Commercial Payers Lag Medicare
Insurers report that hospitals are more willing than ever to negotiate fixed rates and take on greater risk for the efficient delivery of care. In conversations with insurers, this topic often leads to accountable care organizations and bundled payment arrangements. However, there are many opportunities for commercial insurers to implement fixed rates and smart payment policies by leveraging the payment methods currently used by Medicare.
Congress sets payment rates and policies, under advice from the Medicare Payment Advisory Commission, with the goals of ensuring access to high-quality care, paying health care providers fairly, and rewarding efficiency and quality. While some would argue that Medicare is not achieving this goal, a look back at changes made over the past 15 years shows continual improvement in both large and small steps.
Select Medicare payment system changes over the past 15 years:
1998 – Established skilled nursing payment system
2000 – Established outpatient prospective payment system
2002 – Established long-term care hospital payment system
2005 – Established inpatient psychiatric hospital payment system
2008 – Modernization of the outpatient dialysis payment bundle
2008 – Modernization of ambulatory surgical center payment methods
2013 – Implementing inpatient payment changes based on quality scores
In general, commercial insurers rely on much less sophisticated payment methods than Medicare. By not keeping up with Medicare’s changes, commercial insurers are missing opportunities to increase fairness in payments and encourage efficient and high-quality care.
The following five Medicare payment policies should be at the top of commercial insurers’ strategic plans for 2013.
Inpatient Transfers – When a patient transfers in the middle of a stay to another hospital (generally because the patient is or became too sick for the original hospital to manage), the original hospital is paid a pro-rated portion of the DRG rate for the stay. Commercial payers that use a DRG system often pay the full rate for transfers.
Hospital-Acquired Conditions – When a patient acquires an infection in the hospital or an obvious error is made during their care (e.g. an instrument is left in during a surgery), Medicare does not pay the hospital to treat the infection or cure the error. Most commercial plans do not adjust for hospital-acquired conditions.
“New” Ambulatory Surgery Center payment methodology – For 2008, Medicare revised the system they use to pay ambulatory surgery centers to fairly reimburse for complex surgeries by breaking out various chargeable items out of a single case rate. This was done because the use of ambulatory surgery centers has grown and the types of surgeries now being done in stand-alone centers are more varied and often more complex. So the newer ASC payment method pays only for the services needed for each case at a fixed rate.
Pay outliers at a Loss – Medicare’s inpatient stop-loss mechanism assumes that hospitals will take a loss for catastrophic admissions, which creates an incentive to tightly manage these very expensive cases. Most commercial insurers, on the other hand, use a payment mechanism that provides a generous profit to hospitals in the most expensive cases.
Outpatient Prospective Payment System – Medicare pays for outpatient care using the OPPS, which is built upon Ambulatory Payment Classification codes. The OPPS uses fixed fees for the large majority of outpatient services. Most commercial insurers still pay for a significant portion of outpatient services by applying a negotiated discount, which provides an opportunity for hospitals to manipulate outpatient payments simply by adjusting their charge master.
Due to the current political climate, commercial health insurers have a newfound opportunity to implement fair and intelligent cost controls. Fortunately for them, Medicare has done the hard work of designing and implementing new payment methods and policies.
Gary Nissen is president and founder of Health Plus Technologies, a company that provides analytic software and consulting services to the health insurance industry.
