Reforming reimbursement

February 9, 2015

Payers recognize a growing need for more comprehensive payment methodologies that adequately represent the true market cost of health services today.

As the healthcare industry undergoes unprecedented change, particularly in regard to payment reform, payers recognize a growing need for more comprehensive payment methodologies that adequately represent the true market cost of health services today.

Related:HHS announces historic changes to Medicare

Providers who have traditionally based their payment methodologies on a multiple of Medicare’s fee schedule are beginning to recognize inherent limitations in a Medicare-based schedule that can affect their bottom line. Luckily, many limitations can be addressed by integrating independent, market-based data into a payment schedule. For example:

  • Non-covered procedures. Medicare does not provide a value for every service. In fact, more than 1,700 physician and laboratory codes do not have a Medicare fee. Some payers have chosen to fill this gap by using their own charge data, which may result in overpayments if their payments are based on a percentage of charges. Robust, independent data products can adjust market-based cost data to conform with the Medicare scale and provide reliable, geographically-specific dollar values for the procedures that Medicare omits.

  • Limited patient population. Because Medicare’s fee schedule has been designed to meet the healthcare needs of the elderly and disabled, it is not fully representative of the type of healthcare services generally covered by private insurers for a younger population. Using both Medicare and data from private claims can help payers to more accurately pay for the services that are most common for the population mix they serve.

  • Market rates. Medicare’s fee schedules take into account certain public policy priorities which may not pertain to the true market rate for services. Independent data that reflect what providers are charging can help payers set fees that are in line with the true cost of services for their area.

  • Out-of-network reimbursement. Reimbursement formulas often result in higher out-of-pocket exposure for plan members visiting doctors outside their network. These costs can influence member satisfaction with the plan and increase the administrative burden on staff. Reliable data can help payers set a reimbursement formula that limits out-of-network costs.

  • Three-dimensional care. Medicare’s fee schedules are based on the traditional fee-for-service model. Independent data facilitates planning for episodes of care that account for the covered services and fees for all of the providers that would typically treat certain conditions. These “three-dimensional” profiles can serve as the basis for bundled, episode and accountable care payment programs, reference-pricing initiatives, provider cost and quality analysis and more.

  • Inpatient versus outpatient services. The delivery of care that has traditionally been provided on an inpatient basis is shifting increasingly to outpatient facilities, including ambulatory surgery centers and urgent care. This raises the question of whether outside data accurately reflect where services are being performed. For example, do “outpatient” datasets exclusively represent charges from a hospital outpatient department, or do they include charges from a variety of outpatient care facility types? Data specific to settings such as ambulatory surgery centers facilitate appropriate payment for ambulatory services, based upon the setting.

To remain viable in this changing healthcare environment, payers of all types will need to make thoughtful, well-informed decisions about their reimbursement methods. Robust, reliable, and relevant data are the key to building a payment model that appropriately compensates healthcare providers.

Joel V. Brill, MD, is the medical director for FAIR Health, Inc., a national, independent, nonprofit corporation whose mission is to bring transparency to healthcare costs and health insurance information.