Care Models of Reimbursement - Paper Example

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Provide a historical overview of the evolution of how health care has been reimbursed

Health insurance in the U.S has undergone various changes however major reforms began with the 1930 Great depression (Health insurance, 2017). Historical evidence suggests that during the progressive era between 1910 and 1915 various states implemented the worker's compensation insurance which ensured that the employees were fully compensated by their employers for workplace injuries (Health insurance, 2017). The workers' compensation insurance could be purchased through the state. During the period leading to the World War I, various states proposed compulsory health insurance. Before and during the progressive era, there existed a low demand for health insurance and also many insurance companies were unwilling to partake in health insurance. This was because they lacked the information necessary to calculate risks and also write premiums. The great depression resulted to hospitals and physicians implementing insurance forms as a way to ensure service payments (Randall, 1993). The great depression caused the American Hospital Association to create the Blue Cross concept that guaranteed stable revenues.

The blue cross system assured payment of hospital expenditures in an environment of limited technology. Due to the economic state, the blue cross system gained popularity but the plan only covered hospital costs. The American Medical Association feared for a third intermediary and with the increasing political pressure some states medical societies permitted the Blue Shield, a medical service benefits plan. After World War II, commercial insurance emerged and caused a significant growth in the insurance industry. The commercial insurance companies offered competition to Blue Cross and Blue Shield as they offered an indemnity benefit while abandoning community ratings and service benefits. This created a huge gap between the competitors as many preferred commercial insurance. In the year 1965, Medicaid and Medicare programs were developed by the Congress to respond to the medical insurance crisis. Medicare was to cater for physicians reimbursement on basis of prevailing customary and reasonable charges. The government was to determine the reimbursement of physicians using Medicaid. Currently, Medicare accounts for an estimate of 35% national healthcare expenditure (Randall, 1993).

Differentiate between fee for service versus managed care models of reimbursement

Fee-for-service refers to a type of reimbursement that is based on specific services that are offered to the plan member. It is a singular reimbursement system in which the physicians and other suppliers or service providers in healthcare are paid a specific amount for the services rendered as defined in the system (Alam, 2013). No limits exist as per the treatment decisions thereby doctors and hospitals can conduct tests as they feel necessary. The insurer pays for the costs of the services after they have been rendered where various methods are applied to monitor the cost-effectiveness. The methods include utilization review, second surgical opinion, and pre-certification and case management services.

Managed care models is a prevalent system that coordinates and delivers healthcare services by offering a wide range of health insurance products to consumers. The system integrates the payment and delivery to ensure cost-effectiveness. This is done by buying services in bulk for the many members which lower their price with the doctors and hospitals. Also by limiting choice where they provide for their members a list of doctors from which they can receive the treatment they reduce costs. The doctors are also limited by the choice of medicine they can prescribe to their patients (Alam, 2013). There are various kinds of managed care organizations in which their common characteristic is the supervision of medical care financing to their members and the primary care physician who serves an integral role in healthcare delivery.

Discuss how fee for service and managed care models have contributed to the high cost of insurance premiums to employers and individuals

Fee for service and managed care have contributed significantly to the high rates of insurance premiums. For instance, in the 1980s the healthcare premiums increased from 15% to 20% and left employers desperate as the health care expenditures costs rose (Reinhardt, 2017). The general recession of the late 1980s that carried on till 1992 and the restructuring of corporate America influenced the need to generate new ways to cut costs by the executives (Reinhardt, 2017). These two factors had a link to family insurance that caused fear among many employees. The efforts to counteract these factors concentrated on the health insurance policy premiums of the employee. Costs were reduced by minimizing the choice in medical care thereby creating affordable premiums. Managed care previously permitted private employees to contract with the private health insurers who then, in turn, collaborated with specific medical providers (Reinhardt, 2017). However, the medical providers came under the threat of losing jobs due to the political influence.

Differentiate between how hospitals and physicians are reimbursed. Include government entitlements such as Medicare and Medicaid.

Physician reimbursement in the Medicare program involves three steps that include coding the service offered by using current procedural terminology (CPT), coding the diagnosis by use of International Classification of Disease codes (ICD-10 code) and determination of appropriate fee by the Centers for Medicare and Medicaid services based on the resource-based relative value scale (Beck & Margolin, 2007). Medicare and Medicaid programs were signed by President L. Johnson and were to influence the healthcare payment model. Physicians were to be reimbursed for their services to Medicare patients on basis of prevailing and reasonable charges.

Under the ICD-10 system, the physicians have 68,000 diagnostic codes that can operate with which indicate whether the patient is presented with a basic or arcane illness (Hawkins, 2015). The diagnosis is presented to the Medicare or Medicaid along with the CPT code that indicates the treatment offered by the physician for the diagnosed illness. The bill is forwarded to one of the many fiscal intermediaries (FIs) and other private companies that are under contract with Medicare or Medicaid to evaluate and process the claims. The FIs and private companies can dispute the bill if they determine it was not correctly coded (Hawkins, 2015). When determined that the physician deliberately miscoded, he is thereby subject to a criminal prosecution.

Diagnosis-related groups (DRGs) are used by the government as a method of paying hospitals for the provision of services to the Medicare students. DRGs were developed through the prospective payment system in the year 1983(Hawkins, 2015). This model set payments rate based on the patients diagnosis. And hospitals were paid for the overall episode of care rather than based on an individual. The goal of the payment is to reduce excess expenditure. Capitation is another model that is used to pay hospitals through the health maintenance organizations by creating incentives for efficiency as well as cost control. Under this model, the hospital or physician receive a predetermined flat rate every month for every assigned individual. This method eliminates incentives while increasing efficiency as it relies on the premise that a majority of the enrolled patients will not need healthcare services.

Recommend potential reform on how hospitals and physicians can be reimbursed. Include how you might reform government entitlements such as Medicare and Medicaid. Base your recommendations on the reading and research you have conducted.

A recommended system should aim to decrease Medicares long-term spending growth rate for the physicians while dividing the physicians payment equitably. A reimbursement method should be developed that offers value-based payment. This would be effective if Medicare and Medicaid would contract and partner with private insurers as well as other federal programs to assume a value-based payment system. The main objective being transforming care delivery for all patients while improving on the patients outcomes and their experiences thereby will prevent future hospitalization and lower costs. To develop the financial sustainability of the Medicare program steps should be implemented towards reducing ineffective care while deploying the savings to offer better financial protection and reduce lower federal outlays. Reforms in Medicare that would enable individuals to control their finances would play a big role in lowering costs also for taxpayers. The fee-for-service structure that is implemented in Medicare is based on price and while encouraging providers to offer a great number of services, therefore, this is a good feature that ought to be retained however Medicare should focus on lowering the set prices as the resources are wasted by providing a value that is less than its costs.


Alam, I. I. 2013. Health insurance plan options- Managed care vs Fee-for-service plans

Beck, D. E., & Margolin, D. A. (2007). Physician coding and reimbursement. The Ochsner Journal, 7(1), 8-15.

Hawkins, M. 2015. Physician and hospital reimbursement: From Lodge Medicine to MIPS. Retrieved from Advocate Foundation. 2017. The managed care answer guide. Retrieved from, V. R. (1993). Managed Care, Utilization Review, and Financial Risk Shifting: Compensating Patients for Health Care Cost Containment Injuries. U. Puget Sound L. Rev., 17, 1.

Reinhardt, U. 2017. The managed care industry in perspective. Retrieved from

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