Reimbursement models refers to the method by which a provider is compensated for the services delivered under a managed care contract. These arrangements provide a combination of financial incentives and disincentives to modify the cost and utilization of services.
The reimbursement methodology has a major impact on the type, volume and quality of services delivered by the provider. The managed care reimbursement mechanisms are designed to control cost by reducing the rate of reimbursement through discounts (e.g. discounted fee-for-service), placing the provider at risk (e.g. capitation) or by providing financial incentives for reduced utilization and disincentives for overutilization.
Some of the models that are commonly employed by managed mental health plans include: a) fee for service, b) discounted fee for service, c) capped fee schedule, d) capped fee schedule with withhold, e) primary care capitation and full capitation, f) per diem charge, and g) per case payments (case rates). The two primary reimbursement mechanisms used by managed care organizations are discounted fee for service and capitation. Each method carries with it special requirements for automation.
Fee For Service Models:
The Fee for Service reimbursement method refers to the use of a predetermined fee or discounted fee for a specific service or procedure. Some of the techniques that are used by the payer to control costs in a fee for service model include:
- Discounted fees
- Limited provider network
- Case management
- Pre-certification (to determine medical necessity)
- Concurrent reviews of service utilization (to determine medical necessity)
- Retrospective review of service patterns
- Benefit limitations
- Cost shifting through deductibles and co-payments
- Financial incentives and disincentives
Capitation Models:
In a capitated arrangement a payment is made to the provider as a fixed monthly amount per member or per capita. The payment is made to the provider regardless if the services are delivered or not. With full capitation, the provider is 100% liable for all services. Other capitation arrangements are used in which the managed care organization shares in the risk with the provider.
Capitation is defined by Freeman (1995) as "A method of payment for healthcare in which the provider is prepaid a fixed amount, usually monthly, for each member of a health plan regardless of whether the member accesses services. The fixed rate pays for all services necessary for the population regardless of actual utilization costs."
Obviously, each reimbursement mechanism carries its own special set of requirements for information. In the fee for service model, it is important for the organization to have a good grasp of what it costs to provide specific services before contracting for a set fee. A system for implementing and monitoring cost controls should also be in place. The advantage to the provider is that the MCO will pay the negotiated fee for all of the services authorized. The disadvantage is that the FFS contract carries with it limitations on benefits including the types and quantity of services eligible under the plan. The advantages to the capitated contract are that the provider has a constant revenue stream each month based on a predetermined per member per month payment. The payer typically exercises less control over the providers and they have more flexibility in determining what services are provided. The downside of this type of reimbursement strategy is that the provider is totally or partially at risk for the provision of service to the enrolled members.
Information Systems:
One of the critical success factors for surviving any managed care contract is a sophisticated, integrated management information system. There are three general areas of applications software that will provide a strategic advantage to the managed behavioral healthcare provider:
- Basic Client Information Management System (scheduling, client registration and billing and AR (with managed care contract management functions)
- Clinical Records (charting functions and clinical management functions)
- Accounting (accounts payable, general ledger, costing, budgeting, payroll, etc.)
Planning an effective Information Management System starts with an IS Evaluation and Plan that systematically and consistently assess and documents the many detailed operations and functions of the agency. Pre-automation workflow analysis and subsequently improved operating efficiency position the organization for an efficient transition to automation.
Utilization Management:
Another method of controlling cost and quality is for the purchaser of services to develop standardized treatment protocols as part of a total Utilization Management process.
Utilization Management is the process of assessing the need, type, level, and duration of care. Programs and services are selected based on treatment protocols that demonstrate the most cost and quality effective care for a particular diagnosis or presenting problem.
Increasingly, the better managed care plans use measurable outcomes as well as cost in determining efficiency as well as quality. As a matter of policy, these services typically occur in the least restrictive environment with the lowest appropriate level of service for the level of severity identified. Actuarial research on the efficacy of the various treatment protocols is used to develop the factors impacting service costs. When combined with outcome data, these criteria form the guidelines used by payers to determine Utilization Management criteria.
Prior Authorization & Reimbursement Limits:
In some models, cost containment mechanisms employed by managed care organizations (MCO) place limits on reimbursement for utilization.
Particularly in fee-for-service plans, and even with some capitated plans, restrictions may be placed on the amount and types of services that a provider can deliver. This may simply be accomplished through the language of the health plan contract, or the MCO may require prior authorization of certain types of services.
These authorizations have specific limits on the number and types of services approved and may vary by MCO, plan, patient, and diagnosis. Benefits are limited by dollars, visits, units of service and overall duration of service. The limits may be defined by episode, month, year and/or lifetime.
Limiting access to care also controls costs. This is performed by limiting the provider network, controlling the point of entry into the network through a gatekeeper and by requiring prior authorization for referrals. The gatekeeper organization or practitioner is responsible for determining the need for service and making the appropriate referral. Denial of claims is another method of reducing an MCO's cost after the fact. Through retrospective utilization review techniques, claims are reviewed with respect to their conformance to the utilization criteria established by the MCO. This review is conducted to determine the medical necessity for the procedure. If the facts of the case do not meet the established criteria the claim is rejected.
Direct Competition:
Finally, another approach to controlling the costs of a provider network is to compete with it. Some managed care companies are purchasing their own practices and providing services directly to patients. In these "staff model" HMOs, the practitioner is an employee of the MCO.
About The Authors:
Bruce Johnson, M.S., PMP, is President of Johnson Consulting Services, Inc., an information management consulting firm that specializes in working with social service, healthcare, and government organizations. He can be reached at (800) 988-0934, www.jcsconsultants.com or by e-mail at jcsinc@fuse.net. Mr. Schafer is a clinical records and operations management consultant. He specializes in working with managed care, behvavioral healthcare and child welfare organizations. He can be reached at (800) 661-2435, www.schaferconsulting.com or by e-mail at steve@schaferconsulting.com.
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