retrospective and prospective reimbursement, emphasize linking financial incentives to quality outcomes. Retrospective reimbursement compensates providers based on the actual resources used after care is delivered, ensuring reimbursement for services provided but potentially lacking efficiency incentives (Le, 2022). In contrast, prospective reimbursement offers a fixed payment for an episode of care, encouraging providers to deliver efficient, high-quality care within a predetermined budget.
Traditional models incentivized volume rather than quality, often resulting in overutilization and fragmented care without ensuring improved patient outcomes. For example, a study by Fainman & Kucukyazici. (2020) emphasized that the providers under private insurance or out-of-pocket payments could increase revenue by ordering more tests or services, irrespective of their necessity or impact on patient health. In contrast, current models like prospective reimbursement align financial rewards with quality by offering fixed payments for specific episodes of care. Study by Shurson & Gregg. (2020) have highlighted that prospective reimbursement model promotes care coordination and efficiency, as providers must manage costs and outcomes within the set payment, thus reducing unnecessary expenditures. Prospective reimbursement systems also foster a more holistic approach to patient care, emphasizing overall effectiveness and efficiency rather than isolated services, thereby addressing some of the inefficiencies seen in traditional models (Shurson & Gregg, 2020).
Quality concerns affecting reimbursement are significant in the context of patient care and financial outcomes. A patient with chronic heart failure who frequently requires hospital readmissions due to poor management of their condition. In a out-of-pocket payment model, each readmission generates additional revenue for the hospital, potentially leading to fragmented care without addressing the root causes of readmissions (Kleine, 2023). However, in value-based reimbursement models, such as bundled payments or accountable care organizations (ACOs), financial incentives are tied to overall patient outcomes and cost-efficiency. For this patient, addressing quality concerns involves ensuring effective care coordination, patient education, and adherence to treatment plans.
Recommendations supported by scholarly sources include implementing comprehensive care management strategies to improve patient outcomes and reduce readmission rates. For instance, a study by Koleva-Kolarova et al. (2022) highlighted that transitional care interventions, such as follow-up visits and patient education, can significantly reduce hospital readmissions. Additionally, integrating electronic health records (EHRs) to monitor patient progress and coordinate care can enhance the management of chronic conditions (Kleine, 2023). These approaches not only improve patient outcomes but also align with value-based reimbursement models that emphasize quality and cost-efficiency. Ensuring effective care transitions and patient engagement can thus mitigate quality concerns and enhance overall reimbursement performance.
A comprehensive understanding of both conventional and developing reimbursement models is crucial in the healthcare sector as it provides insights into the direction of the trend and facilitates the enhancement of healthcare expenditure accessibility and quality. The existing reimbursement models demonstrate greater advantages, but, comprehending the conventional models and their patterns contributes to the enhancement of these approaches in present and future healthcare. Gaining comprehension of the problems and their underlying causes brings us closer to achieving patient safety, experience, and quality of care. Furthermore, it contributes to enhancement of healthcare affordability at all levels.
Erickson, S. M., Outland, B., Joy, S., Rockwern, B., Serchen, J., Mire, R. D., & Goldman, J. M. (2020). Envisioning a better U.S. health care system for all: Health care delivery and payment system reforms. Annals of Internal Medicine, 172(2), S33. https://doi.org/10.7326/m19-2407
Fainman, E. Z., & Kucukyazici, B. (2020). Design of financial incentives and payment schemes in healthcare systems: A review. Socio-Economic Planning Sciences, 72. https://doi.org/10.1016/j.seps.2020.100901
Jalali, F. S., Bikineh, P., & Delavari, S. (2021). Strategies for reducing out of pocket payments in the health system: A scoping review. Cost Effectiveness and Resource Allocation, 19(1). https://doi.org/10.1186/s12962-021-00301-8
Kleine, L. (2023). Person centric payment interactions in healthcare: How could a future healthcare payment system look like and what can we learn from other industries? Repositorio.ucp.pt. http://hdl.handle.net/10400.14/41284
Koleva-Kolarova, R., Buchanan, J., Vellekoop, H., Huygens, S., Versteegh, M., Mölken, M. R., Szilberhorn, L., Zelei, T., Nagy, B., Wordsworth, S., & Tsiachristas, A. (2022). Financing and reimbursement models for personalised medicine: A systematic review to identify current models and future options. Applied Health Economics and Health Policy, 20(4), 501–524. https://doi.org/10.1007/s40258-021-00714-9
Le, M. L. (2022). Assessing the effect of household survey designs on the accuracy of out-of-pocket health expenditures measurement in Vietnam – edoc. Unibas.ch. https://edoc.unibas.ch/88555/1f
Shurson, L., & Gregg, S. R. (2020). Relationship of pay-for-performance and provider pay. Journal of the American Association of Nurse Practitioners, 33(1), 1. https://doi.org/10.1097/jxx.0000000000000343
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