Healthcare Cost Benefit Analysis
Part A: Monetary Valuation
$200 billion in benefits minus $17 billion in costs equals $183 billion in net benefits. Therefore, benefits minus costs equal net benefits.
Net benefit = Benefits – costs
= $200B – $17B
= $183 B
That means that the procedure is worth pursuing since overall benefits are more than costs.
Part B: Analysis
Abstract
The research delves into an array of payment methodologies used by third-party payers to compensate healthcare providers. Third-party payers refer to insurance covers that pay the whole or part of the cost of healthcare service providers. Such carriers include private, managed care, public, and preferred provider networks. Typical reimbursement methods include bundled payments, capitation, fee for service, shared savings, and value-based reimbursements.
Fee for Service
The fee for service payment is solely based on the procedure a healthcare provider performs on the patient. Different procedures have different codes and corresponding prices upon which the insurance carrier is charged (Green, 2018). For instance, a 30-minute consult and urinalysis all have different codes and charges. The payment for medical services differs depending on the type of provider. For instance, Medicaid and Medicare providers’ charges are determined by the Centre for Medicaid Services (CMS) (Green, 2018). On the other hand, private insurance pays as a percentage of the former’s price. Physicians providing care for privately insured patients receive way more than those in traditional managed care plans. The fee-for-service payment plan is volume-based since providers’ revenue depends on procedures done. However, FFS is prone to exploitation by providers who give unnecessary procedures to increase revenue.
Bundled Payments
On the other hand, bundled payments, also known as episode-based payments, are based on the expected cost of a procedure. For instance, if a hip treatment cost is estimated to be $15,000, all providers will be reimbursed the same amount, even if the procedure costs more or less. That means that providers who treat more severe cases are likely to be underpaid (Green, 2018). Bundled payments encourage medical providers to practice efficiency by reducing healthcare costs.
Discount from Billed Charges
This payment method allows the provider and the insurance carrier to negotiate payment based on the former’s standard Charge description master. The standard charge description master shows billing and the extent of usage. It is one of the easiest methods used to calculate payments, but in most cases, insurance carriers raise complaints about the authenticity of billing.
Shared Savings
A shared savings payment method lowers the risk on the part of the provider by offering a predetermined discount. Apart from providing the provider with an upward incentive, the payment method also reduces the provider’s exposure to risk (Casto & Forrestal, 2013). Besides, the provider and insurance carrier can further negotiate discounts even after the patient gets services.
Value-Based Reimbursement
Value-based reimbursement seeks to offer quality care at the lowest possible cost. That is achieved by providing the provider incentives to save more. There are two value-based reimbursement categories: the one-sided model (gain share) and the two-sided model (risk share), based on healthcare expenditure cost on a targeted population (Green, 2018). In the one-sided model, the provider receives 30% of the amount saved below the target expenditure. However, the two-sided payment model has a penalty provision. Apart from getting up to 30% of gains, the healthcare provider will also be required to refund 30% of costs above the target figure. There are also specified quality metrics that determine the payment.
Incentives
In the fee-for-service payment methodology, the incentive is to conduct as many procedures as possible to bolster revenue. Private payers allow physicians to charge up to three times the cost that a public insurance cover would ordinarily pay.
There is also the pay-for-performance incentive program. The program seeks to extend incentives to healthcare providers to improve care outcomes (Elovainio, 2010). Pay-for-performance programs focus on patient safety, care effectiveness, efficiency, and patient-centeredness. In the American context, pay for performance came into play due to a report’s recommendations. One of the key recommendations in the report was the incorporation of financial incentives in health care to motivate providers. The program promises financial incentives to healthcare workers who follow best practices and produce better care outcomes. A motivated provider is also likely to innovate and create better results compared to a lowly compensated one.
Another incentive program by third-party payers is direct funding of hospitals through the transitional partnership programs (TPP). By funding hospitals directly, third-party insurers enable hospitals to cut the cost of healthcare (Elovainio, 2010). That is achieved since people can access insurance and seek medical attention earlier to avoid escalating their conditions. That also means that the specified population will not overburden providers with expensive and demanding health issues later. The positive financial returns from funding programs are worth the investment since even third-party payers get to reduce their overall payments to hospitals.
Impact of Payment Methodologies on Healthcare Delivery
Physician Incentives and Compensation
The financial incentives incorporated by third-party payers are not passed directly to physicians. Most physician practices prefer to shield physicians from the risks associated with insurance incentives by offering them a stable income. So, physicians are mostly protected from direct financial impacts unless it is the traditional FFS payment method (Bruen et al., 2016). However, physicians are not entirely shielded from the benefits/risks associated with such incentives. Physician practices often convert the financial risk to non-financial internal incentives. These include giving physicians performance feedback based on their abilities. Besides, physician practice managers make retaining and firing decisions based on the physicians’ performance.
The fact that incentives offered by third-party payers are not passed to physicians frustrates them often. They desire an alignment between what they are paid and what they think is best to do to the patient (Bruen et al., 2016). An alignment between physician compensation and third-party payments will raise their aggregate income and motivate them to offer quality care.
Physician Work and Professional Satisfaction
Physicians agree that alternative payment methods have zero impact on face-to-face patient care. However, the window for delegation of non-intense patient encounters to other care professionals in some payment methods often leads to burnout (Bruen et al., 2016). The result of burnout is reduced quality care outcomes.
Moreover, physicians express discontent over documentation required by all payment methods. Although they recognize the importance of documentation, especially for patients with chronic illnesses such as diabetes, they dislike the extra work needed to document. Physicians increasingly feel that such documentation is irrelevant to patient care, hence no need to involve themselves. These concerns signal the desire for changes in hospital documentation.
Capitation
Capitation is a simple hospital payment method whereby the third-party payer remits payment to the provider to cover a specified population over a stated period. For instance, a third-party payer could be dispatching $50 for 20 patients every month, regardless of the severity of their conditions. Notably, there is no connection between payments remitted and the services the patient receives. Capitation is categorized into two forms: the amount that goes to the physician/specialist and one that caters to the patient’s expenditures, such as pharmaceutical costs (Green, 2018). The payments made are adjustable depending on the type of patient at hand. It would be illogical to offer the same amount to older people who have chronic illnesses and young people. Although adjusting payments is a bit complicated.
Advantages and Disadvantages of Reimbursement methods
The fee-for-service payment model is exposed to misuse by health professionals. The misalignment of incentives that characterize the payment method may lead to doctors doing more procedures on the patient to increase revenue (Casto & Forrestal, 2013). As much as some of the services might be justifiable, some of them could be unnecessary.
Next, the bundled payments model has helped cut the cost of healthcare. In the American context, the payment system became popular post-ACA, and payers like Medicare and Medicaid plans have expressed interest in using the payment method (Casto & Forrestal, 2013). However, the technique has its share of disadvantages, including challenges when calculating the expected cost of care. Also, the cost of treating medical conditions such as cancer differs depending on the severity of the case at hand. Even with the positive impact that comes with the method, it is challenging to adjust health status.
On the other hand, volume-based reimbursement combines the payer’s and provider’s resources to improve the quality of care. Also, the resources are meant to improve knowledge and data aspects that will lower costs and improve the quality of care. The resources will enable facilities to attain the technological and clinical sophistication required to bolster healthcare.
References
Bruen, B. K., Docteur, E., Lopert, R., Cohen, J., DiMasi, J., Dor, A., … & Shih, C. (2016). The impact of reimbursement policies and practices on healthcare technology innovation.
Casto, A. B., & Forrestal, E. (2013). Principles of healthcare reimbursement (p. 371). American Health Information Management Association.
Elovainio, R. (2010). Performance incentives for health in high-income countries key issues and lessons learned. World Health Report.
Green, M. (2018). Understanding health insurance: A guide to billing and reimbursement. Cengage Learning.
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Question 
Assignment Details
Reimbursements and cost-benefit analysis compare the costs and benefits of an intervention, which are expressed in monetary units (CDC, n.d.).
Cost–Benefit Analysis
1. Monetary Valuation
The analysis estimates that the following benefits are worth $140 billion:
Healthcare Cost Benefit Analysis
Direct medical costs averted
Valuation of quality of life gained due to non-fatal heart attacks averted
Valuation of life years gained due to fatal heart attacks averted
Next, the analysis estimates that costs to the industry and consumers are $6 billion.
2. Calculation of Net Benefits
$140 billion in benefits minus $6 billion in costs equals $134 billion in net benefits. Therefore, benefits minus costs equals net benefits.
Net benefit = Benefits – costs
= $140 – $6
= $134 billion
Part A. Monetary Valuation
The analysis estimates that the following benefits are worth $200 billion:
Direct medical costs averted
Valuation of quality of life gained due to non-fatal heart attacks averted
Valuation of life years gained due to fatal heart attacks averted
Next, the analysis estimates that the cost to the industry and consumers is $17 billion.
Calculate the net benefits.
What does the value tell you as an administrator relative to the benefit of the procedure?
Reimbursement methods
Part B. Answer the following questions:
What are the various reimbursement methods used by third-party payers?
What incentives are given to providers under each of these reimbursement protocols?
How do these reimbursement methods impact the delivery of health services?
What is capitation?
What are the advantages and disadvantages of each of these reimbursement methods?
Solve the problem in Part A, and write a 5-page analysis in response to the questions in Part B. Cite at least 5 references in APA format.
Submitting your assignment in APA format means, at a minimum, you will need the following:
Title page: Remember the running head. The title should be in all capitals.
Length: 5 pages minimum (Make sure to include an introduction and a conclusion)
Abstract: This is a summary of your paper, not an introduction. Begin writing in the third person.
Body: This begins on the page following the title and abstract pages and must be double-spaced (be careful not to triple- or quadruple-space between paragraphs). The typeface should be 12-pt. Times Roman or 12-pt. Courier in regular black type. Do not use color, bold type, or italics except as required for APA-level headings and references. The deliverable length of the body of your paper for this assignment is 5 pages. In-body academic citations to support your decisions and analysis are required. A variety of academic sources is encouraged.
Reference page: References that align with your in-body academic sources are listed on the final page of your paper. The references must be in APA format using appropriate spacing, hanging indent, italics, and uppercase and lowercase usage as appropriate for the type of resource used. Remember, the Reference page is not a bibliography but a further listing of the abbreviated in-body citations used in the paper. Every referenced item must have a corresponding in-body citation.