Capitation Payment System

The Iron triangle for healthcare consists of cost, quality, and access; these three characteristics when balanced create great healthcare. Managed Care Organizations combine the three to offer consumers with care that is appropriate for their individual needs. Our book describes managed care organizations as “the cost management of healthcare services by controlling who the consumer sees and how much the service cost” (Basics of the U.S Healthcare System, Niles). Taking a look at the history prior to the Health Maintenance Organization Act of 1973 (HMO ACT of 1973) the implementation has been significant in balancing cost, and quality control. Before this Act was signed in to law by President Nixon healthcare costs were determined by fee for service. A fee for service or indemnity plan is a plan that allows the provider to determine the cost of service, this fee for service plan caused for healthcare costs to increase rapidly. An example of this would be going to the doctor with neck pain, being told to stretch then receiving a bill for 25,000 dollars. As could be understood the cost of healthcare had became a problem.

In a health maintenance organization, a contract is made between enrollees and a panel of providers. The enrollees use the method of capitation for payment, meaning they pay a predetermined fixed fee monthly for a period of one to three years regardless of how many times they use their medical service or of how much it costs each time (Chitty & Black, 2007). In a preferred provider organization the a contract is made between the client and a group of independent doctors that team with hospitals to provide cheaper health services for their patients (Chitty & Black, 2007). They are able to provide some of the lowest fees because they have such high volumes of patients to make up for the discounted price (Huntington, Glossary For Managed Care, 1997).

Enrolled patients use the global payment system. This means each member provides a fixed fee per month or year, irrespective of the amount of services

By creating a budget this facility will be better prepared in knowing how much money they spend and

Another issue for fee-for-service system is that the providers set the prices for services. Patients were free to seek any type of healthcare services that they thought they required, while providers set the costs for each service that was billed to indemnity insurance companies (Shi & Singh, 2015). Insurance companies had little control on the types of services that the patient received and prices billed for each service. The fee-for-service model encourages excessive and unwarranted procedures and offers no incentives to utilize economical services (Smith, 2010). While the patients enjoy the freedom of being able to seek out their own services, over-utilization of expensive services on unnecessary and highly technical services increased healthcare costs.

The fee-schedule is the second component of the payment-determination basis, in which fees are pre-negotiated and have no correlation with the provider’s cost. For example, Medicare uses a fee schedule to

As a rise for medical services grew, this caused the cost of healthcare to rise. As a result of the rising healthcare costs, the government created a hospital inpatient perspective payment system called the diagnosis related group system. The diagnosis related group system created a fixed and determined payment structure based on the diagnosis of the patient that enabled them to be reimbursed for products and services that were used to treat the given diagnosis with one payment. The diagnosis related group system created an efficient and less costly care for the patient. Outpatient services are not a part of the diagnosis related group

Fee for service indemnity plans are essentially health insurance plans in which the consumer may choose any provider or hospital that they want to use; however, these plans are typically more expensive than other plans (Mukherji & Fockler, 2014). The fee for service plans pay only for services rendered, typically using the CPT coding system (Reimbursement, 2016). The indemnity plans will require the provider to bill the insurance company for services rendered (Zuvekas & Cohen, 2016). Typically, the insurance company will pick up 80% of the patient’s bill and the patient is responsible for the other 20% (Zuvekas &

Centers for Medicare and Medicaid Services (CMS) adopted the Medical Severity Diagnosis Related Groups (MS-DRGs) for use in the Inpatient Prospective Payment System (IPPS) in the fiscal year 2008, which ran from October 1, 2007 through September 30, 2008. CMS was influenced by the Medicare Payment Advisory Commission (MEDPAC) and the hospital community to use a severity adjusted DRG system.

Managed care is a system of healthcare delivery that seeks to achieve efficiency by interpreting the basic functions of healthcare delivery. It employs mechanisms to control (manage) utilization of medical services and determines the price at which the services are purchased and how much the providers get paid.

Prospective Payment Systems (PPS) determines the payment a medical facility will receive by evaluating preestablished criteria. The reimbursement amount will only be based on the preestablished criteria (glossary). PPS helps decrease health care spending because the health care facility knows that they will only receive a reimbursement amount that is based on PPS's preestablished criteria. Implementation of the PPS has proven to be a success towards reducing hospital costs, especially for Medicare patient. The health care facility will have limits on spending due to fewer inputs coming in.

This rewards quantity over quality. Fee for service does nothing to promote low cost, high value services, such as preventive care or patient education even if they could considerably enhance patients’ physical condition and reduce health care costs through the system. 78% of employer sponsored health insurance is was fee for service. Reimbursement is the form of payment for services provided. The most common practice is the insurance company pays to the provider directly. Under the MCO when receiving care the patient is usually required to pay a small amount out of pocket such as 15 or 20 dollars and the rest is picked up by the managed care plan.

Capitation is a method payment for healthcare services provided. This method of payment is a set amount that is paid to providers of service regardless if the payer has been provided with a service or not. These provides are generally contracted with some type of HMO. The rate for the capitation payment is determined by patient demographics such as gender and age. This method of payment was established in part to improve, to increase access to healthcare to by patients, and to provide healthcare equality.

According to Gapenski and Pink (2015), “Under capitation, providers receive a fixed fee for each patient enrolled in the capitated plan” (p. 87). As stated above, capitation creates a significant incentive for providers to control the cost of delivering health services, by being paid a fixed amount for each patient enrolled, providers are motivated to control the number of services provided. On the other hand, under capitation, if providers do not control the cost of delivering health services, the cost per member enrolled will exceed the fixed payment. In addition, since the control of the net profit obtained

Under capitation, physicians are given incentive to consider the cost of treatment. Pure capitation pays a set fee per patient, regardless of their degree of infirmity, and gives physicians an incentive to avoid the most costly patients (Miller, 2009). Providers who work under such plans focus on preventive health care, as there is greater financial reward in prevention of illness than in treatment of the ill. Such plans avert providers from the use of expensive treatment options. The proponents of this method of payment especially insurance companies argue that when health care providers are not paid extra for additional office visits any associated medical expenses, they are likely to be more conservative with their treatment assessments