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									       Payers Module

History, Rules, and Regulations

To provide didactic training necessary for the Case
Manager to understand the various payment
methodologies and their history.
           Program Objectives
Upon completion of this program, participants will
be able to:
   • Understand the types of managed care
   • Understand different payment methodologies.
   • Discuss the history of Medicare and Medicaid.
        What is Managed Care?

A type of health care delivery system that attempts
to manage and control access, delivery, quality,
and cost of care.
        History of Managed Care

• 1910 – First managed care plan – Western
  Clinic in Tacoma, Washington.
• 1920- Blue Cross formed to cover
• 1930- Blue Shield formed to cover physician
       History of Managed Care

• 1950’s: Pre-paid group plans developed by
  Kaiser Permanente.
• 1960’s: Medicare and Medicaid introduced.
• 1970’s: Inception of HMOs.
• 1980-present: Increase in managed care plans,
  cost savings for consumers, and attempt to
  control cost.
      Types of Managed Care Plans

Health Maintenance Organization (HMO)
  •   Most restrictive.
  •   Primary Care Physician is the gatekeeper.
  •   Utilization Review (UR) became a huge focus.
  •   Preventative care a priority.
  •   Decreased out of pocket expense to
   Types of Managed Care Plans

Preferred Provider Organization (PPO)
  • Physicians, hospitals, and other health care
    providers contract with the managed care
    companies to provide discounted services.
  • Beneficiaries can receive services outside of
    the PPO network for an additional cost.
    Types of Managed Care Plans

Point of Service (POS)
  • Provision allowing those enrolled in managed
    care plans to seek and receive services
    outside the plan.
  • Utilizes some features of the HMO and PPO.
  • Members do not choose which system to use
    until the point at which the service is being
   Types of Managed Care Plans

Exclusive Provider Organization (EPO)
  • The plan will reimburse ONLY for care
    received from particular providers.
  • No out-of-network benefits.
   Types of Managed Care Plans

Physician Hospital Organization (PHO)
  • A legal entity joining hospitals, physicians,
    and other ancillary providers who share
    resources and contracting efforts.
   Types of Managed Care Plans

Management Services Organization (MSO)
  • Contract with health plans, other payers,
    hospitals, and physicians, to provide
    management services such as billing and
  • MSOs monitor utilization of resources and
    Types of Managed Care Plans

Third Party Administrator (TPA)
  • Organization contracted by payer to manage
    administrative functions such as UR and
    processing claims.
  • Used by organizations that fund healthcare
    benefits but do not find it cost effective to
    administer the plan.
  • TPA holds no risk.
          Indemnity Insurance

Private or “fee for service” insurance that can be
obtained by individuals on their own, or through
employers or associations; allows some level of
choice of healthcare provider by the insured.
          Medicare Title XVIII
       of the Social Security Act
• Enacted in 1965 to provide inpatient health
  insurance to those ages 65 and over, and
  voluntary medical insurance to cover physician
• Part A: Hospital reimbursed for services
• Part B: Physician reimbursement
• Pays by DRG
Medicare as Secondary Payer (MSP)
Provisions prohibit Medicare from making payment
if payment has been made or is expected to be
made by the following primary plans:
    • Group Health Plans
    • Workers Compensation Plans
    • Liability Insurance
    • No-fault Insurance

Section 1862(b) of the Social Security Act
Medicare as Secondary Payer (MSP)
Medicare may make conditional payment if primary
plan has not made or is not expected to make

Bottom Line: Other plan pays first, Medicare pays
       Medicare Transfer DRGs
• Includes 186 DRGs
• Discharge or transfer to home health care or
  sub-acute care setting post hospitalization, prior
  to meeting geometric mean LOS can reduce
  hospital reimbursement – mainly total joint
• Rather than a DRG, the hospital will be paid a
  per diem based on the day of discharge.
• Enacted in 1965.
• Mandatory federal and state program with
  shared funding.
• Based on states’ per capita income.
• Basic medical and dental services for low
  income children and families.
• Medicaid managed care grew rapidly in the
• As of June 30, 2006 every state with the
  exception of Alaska and Wyoming have all or a
  portion of their Medicaid population enrolled in a
• As the nation’s largest purchaser of health
  services for low-income families, Medicaid has
  increasingly relied on managed care to deliver
• In 2004, 27 million Medicaid beneficiaries were
  enrolled in a MCO.
• The Balanced Budget Act (BBA) of 1997 gave
  states authority to mandate enrollment in MCOs
  for Medicaid beneficiaries.
        Veteran’s Administration

  When a patient arrives in the Emergency
Department, you need to assess their benefits.
         Payment Methodologies

  • A specific amount of money received or paid
    based on a per member, per month basis,
    rather than on specific services provided.
  • The provider is responsible to control
    utilization of services and costs.
  • Incentive to limit costly services.
  Payment Methodologies (Cont’d)

  • Medical services contracted separately from
    the basic arrangement or plan design.
  • Typically, higher cost or unusual services not
    adequately covered in a standard contract.
  • Examples: orthopedic implants, high cost
     Payment Methodologies (Cont’d)

Case Rate Pricing
  • A reimbursement method in which the
    provider is paid a single amount for care of
    the patient during a specific illness.
  • Example: Diagnosis Related Groups (DRGs).
  • Hospital incentive is to reduce LOS.
  Payment Methodologies (Cont’d)

Diagnostic Related Groups
  • Statistical system in which inpatient stays are
    classified into groups for payment purposes.
  • Payment methodology used by Medicare.
  • Incentive to reduce LOS.
  • As of October 1, 2007 there will be 745
    severity based MS-DRGs.
  Payment Methodologies (Cont’d)
Fee for Service (FFS)
  • A method of financial reimbursement in which
    providers either bill the patient or the health
    plan for services rendered.
  • Insurance company pays full charges.
  • Physicians are often on the FFS rather than
    the hospital.
  • Rare today.
  • Examples today: cosmetic surgery.
 Payment Methodologies (Cont’d)
Per Diem
  • A system of reimbursement whereby
    managed care organizations pay specific
    charges for each service or inpatient day.
  • Hospitals are at risk for denial – if timely care
    is not provided or does not meet medical
  • We need to manage these patients!
  Payment Methodologies (Cont’d)
Percent of Charges
  • Payment is made based on a percentage of
    the total reasonable and customary charges.
  • These contracts are increasing.
  • Our management role: make sure patients
    meet continued stay criteria and tests and
    procedures are performed in the appropriate
  • There is a risk that days can be denied!
 Payment Methodologies (Cont’d)
Stop Loss
  • Targeted level is negotiated by the hospital
    and managed care organization, and is
    typically a set dollar amount or targeted days.
  • When issued by the managed care
    organization, a stop loss can limit the risk to
    the hospital by reimbursing them when claims
    exceed a certain level.
  Payment Methodologies (Cont’d)

Out of Network (Non-Par)
  • The managed care organization and provider
    have not negotiated a contract.
  • Our goal is to stabilize the patient and transfer
    to a par facility.
  • Case Management needs to expedite that
 Payment Methodologies (Cont’d)

Various Military Plans
  • Examples- Veterans Administration (VA), Mill
    Bill, CHAMPUS and TRI CARE.
  • Qualification for benefits varies for each plan.
     Role of the
 Payer Review Nurse

Remember!! They work
    for the payer!

……and may use different criteria
              Role of the
          Payer Review Nurse
  • The payer review nurse can come to the
    facility to review a patient’s record or request
    a review via telephone or fax.
  • The payer review nurse will notify the
    appropriate individual/department (different
    at each hospital) of authorization or denial.
             Role of the
         Payer Review Nurse

May assist with discharge planning, i.e., provides
authorization for SNF, DME, HHC, transportation –
they may have specific contracted providers.

•   Hoffman, Klees, & Curtis. (2005). Brief Summaries of
    Medicare & Medicaid Title XVIII and Title XIX of the Social
    Security Act. Centers for Medicare and Medicaid Services;
    Department of Health and Human Services.
•   Whetsell, G. W. (1999). The History and Evolution of
    Hospital Payment Systems: How Did We Get Here?
    Nursing Administration Quarterly, 23, 1-15.
•   Kulwsher, R.R. (2006). Medicare’s Operational History and
    Impact on Health Care. The Health Care Manager, 25, 53-
• Brannen, T.J. (1999). DRG-based per diem payment system
  matches costs more accurately. Healthcare Financial Management,
• Levin, A. (1999). Insurers see tighter provider stop market. National
  Underwriter, 103, 10-13.
• Chyna,J.T. (2000). Raising Reimbursement: Improving Your
  Managed Care Revenue Cycle. Healthcare Executive, 20, 16-22.
•, Managed Care
• Steyer, T.E. Health Care Financing in the United states; Past,
  Present and Future. Slide Presentation, Medical University of South
• Tufts Managed Care Institute. (1998). A Brief History of Managed

• 2006 Medicaid Managed Care Enrollment
  Report Summary Statistics as of June 30,2006
             Review Questions
Managed Care is defined as a type of health
delivery system that:
    a. Attempts to manage and control access, delivery,
       quality, and cost of care.
    b. Allows access to all services no matter the quality
       or cost.
    c. Limits access to services to achieve a bottom line.
      Review Questions (Cont’d)

True or False: Capitation is when the provider
receives a specific amount of money based on a
per member, per month basis, rather than on
specific services provided.
   Answer Key

1. A
2. True

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