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How Do Financial Reimbursement Models Impact Healthcare Organizations

How Do Financial Reimbursement Models Impact Healthcare OrganizationsHealthcare reimbursement models shape the finances of healthcare organizations, especially rural or underserved ones. If you are a rural healthcare business, you might have faced unique challenges and uncertainties as the industry transitions from FFS to VBC and other alternative payment models. This article examines how changing reimbursement models affect rural healthcare organization's financial stability and offers solutions.

Payments for healthcare services sustain rural healthcare facilities. These services are paid for by Medicare, Medicaid, commercial health insurers, and patients. Federal and state payment policies can affect rural facilities' viability.

Understanding the Value-Based Reimbursement Model Landscape

As a provider, you know that you are paid for your services under healthcare reimbursement models. Traditional fee-for-service models pay for each service, while value-based care models reward quality and efficiency. Bundled payments, capitation, and shared savings programs have different payment structures and incentives.

Value-based reimbursement is replacing fee-for-service payments in healthcare facilities, albeit slowly. The Health Care Payment & Learning Action Network (LAN) reported that value-based reimbursement models accounted for over half of healthcare payments in 2022.

Not all healthcare organizations can easily switch to value-based reimbursement. These models require advanced data analytics, population health management, and EHR documentation and reporting.

Fortunately for providers, alternative payment models can meet a variety of needs and competency levels.

alternative healthcare payment models

CMS defines alternative payment models as a “specific subcategory of value-based purchasing initiatives that require providers to make fundamental changes in the way they provide care” that “shift financial incentives further away from volume by linking provider payments to both quality and total cost of care results.”

The broad definition allows various value-based reimbursement arrangements. Based on their health IT capabilities and healthcare spending trends, you can choose the best model and work up the continuum to value-based care.

Traditionally, healthcare services have been reimbursed through fee-for-service (FFS) models, where providers are paid for each service rendered. However, the industry is gradually shifting towards value-based care (VBC) models, which focus on rewarding quality and efficiency rather than volume. Alternative payment models such as bundled payments, capitation, and shared savings programs offer different structures and incentives, reflecting this transition.

Value-based reimbursement is gaining traction, with over half of healthcare payments being made through these models, according to the Health Care Payment & Learning Action Network (LAN). While value-based care holds promise for improving quality and efficiency, its adoption presents challenges for rural healthcare providers, including the need for advanced data analytics and population health management capabilities.

Starting On The Path To Value-Based Reimbursement 

Starting On The Path To Value-Based Reimbursement Pay-for-performance models make linking claims reimbursement to quality and value easy for providers new to value-based care. These models repay providers using a fee-for-service framework, but they may also receive value-based incentive payments or penalties for quality and cost performance.

Hospital Value-Based Purchasing providers in Medicare receive positive or negative payment modifications based on treatment quality. CMS evaluates participation based on influenza vaccine rates, Medicare spending per beneficiary, and patient experience surveys.

Hospitals can receive Medicare reimbursement cutbacks or financial rewards based on how they rank on the indicators compared to their baselines and if they have improved.

Small practices without the capacity to adopt pricey technologies prefer pay-for-performance solutions because they require less health IT and data analytics infrastructure knowledge. However, providers must track and report clinical quality and cost data.

Impact of Reimbursement Model Changes

Rural hospitals face significant financial challenges as they switch from fee-for-service to value-based care. Value-based care models can improve quality and efficiency, but they also carry financial risks. Healthcare providers may have trouble predicting revenue under new payment models during the transition.

Where do rural hospitals get paid?

Where do rural hospitals get paidHealthcare organizations receive payments from various sources, depending on whether each patient has health insurance. Those who pay:

Original Medicare

Federal health insurance is available for seniors, disabled people under 65, and patients with End-Stage renal disease, or ALS. Medicare Part A covers hospitals, critical access hospitals, skilled nursing facilities, hospices, and some home healthcare services. Medicare Part B covers physician and outpatient care, and most beneficiaries pay a monthly premium. All Medicare beneficiaries pay a monthly premium for Medicare Part D prescription drug coverage.

Medicare Advantage

CMS-approved private Medicare Part A and B plans. Healthcare businesses offering these plans receive a monthly rate from Medicare for each beneficiary. Medicare Advantage plans (Medicare Part C) may offer vision and dental benefits not covered by Medicare Parts A and B.

Medicaid and the Children's Health Insurance Program

A federal-state partnership to insure low-income families, children, pregnant women, the elderly, and disabled people. Each state plans Medicaid according to federal guidelines. As of July 2021, 41 states have contracted with managed care programs to provide Medicaid services to some beneficiaries. For children in families that earn too much for Medicaid, CHIP provides low-cost healthcare.

TRICARE: The military, retiree, and family healthcare insurance program.

Veterans Health Administration

Veterans receive healthcare benefits from the VHA. Eligibility requirements vary by healthcare type and service member status. Veterans with VHA insurance can receive care at VA facilities or community healthcare providers that partner with the VHA to serve rural veterans.

Commercial/private health insurers

Private/commercial health insurers with employer-sponsored plans or individual policies. Even with private health insurers, patients must pay a copay, coinsurance, or deductible.

The patient (self-pay)

When a patient pays for their own healthcare without insurance. 

Some patients are dual-eligible for Medicare and Medicaid or covered by Medicare and a private supplemental plan. Public payments are more common in rural healthcare facilities.

The American Hospital Association's 2019 Rural Report shows that rural hospitals serve more Medicare and Medicaid patients. This report shows that rural hospitals' revenue was 56% Medicare and Medicaid in 2017, making them vulnerable to Medicare and Medicaid payment policy changes.

Also, Capital Link's Rural Federally Qualified Health Centers Financial and Operational Performance Analysis 2018-2021 describes the median payer mix for rural FQHCs. The report also shows that rural FQHCs received more Medicare payments than urban ones in 2021, despite receiving less Medicaid revenue.

How are Medicaid payment systems unique? Rural providers face Medicaid reimbursement issues.

How are Medicaid payment systems uniqueMedicare and Medicaid reimbursements are vital to rural hospitals' revenue. The National Center for Health Statistics reported that 24.3% of rural 18-64-year-olds were Medicaid-covered in 2019. Medicaid is a federal-state partnership in all 50 states, DC, territories, and commonwealths.

So 56 plans have different benefits and eligibility requirements. There are federal requirements for services and eligibility, but each state can determine benefit packages, payment policies, and how much Medicaid is expanded to include people with higher incomes. Medicaid policies may benefit some rural providers while hurting others due to this variation.

Due to Medicaid's importance in rural areas, federal or state Medicaid eligibility or payment changes will affect rural providers' finances. The April 2018 MACPAC fact sheet Rural Hospitals and Medicaid Payment Policy states that most state Medicaid programs identify small rural hospitals for special reimbursement to help them stay afloat.

Medicaid and Rural Health, published by MACPAC in April 2021, found that 15 states target Medicaid Disproportionate Share Hospital payments to rural and critical access hospitals and 9 states target UPL supplemental payments. Medicaid Base and Supplemental Hospital Payments explain hospital payments.

The Effects of the ACA Medicaid Expansion

According to January 2014–January 2020 studies, Medicaid expansion improved the financial performance of many hospitals, including rural ones. Varying Trends in the Financial Viability of US Rural Hospitals, 2011–17 shows that CAH operating margins improved in Medicaid expansion states while they dropped for CAH and PPS hospitals in non-expansion states. Rural hospital uncompensated care costs fell 43% between 2013 and 2015 in states that expanded Medicaid eligibility, compared to 16% in states that did not.

What other types of payments could rural providers receive?

What other types of payments could rural providers receiveUncompensated Care Pool

Section 1115 Medicaid waivers have created uncompensated care pools in several states. Low-income pools, or uncompensated care pools, allow states to use Medicaid funds to support safety net providers and cover uncompensated care costs.

The American Hospital Association's Uncompensated Hospital Care Cost Fact Sheet defines uncompensated care as hospital services not paid for. Medicare and Medicaid calculate uncompensated care differently. 

The Medicaid and CHIP Payment and Access Commission (MACPAC) defines uncompensated care as unpaid care costs for uninsured individuals and the Medicaid shortfall. Charity care and bad debt are unpaid care costs for uninsured patients but not for insured patients. The Medicaid shortfall is “the difference between the Medicaid base payments a hospital receives and its costs of providing services to Medicaid-enrolled patients.”

Uncompensated care in Medicare includes bad debt, which a hospital expects but does not receive from patients or insurance. Uncompensated care includes charity care, which hospitals did not expect to receive. Hospitals usually screen for financially disadvantaged patients.

Personal expenses of patients

How much people pay to healthcare providers depends on many factors. Privately insured individuals pay copays and coinsurance, which are part of the provider's and insurance plan's allowed rates. Wellness checks and disease management programs are often covered before patients pay the deductible, which they must pay before insurance will cover other services.

Uninsured patients pay full medical costs. Geographic Variation in Health Insurance Coverage: United States, 2022 found that rural counties had 13.9% uninsured adult residents, the same as large central metropolitan counties, but higher than large fringe metropolitan (10.1%) and medium and small metropolitan (12.2%) counties. Hospitals can also identify patients who request financial assistance or do not expect payment for charity care. FQHCs must offer sliding fee discounts.

What's the rural provider reimbursement process?

Whats the rural provider reimbursement processRural providers submit patient-specific claims to payers for reimbursement. These claims describe care. Rural Health Clinics and Federally Qualified Health Centers have unique billing requirements and processes.

An outpatient reimbursement process might look like this:

  • The patient pays a copay at arrival if their coverage and type of visit require it. The registration staff may also verify health insurance information to bill the right payers.

  • The provider records services during the visit.

  • A coding and billing specialist converts the provider's visit description into standardized diagnosis and treatment codes after the visit. The facility and payer may have negotiated rates. The patient's payer(s) receives coded visit information electronically.

  • Payers either pay or deny claims.

  • The billing/coding staff can revise and resubmit denied claims.

  • Finally, payment arrives. After the copay, the patient's remaining liability is calculated and billed.

Rural billers and coders must stay abreast of payer requirements. In January 2022, new rules protected group and individual health insurance policyholders from excessive out-of-pocket medical bills for emergency care, non-emergency care from out-of-network providers at in-network facilities, and air ambulance services. 

Healthcare providers and consumers can learn about surprise billing regulations and policies from Ending Surprise Medical Bills. Correct coding also maximizes reimbursement for a procedure or diagnosis.

Payment may be lower or the claim rejected and resubmitted if the wrong procedure or diagnosis is chosen, delaying reimbursement. Rural facilities and providers' offices are usually smaller than urban facilities, so they may have less staff to manage the billing workflow, delaying payment.

What is the best way for me to get information regarding questions about billing and reimbursement?

What is the best way for me to get information regarding questions about billing and reimbursement

  • For rural health technical, policy, and operational assistance, contact CMS Regional Office Rural Health Coordinators.

  • For Medicare Part A and Part B claims, reimbursement, and billing questions, contact the Medicare Administrative Contractor (MAC).

  • For reimbursement, billing, and coding, the best practice is to outsource medical billing services.

The Bottom Line

This article delves into the evolving landscape of healthcare reimbursement and its profound impact on the financial stability of healthcare organizations, particularly those located in rural or underserved areas. As the industry transitions from Fee-for-Service (FFS) to Value-Based Care (VBC) and other alternative payment models, rural healthcare providers face significant challenges and uncertainties. 

The article outlines the key changes in reimbursement models and their effects on rural healthcare settings and offers strategic insights for effectively adapting to these changes.

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