Healthcare News & Insights

Medical Reimbursement

Physician PaymentDespite being such an integral part of our nation’s well-being, the increasing costs of healthcare are putting a strain on the system as a whole and threaten to keep doctors from providing their patients with the best care.

With high levels of national debt and an aging population, everyone – from policy makers to physicians and patients – is aware that steps need to be taken to reduce the growing cost of healthcare expenses while retaining and improving the quality of patients’ care. Medical reimbursements are a big part of that equation and continue to alter the ability of doctors’ and physicians’ efficiency and methods of care.

Reduced Medical Reimbursement Pressures Physicians

For physicians, the costs of running an independent practice is increasing while medical reimbursements are decreasing, causing a lot of strain on individuals and on the industry. In the last 5 to 10 years, many doctors have opted-out of Medicare and Medicaid, have closed their practices and joined larger healthcare organizations, or left medicine all together. Those that have worked hard to build up their own practices now face increasingly high costs for malpractice insurance premiums and are receiving less and less back in medical reimbursements from government plans like Medicare, making it hard for their practice to survive.

In response to this, the government has established some changes in overhaul of healthcare reform, including implementing practices as part of the Affordable Care Act that will help to reduce overall healthcare costs and increase the quality of patient care.

Out with the Old: Fee-for-Service (FFS) Medical Reimbursement

Healthcare executives are well-versed in the system of medical reimbursements on a fee-for-service (FFS) basis in which each consult, test, appointment, or other procedure administered gave them a boost in earnings through reimbursements provided by private payers (like Aetna, United Healthcare, etc.) or federal agencies.

This system, however, has been criticized for providing physicians an incentive to perform more, and sometimes unnecessary, procedures to increase their profits, and has also been named as one of the driving forces behind increased cases of physician-led healthcare fraud.

To combat these issues and to focus on preventative care and the rising costs of healthcare in the future, a new medical reimbursement system has been proposed that is based not on the amount of procedures performed, but on higher amounts of quality care at lower costs.

In with the New: Value-Based Purchasing (VBP) Medical Reimbursement

The problems presented in the fee-for-service payment method put a large burden on healthcare payers in general, and especially on Medicare and Medicaid expenditures. In an effort to make high-quality care and cost efficiency top priorities, the Centers for Medicare and Medicaid teamed up with policymakers in Congress and created a new system, called Value-Based Purchasing (VBP) as part of the Affordable Care Act. This solution is proposed to take Medicare from a “passive purchaser” to an “active purchaser of high quality efficient care”.

The groundwork of this program shifts Medicare’s medical reimbursements away from paying providers based solely on the services rendered, and focuses on maintaining a high-quality, low-cost practice. These incentives could help to support the new medical insurance plan programs, like Accountable Care Organizations (ACO), where collaboration between networks of physicians, hospitals, and patients helps to reduce costs and errors.

According to the Centers for Medicare and Medicaid, the VBP medical reimbursement plan would:

  • incorporate better use of medical technologies like EHR and PHR
  • encourage physicians and health providers with additional incentive to produce the best care
  • allow consumers to make informed decisions about their health care by allowing them to see information regarding care quality and cost
  • helps support “Partnership for Patients”

The launch of this program starts in October 2012, when hospitals will be the first to implement the VBP system by using diagnosis-related groups to gauge hospital medical reimbursements. These repayments, estimated to be at about $850 million, will be distributed starting in 2013, and depend on a hospital’s scores from 17 different process-of-care measures as well as 8 different patient-care measures. As mentioned before, there will be increased transparency as hospital performance is required to be publicly reported for care dealing with heart attacks, heart failure, pneumonia, surgical care, health-care associated infections, and patients’ perception of care.


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