COMMON AND COMPARABLE COSTS PER TYPE OF SERVICES PROVIDED

Value-based Payments (VBP) – with greater emphasis on quality or value

Value-based Payments (VBP) can be in the form of a variety of models and share in common a shift in how providers are reimbursed, with a greater emphasis on quality or value. VBP models range from simply adding bonus payments for quality outcomes to payments with upside shared savings and/or downside share risk on a fee-for-service basis to a capitated payment that decouples payment from quantity of visits.

Fee-For-Service basically means costs plus a profit margin that providers bill for their services after such services were rendered and are usually based on usual, customary, and reasonable charges for such type of services rendered within a certain vicinity and may include factors such as level of training required to perform such services

Originally, providers would bill for their services after such services were rendered and they would charge their costs plus a profit margin. This is considered “Fee-For-Service“. Typically, the dollar amount that providers would charge would be based on usual, customary and reasonable (“UCR”)charges for such type of services rendered. Usual, Customary and Reasonable charges are based on a common standard within a certain vicinity that may include various factors such as type of service rendered, geographic location, and perhaps level of training required to perform such services. UCR charges are community-wide charges for a given procedure. Retrospective utilization review programs were implemented to assure medical care services were necessary and appropriate and to detect and reduce incidents of fraud.

Discounted-Fee-For-Service means a discounted rate in which providers are reimbursed for rendering services such as taking the usual and customary and reasonable charges within a certain vicinity and providers agreeing, for example, to accept 90% of charges instead of the usual 100% of charges

Medicare originally used “reasonable-charge” formulas based on a “customary, prevailing and reasonable” (“CPR”) system. This system was to enable the elderly and the disabled to purchase the same quality of care available to other groups so that charges would be reasonable and not higher than the charge applicable for a comparable service under comparable circumstances. The Blue Shield “usual” fee (analogous to Medicare’s “customary”) is defined generally as the price that an individual physician most often charges for a given service. The “customary” fee (analogous to Medicare’s “prevailing”) is based on aggregate charges in the community. Blue Shield plans nationwide have generally set this fee, or allowance, at or below the 90th percentile of charges in the community, i.e., the point at which only 10 per cent of charges are higher. Medicare has established the 75th percentile as the basis for its “prevailing” allowance. The Blue Shield (and Medicare) “reasonable” fee either meets the criteria for “usual” and “customary” fees or is judged worthy of individual consideration because of an unusually complex case.

In the traditional fee-for-services insurance system, providers are paid for services rendered which has the effect of creating a supply-driven system. In this type of system there is no economic incentive to be cost-conscious about health care delivery. Fee-for-service does not directly increase supply, but it does not encourage cost-efficiency.

There are various health care consulting firms that help providers determine fees, billing and relative values. There are a variety of publications available such as by the American Medical Association to decipher relative fees. Publications commonly used by the managed care industry are those produced by Milliman & Robertson, Inc. (“M&R”) from Brookfield, Wisconsin.  Milliman is among the world’s largest independent actuarial and consulting firms founded in Seattle in 1947 as Milliman & Robertson.  In order to ensure that doctors and hospitals receive reasonable payment for their services, Medicare uses geographic adjustment factors—changes in reimbursement based on estimated operating expenses in different regions across the country.

Milliman Care Guidelines will provide its evidence-based clinical guidelines to Centers for Medicare & Medicaid Services (CMS) healthcare review contractors through a license with Buccaneer Computer Systems and Services, Inc.  Acting on behalf of CMS, Buccaneer will administer the agreement to provide Milliman Care Guidelines to Quality Improvement Organizations (QIOs), Medicare Administrative Contractors (MACs) and Fiscal Intermediaries (FIs). These contractors perform Medicare healthcare quality and utilization reviews. QIOs work to improve the quality of beneficiary care, and MACs and FIs oversee inpatient hospital payment reviews.  Contractors will have access to Milliman Care Guidelines products spanning the continuum of care, including Ambulatory Care, Inpatient and Surgical Care, General Recovery Guidelines, Recovery Facility Care, Home Care, and Behavioral Health Guidelines. They will access the guidelines using CareWebQI interactive software, enabling reviewers to track variances and clearly document decisions during concurrent and retrospective reviews.

In March 2012, the Society of General Internal Medicine convened the National Commission on Physician Payment Reform to recommend forms of payment that would maximize good clinical outcomes, enhance patient and physician satisfaction and autonomy, and provide cost-effective care. The formation of the commission was spurred by the recognition that the level of spending on health care in the United States is unsustainable, that the return on investment is poor, and that the way physicians are paid drives high medical expenditures.

The commission began by examining factors driving the high level of expenditures in the U.S. health care system. It found that reliance on technology and expensive care, higher payments for medical services performed in hospital-owned facilities than in outpatient facilities, and a high proportion of specialist physicians as compared with generalists were all important cost drivers. But fee-for-service reimbursement stood out as the most important cause of high health care expenditures.