PAYMENT METHODS:Managed Care and Indemnity Plans

Chapter 5

Chapter 5 2

PAYMENT METHODS: Managed Care and Indemnity Plans

Learning Objectives Discuss the major major types of health planstypes of health plans and how the

various structures affect the paymentpayments that patients owe for medical services.

Describe three waysthree ways in which payments to physicians are set.

CompareCompare the calculation calculation of payments for participatingparticipating and nonparticipating nonparticipating providers, and describe how balance- balance-billingbilling rules affect the charges that can be collected from patients.

List the types of chargestypes of charges for which a patient may be responsible at the time of a visit.

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Key Terms Allowed charge Balance billing Capitation Excluded services Family deductible Fee schedule Health maintenance

organization (HMO) Individual deductible

Nonparticipating (nonPAR) physician

Out-of-pocket expenses Participating (PAR)

physician Point-of-service (POS)

plan Preferred provider

organization (PPO)

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Key Terms (cont’d)

Primary care physician (PCP)

Referral number Relative value scale

(RVS) Resource-Based

Relative Value Scale (RBRVS)

Usual, customary, and reasonable (UCR)

Usual fee Walkout receipt Write off

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Types of Health Plans

Managed Care Plans Preferred Provider Organizations (PPOs)(PPOs) Health Maintenance Organizations (HMOs)(HMOs) Point-of-Service (POS)(POS) Plans

Indemnity Plans – An insurance company’s agreement to reimburse a policyholder a predetermined amount for covered losses.

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PPOs (Preferred Provider Organization)

Leading type of Managed CareManaged Care OrganizationOrganization (MCO)(MCO) Plan contracts with providers

Providers agree to accept reduced fees Plan provides a large pool of potential patients

Patients pay premiumspay premiums and copayscopays Patients may visit providers outside planvisit providers outside plan

Plan pays lower benefits

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HMOs(Health Maintenance Organization)

Patients must use plan’s providersplan’s providers Patients enroll by paying a fixed premiums, and a

small (or no) copays when they need service PCP/gatekeeper may be assigned to each patient

Referral number may be required from PCP to see specialist

Providers may or may not be employees of plan Capitation - Is a method of insurance reimbursement to

physicians based on the number of patients seen rather than the service performed.

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POS Plans Least restrictiveLeast restrictive for providers and patients

Patients may visit providers outside planoutside plan

Patients may pay increased fees,pay increased fees, such as larger copays

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Indemnity Plans Fee-for-service plansFee-for-service plans

Fees physicians receive is based on their regular charge for service.

Many payers and physicians negotiate fees as in a PPOPPO or POSPOS plan

Patient may choose any providerany provider Require annual premiums,annual premiums, deductibles,deductibles,

and coinsurancecoinsurance

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Setting Fees

Fee Schedule – a list of feesfees for the procedures and services that physician frequently performs. The feesfees called “usual fees”.“usual fees”.

Usual Fees Those fees that physician charged to most of their Those fees that physician charged to most of their

patients most of the time.patients most of the time. Payers also set the fees that they pay providers.Payers also set the fees that they pay providers.

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Setting Fees

Most payers use one of threethree methods to set feesset fees that the health plan will pay physicians

1) Usual, Customary, and Reasonable (UCR)(UCR)

2) Relative Value Scale (RVS)(RVS)

3) Resource-Based Relative Value Scale (RBRVS)(RBRVS)

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UCR Method Usual, Customary, Reasonable

UsualUsual feefee - an individual physicianindividual physician charges for service

CustomaryCustomary fee charged by most physiciansmost physicians in the community.

ReasonableReasonable fee for the service.service.

In indemnity plansindemnity plans, allowed charges are often based on the (UCR).

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Relative Value Scale Based on Nationwide Research

Scale Scale assigns a numerical value to each Medical Service

The values reflect the amount of skill skill and time time the procedure require of the physicians

Calculated by multiplying RVSmultiplying RVS by a dollar dollar conversion factor.conversion factor.

Example: in an obstetrics practice, a hysterectomy has a higher RVS number than a D&C, because the hysterectomy takes longer to do and is considered to require more skill.

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Resource-Based Relative Value Scale

Established by CMSCMS for setting Medicare Fee Medicare Fee ScheduleSchedule Build on the RVS method by adding factors for the provider’s

expenses. Instead of valuing just the skill skill and timetime, the RBRVS also have

factors for: how much office overheadoffice overhead the procedure involves; and for relative riskrelative risk that the procedure presents to the patientpatient

and to the providerprovider Example: Example: The cost of renting an office is higher in Chicago than

in rural areas of ILLINOIS, therefore, the compensation is different in these two locations.

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Resource-Based Relative Value Scale

Mathematical Formula used to calculate charge for every procedure/service The factors are multiplied by a dollar conversion

factor

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Methods of Setting FeesSetting Fees Usual, Customary, Reasonable

Payment is based on Fee/ServiceFee/Service

Relative Value Scale Payment is based on Skills/TimeSkills/Time

Resource-Based Relative Value Scale Payment is based on Skills/Time & Skills/Time &

Provider’s ExpensesProvider’s Expenses

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Payment Methods After setting the fees for schedule benefits, health plans

work out various payment arrangements with providers. EXAMPLE: EXAMPLE: In some cases, physicians agree to discount

their usual fees. In other cases, physicians receive payment for each patient rather than services.

Most payers use one of three three methods of paying Providers:

1) Allowed charges

2) Contracted fee schedule

3) Capitation

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Payment Under an Allowed Charge Method

Allowed charge Maximum amount policy covers for each service Determined by policy guidelines

Example: The payer’s allowed charge for a new patient’s

evaluation & management service is $160 (CPT 99204)

Provider AProvider A Usual Charge = $180 Payment = $160

Provider BProvider B Usual Charge = $180 Payment = $140

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Allowed Charges (cont’d)

Participating Providers (PAR) – (PAR) – are physicians/providers who agree to provide medical services to a payer’s policyholders according to the terms of the plan or program’s contract.

Participating Providers (PAR)(PAR) PAR PAR = accept assignment Provider accepts amount paid by plan as payment in

full

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Balance Billing Balance Billing - Charging the patient for the difference

between a provider’s higher feea provider’s higher fee and a lower allowed charge PAR (participating providers) – can not ” balance bill”” balance bill”

the patient.the patient. PAR (participating providers) must must “write-off”“write-off” the the

difference difference

Write-offs - Different between provider’s chargeprovider’s charge and the allowed charge.allowed charge.

Can not bill patient for this amount (no balance billing)

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Allowed Charges (cont’d)

Nonparticipating Providers (nonPAR) (nonPAR) – A physician or other Health Care Provider who chooses not to join a particular government or other program or plan.

Nonparticipating Providers (nonPAR)(nonPAR) NonPAR NonPAR = does not accept assignment Provider may often balance billbalance bill patients

Provider collects difference between higher fee and lower allowed charge from patient

Balance Billing is prohibited by Medicare & other government-sponsored programs.

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Contracted Fee Schedule Payers establish fixed fees with their PARPAR

providers With this method, payer’s payer’s allowed chargecharge and provider’s provider’s

chargecharge are the same Contract sets fees for covered procedures and services Fees vary for different geographicalgeographical areas

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Capitation Capitation – is a method of insurance reimbursement

to physicians based on the number of patients seen rather than the service performed.

Used by HMOs Cap rate/Capitation Rate Cap rate/Capitation Rate is the fixed payment for each

plan member in a capitation contract. Cap rateCap rate is set by the HMO that initiates contract with

provider PaidPaid to provider regardless of number of patientnumber of patient visits

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Patients’ Charges Individual Financial responsibility:

Periodic premiums Possible out-of-pocket expenses

Deductibles Copayments Coinsurance Excluded and over-limit services Balance billing

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Deductibles, Copays, Coinsurance

DeductibleDeductible Amount patient must pay for covered services before

insurance benefits are due. Benefits begin after deductibles are paid Individual or family deductibles

CopayCopay Small fee paid at time of service

CoinsuranceCoinsurance Portion for covered services the patient must pay beyond the beyond the

deductibledeductible

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Payments Dueat Time of Service

Usually Collected during visit Copayments Usual fees for:

Excluded servicesExcluded services under patient’s plan Services by nonPAR providersnonPAR providers Services by HMO out-of-network providersout-of-network providers

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EstimatingPatient’s Charges

Contact patient’s plan and verify: Patient’s deductible amountdeductible amount and whether paid whether paid

in fullin full Covered benefitsbenefits Coinsurance or other obligations Payer’sPayer’s allowed charges or fee schedule for charges or fee schedule for

anticipated servicesanticipated services

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Quiz

30% of $80.00, or $24.00

A Patient’s insurance policy states: Annual Deductible: $300.00 Coinsurance: 70-30

This year, the patient has made payments totaling $533.00 to all providers. Today, the patient has an office visit (fee: $80.00). The patient presents a credit card for payment of today’s bill. What is the amount that the patient should pay?

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Quiz

The discounted rate the Physician receives is $480.00 - 15%, or $408.00.

The Patient pays $10.00

The Plan pays $398.00

A Patient is a member of a health plan with a 15 percent discount from the provider’s usual fees and a $10.00 copay. The days’ charges are $480.00. What are the amounts that the plan and the patient each pay?

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Quiz

The discounted rate the Physician receives is $210.00- 20%, or $168.00.

The Patient pays $25.20

The Plan pays $142.80

A Patient is a member of a health plan that has a 20 percent discount from the provider and a 15 percent copay. If the day’s charges are $210.00, what are the amounts that the plan and the patient each pay?

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Critical Thinking Describe the difference between PAR PAR and

nonPAR nonPAR providers.

PARPAR providers accept the payment from the insurance carrier as payment in full for the covered service (after deductible, copays, and coinsurance). Differences are written off.

NonPARNonPAR providers may bill the patient for the difference between the insurance payment and the allowed charge.