There are different reimbursement models used in USA. FFS (Fee For Service) has been the most favored model and still being utilized by most popular managed care organizations such as HMO (Health managed Organization) or EPO (Exclusive provider Organization) etc. Medicare Advantage plans and Medicare original plans also fall under FFS Healthcare reimbursement models. Now, the focus is being shifted towards Value Based Care (VBS) and as a result the healthcare reimbursement models and their finical benefits or loss of Revenue for providers can be considerable. The center of Medicare and Medicaid (CMS) plans to shift to Value Based Care (VBC) model by 2030.

Moreover, the study conducted by Health Care Payment & Learning Action Network (LAN), more than half of the healthcare payments in 2022 were made under VBC model as Fee for Service numbers dropped. This articles looks at some of the reimbursement models and what is the loss of revenue or financial benefits with each one for providers.

Fee For Service (FFS) - Quantity of Care

Fee for Service or also known as Quantity of care, the care provider invoices retrospectively for each service. This has traditionally been the most common model in the USA. A common criticism of fee for service (FFS) is that it incentivises providers to render more services than may be necessary. However, Risk for revenue loss and financial risk for service provider in this model is bare minimal given Billing process is correct.

Discounted Fee For Service (DFFS) - Quantity of Care

This is same as Fee for Service but with the difference that there is fixed dollar amount or percentage of total charge agreed between the provider and Insurance/payer which is less than provider’s typical, common or accepted charges. Here risk for loss of revenue is only in the case if provider cost of services provided is higher than the services rate agreed with the payer/insurance. If providers keep the cost of services lower then the rate agreed then there is certainly a profit earning. Insurance policies can be bought to cover the eventualities if cost of service exceeds rate agreed.

Capitation

Here, a set/fixed amount is paid for each patient that is enrolled with PCP or under their clinic, regardless of how much care is provided to number of enrollees. There is a budget set for the provider to stay within those limits and if provider does not see any patient with that specific period of time (for example a month), the insurance still pays them the whole budget for the time specified. But if the bill for that time period exceeds the total budget, provider has to cover the exceeding amount himself.

In FFS providers are paid after the determination of each procedure/service performed whereas in Capitation there is fixed amount for care over certain period of time which is prospective meaning paid upfront before the services are provided. This system is widely used in a number of countries including USA. Since, this system works upfront payments with defined services charges for defined period of time, the loss of Revenue for providers are more than FFS as rates are defined and can expose to greater financial loss if exceeds the budget. Best solution for providers in this case to cover the financial risk is to buy the insurance policies. The bright side of Capitation is that it asks providers to focus on prevention rather than care and incentivize on that. More preventive care reduces the patient visits and reduces the financial loss of the provider.

Salary

This is the most basic option for providers reimbursement. The providers are paid for the time spent where they provide their services. This can be any healthcare organization and get predefined amount based on the time. Organization then can bill for the services provided to patients from payers they are registered with. As in Capitation, where providers know the services rate, in salary they know what they will be paid by the end of defined period and Salary is the most safe reimbursement model for providers.

DRG (Diagnosis Related Group)

Contrast to Capitation, In the DRG system, providers are reimbursed for the all the services provided in the hospital and is retrospective. But like the Capitation system, providers are paid the same amount for the services provided irrespective of resources used to provide care to the patient for certain period of time.

Which means in DRG, healthcare payment is classified by diagnosis, on the basis that patients with similar conditions require a similar extent of care. However, the Critics of this system point out that patients with complex conditions such as cancers may require completely different treatments over widely varying time periods. In DRG, privders risk of loss of revenue is minimal as they know what they are entitled for as rates are fixed for the services.

Value Based Care (Pay for Performance – P4P)

Value based Care is gaining more popularity because of it’s focus on quality of care provided and patient outcome. In FFS, providers bill for each services irrespective of care provided or what was the result of the care, Value based system focus more on Patient health after patient has rendered different services and that can affect the provider payments. If the patient outcome is good, patient is satisfied with the services provided, or service provided exceed the previously provided services, the provider can be incentivized monetarily, otherwise can be penalized and some insurances such as Medicare plan to withhold the provider payments.

Value based Care system can also take the shape, where given service has predefined rate but if providers deliver on that service exceeding the defined rate and patient outcome is good, the insurance and doctor can share the exceeding cost, lowering the risk of provider. Moreover, it also incentivizes the provider by sharing the profit, if provider delivers on the service less than the set/predetermined rate given patient is satisfied and quality care is given, as defined in “terms of quality”.

In Value based care system, risk for loss of revenue for providers can be maximum given they are unable to provide quality of care and patient outcome is not good.

Blended System

Blended system combines the most useful elements of fee-for-service and Value based Care and it depends upon the provider how they mix and match. However, blended system can incorporate:

- Fixed payments where service providers can invoice for a predicted level of activity.
- Financial risk-sharing of excess costs so that if a treatment costs more than anticipated, the provider and commissioner split the burden.
- A variable amount that reflects the actual level of activity.
- Extra payments in reward for improved patient outcomes.

Reimbursement Model vs Provider Incentives or Risk of Revenue Loss

Compared to FFS, Discounted FFS, Capitation, Salary, DRG (one of the model used for hospitals mentioned in this report), Value Based Care (VBC) system risk of revenue loss seems more specially if you consider the cost it will take to implement the Value Based Care. For example, IT related cost, EHR (Electronic health record), Patient management tools in terms of their satisfactions and outcomes and their recordings etc. However, in Value Based Care, there are different models to incentivize the providers/doctors if they exceed the expectations on patient outcome, quality measure and also if they save the cost on certain procedure set value.
Conclusion

Since there is shift from FFS to Value Based Care system and Medicare setting the deadline for 2030 to fully implement it, providers profits are likely to take the hit. The main focus of Value based Care system is to decrease the cost of Healthcare and increase the Quality of healthcare provided. For now, as likely shift is imminent, the best practice for providers should go with Mixed/Blended Reimbursement model, one to get used to some of the Value based care reimbursement model features, which will help balance the patient’s benefits and provider’s profit and second, it will give them time to systematically implement the Value based system to avoid one time high cost associated with infrastructure.

If you would like to know more how your insurance reimbursement work or would like to help you with your medical billing process, please contact us at info@mtservices.pro