The Healthcare Payment Glossary
The methods used to pay physicians, hospitals, and other healthcare providers can make it difficult for them to deliver care to patients in the highest-quality, most affordable way. One of the barriers to solving these problems has been the complex and confusing array of terminology that is used to describe different payment systems. It is difficult for stakeholders to determine whether to support a proposal if they do not understand the words and abbreviations used to describe it, and it is difficult to reach agreement when the same words are used by different people to mean different things or are perceived to mean something different than what was actually intended.
The Healthcare Payment Glossary is intended to facilitate a better understanding of the terminology used in healthcare payment systems and to create a foundation for all stakeholders — patients, providers, employers, health plans, and government agencies — to reach consensus on how to reform healthcare payment.
An abbreviation for Advanced Alternative Payment Model.
An Accountable Care Organization is a group of healthcare providers who have organized themselves in a way that enables them to take accountability for the overall quality of care and the total cost to payers of all or most of the healthcare services needed by a group of patients over a period of time.
An Accountable Care Organization is not a payment model; it is an organizational structure designed to deliver care in a different way. Multiple payment models can be used with ACOs; the most common approach to date has been to pay the providers in the ACO using standard fee-for-service payments, and then to pay shared savings bonuses to the ACO.…more
Although the ACO program established under the Affordable Care Act is called the “Medicare Shared Savings Program” and CMS is paying ACOs under that program using a shared savings payment model, the Affordable Care Act authorized the use of other payment models for ACOs in the Medicare program, including partial capitation. However, CMS has only implemented other payment models for ACOs through demonstration projects operated by the Center for Medicare and Medicaid Innovation (CMMI).
ACOs must meet standards established by Congress and CMS in order to participate in the Medicare Shared Savings Program. However, the term Accountable Care Organization is also used to describe provider organizations that may not meet all of the standards established in the Medicare Shared Savings program.
A number of providers who have defined themselves as an Accountable Care Organization are participating in payment contracts with commercial health insurance plans, Medicaid programs, etc. that use payment models different from the payment model used in the Medicare Shared Savings Program. Moreover, providers do not need to form an ACO in order to participate in a shared savings payment model, since many payers, including CMS, are using shared savings payment models to pay individual physician practices and hospitals that are not part of an Accountable Care Organization.
While CMS has defined an Accountable Care Organization as a group of providers that includes primary care physicians and that takes accountability for the costs of all services associated with the patients attributed to those primary care physicians, the term Accountable Care Organization has also been used to describe a group of specialists who take accountability for all of the costs related to a particular health condition, such as cancer.
BASIC Track ACO Beginning in 2019, ACOs in the Medicare Shared Savings Program must participate in either the “BASIC” Track or the “ENHANCED” Track. There are five different “Levels” (A, B, C, D, and E) in the BASIC Track:
ENHANCED Track ACO Beginning in 2019, ACOs in the Medicare Shared Savings Program must participate in either the “BASIC” Track or the “ENHANCED” Track. The ENHANCED Track uses a “two-sided” shared risk payment model in which the ACO receives a higher percentage share of any savings and must pay a higher percentage share of higher costs than an ACO in the BASIC Track.
High Revenue ACO An ACO in which the total revenue the participating providers receive for delivering services to Original Medicare beneficiaries (Part A and PartB revenues) (regardless of whether they are assigned to the ACO) is 35% or more of the total Medicare spending on the beneficiaries who are assigned to the ACO.
Low Revenue ACO An ACO in which the total revenue the participating providers receive for delivering services to Original Medicare beneficiaries (Part A and PartB revenues) (regardless of whether they are assigned to the ACO) is less than 35% of the total Medicare spending on the beneficiaries who are assigned to the ACO. A Low Revenue ACO can participate in Levels A, B, C, and D of the BASIC Track for a longer period of time than a High Revenue ACO.
Next Generation ACO The Next Generation ACO Program is a demonstration program created by the Center for Medicare and Medicaid Innovation in 2015. It is separate from the Medicare Shared Savings Program, and offers multiple payment options for ACOs accepted for participation, including a capitation payment model, and waivers of selected Medicare regulations. Next Generation ACOs are required to accept virtually full performance risk and some insurance risk for the population of Medicare beneficiaries assigned to the ACO. The program was originally scheduled to end in 2020, but it was extended through the end of 2021.
Pioneer ACO The Pioneer ACO Program was a demonstration project created by the Center for Medicare and Medicaid Innovation in 2012. ACOs participating in the program were paid through a shared savings model that required higher levels of shared savings and downside risk than in the Medicare Shared Savings Program. Although an evaluation determined that the program had produced savings for Medicare and improved the quality of care for Medicare beneficiaries, and the CMS Actuary certified that the program met the criteria for expansion under the Affordable Care Act, the program ended in 2016 and was replaced by the Next Generation ACO program.
Track 1-2-3 ACO When the Medicare Shared Savings Program was first created, ACOs could choose one of three different shared savings payment models.
Tracks 1, 2, and 3 were discontinued in 2019 and replaced by the “BASIC” and “ENHANCED” Tracks.
Track 1+ ACO The Center for Medicare and Medicaid Innovation created an additional “track” for ACOs beginning in 2018 that involved less downside risk than Tracks 2 and 3. The program was scheduled to end in 2020, but ACOs participating in the program were permitted to continue through the end of 2021. The current “BASIC Level E” Track is similar to Track 1+.
An Accountable Payment Model is a generic term describing a payment model in which an accountable provider takes responsibility for achieving specific performance levels on quality and cost measures and receives a payment designed to support the services and activities needed to achieve those performance levels. See Payment Model and Accountable Provider.
A provider who accepts responsibility for ensuring that a payment is used to produce the results that are expected, whether that be the delivery of one or more specific services to the patient, achieving specific outcomes for the patient, or keeping costs or spending below a specific amount. In a traditional fee-for-service payment model, the accountable provider is the individual or provider organization that bills for payment for a particular service. However, in shared savings payment models, multi-provider bundled payment models, and global payment models where a patient receives services from multiple providers, a method is generally needed for determining which provider (or providers) is the accountable provider. This can be done either by having one or more providers agree to accept accountability before the relevant services are to be delivered, or by using an attribution methodology to determine which provider(s) will be accountable. See Attribution.
In a payment model where the amount of payment is based on performance on one or more measures of quality or spending, “achievement” is used to refer to the provider’s level of performance compared to a benchmark that is established in some way. In contrast, “improvement” is a measure of how the provider’s own level of performance has changed over time. Since a provider may have improved its performance but failed to meet an achievement threshold, or a provider may cease improvement once an achievement threshold is reached, many pay-for-performance systems are based on both achievement and improvement.
In a payment system that adjusts payments based on performance, an achievement threshold is a level of performance that must be reached in order to qualify for or to avoid an adjustment in payment.
See Risk Adjustment.
Two health insurance plans or bundled payments are said to be actuarially equivalent if it is estimated that the total spending on the services that the insured members receive under the two plans or payments will be the same.
The Acute Care Episode (ACE) Demonstration was a Medicare demonstration project in which five hospitals and their affiliated physicians received bundled payments for inpatient cardiovascular and orthopedic procedures. The demonstration began in 2009 and lasted for three years. Instead of the Medicare IPPS payment to the hospital for the patient’s inpatient stay and the Medicare Physician Fee to the physician who performed the procedure, a Physician-Hospital Organization (PHO) created by the hospital and physicians received a single bundled payment, and the hospital and physicians had a gain-sharing agreement as to how the bundled payment would be divided between them. Medicare achieved savings because the participating hospitals agreed to accept a bundled payment that was lower than the sum of what the standard Medicare hospital and physician payments would have been; these discounts were different for each participating hospital.
Adjudication is the process through which a payer determines that a claim from a provider for delivery of healthcare services should be paid and the amount that will be paid for the claim. See also Allowed Amount.
Adjusted Clinical Groups (ACG) is a risk adjustment system developed by Johns Hopkins University that uses information on the duration, severity, diagnostic certainty, and origin of a patient’s diagnoses to assign each of the patient’s health problems to one of 32 diagnosis clusters. Then, based on the patient’s age, sex, and the diagnosis clusters applicable to them, the patient is assigned to one of 93 different ACG categories.
In an Administrative Services Only contract, an insurance company or Third-Party Administrator (TPA) agrees to receive and pay claims on behalf of a self-funded employer or other self-insured purchaser, but the ASO entity does not take any direct risk related to the cost of those claims.
A term used by CMS to describe an Alternative Payment Model that meets specific criteria established by the Medicare Access and CHIP Reauthorization Act and CMS regulations. See Alternative Payment Model.
Of payments: The payments received by two different providers are said to be “aligned” if the payments encourage the providers to work toward the same outcomes. For example, hospital and physician payment models are aligned if they reward both the hospital and the physician for improvements in the same quality measure, or if both the hospital and physician are encouraged to avoid performing unnecessary procedures.
Of payment systems: Two different payment systems or payers are said to be “aligned” if the payments are structured in similar ways or encourage similar approaches to care delivery. For example, two different pay-for-performance systems are aligned if they use the same quality measures to adjust payments.
Of patients: In some payment models, the process of attributing patients to a provider is described as “aligning” the beneficiaries, i.e., in this context, “alignment” is a synonym for “attribution.”
The allowed amount is the total payment that a payer determines a provider is eligible to receive when a service is delivered to a patient insured by that payer. Since the provider is generally responsible for collecting whatever cost-sharing amount the payer requires the patient to pay, the amount the payer actually pays the provider is equal to the allowed amount minus the required patient cost-sharing.
An All Payer Claims Database is a database containing information from the claims received or paid by all or most of the third-party payers who pay for services rendered to patients living in a geographic area, such as a state or metropolitan area. A number of state governments have established All Payer Claims Databases and require health insurance plans to submit information from the claims they pay for residents of the state.
The Medicare Access and Chip Reauthorization Act (MACRA) defines an Alternative Payment Entity as an organization that (1) participates in an Alternative Payment Model that meets the requirements of the law and also (2) either (a) bears “financial risk for monetary losses under such alternative payment model that are in excess of a nominal amount,” or (b) is a medical home expanded under the powers of the Center for Medicare and Medicaid Innovation. An Alternative Payment Entity could be an existing provider organization that accepts payments under fee for service or other standard payment models, but it could also be an organization that is specifically created to accept payments under an Alternative Payment Model and then allocates those payments to individual providers.
The term “alternative payment model” is commonly used to mean any method of paying providers that is different from the standard method of payment. (See the definition of Payment Model for a list of the elements that may differ in an alternative payment model.)
However, in the Medicare program, “Alternative Payment Model” has a specific meaning that was established by Congress in the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). …more
In order to be considered an Alternative Payment Model in Medicare, a payment model must:
In addition, MACRA authorized higher fee-for-service payments to physicians who receive a specific proportion of their revenues, or who are paid for a specific proportion of their patients, through an Alternative Payment Model if the payments are made to an Alternative Payment Entity that either (1) bears financial risk for monetary losses under the Alternative Payment Model that are in excess of a nominal amount, or (2) is a medical home tested and expanded by the Center for Medicare and Medicaid Innovation. CMS has designated Alternative Payment Models that meet this additional criterion as an “Advanced Alternative Payment Model.”
The Alternative Quality Contract (AQC) is a risk-adjusted global budget payment model used by Blue Cross Blue Shield of Massachusetts.
Ambulatory Patient Groups (APGs) is a system of classifying patients into categories based on their expected relative use of outpatient hospital services and other ambulatory care services that was developed and is maintained by 3M Information Systems. It was originally designed for use as part of the Medicare Outpatient Prospective Payment System, but it was not implemented as part of the OPPS (Ambulatory Payment Classifications were used instead). APGs are similar to DRGs but are designed to risk adjust payments for services delivered in outpatient settings rather than inpatient settings.
Ambulatory Payment Classifications (APCs) are used in the Medicare Outpatient Prospective Payment System (OPPS) to define the amounts Medicare will pay for services delivered in outpatient hospital departments and ambulatory surgical centers (ASCs). APCs provide a mechanism for partial bundling of individual outpatient services. APCs are not a risk-adjustment system, since they do not provide a way of differentiating spending or performance levels based on patient characteristics independent of the services actually delivered. See Outpatient Prospective Payment System for more information.
In the BPCI Advanced payment model, an episode is triggered by a specific type of inpatient hospital admission called an Anchor Stay or a specific type of outpatient procedure called an Anchor Procedure.
An ancillary service is a service that is delivered by a provider that is not considered one of the primary activities of the provider, but that complements or supports a primary activity in some way. For example, laboratory tests and imaging that support accurate diagnosis of patients, but do not have a direct therapeutic value in addressing a patient’s health condition, are generally considered as ancillary services when they are delivered by a hospital or physician practice. …more
At hospitals, most specific services that are delivered to inpatients other than inpatient nursing care, including surgery, therapy, and drugs as well as laboratory and imaging services are considered “ancillary services,” even though some of these services may also delivered on an outpatient basis as a primary service for a patient.
The federal Stark Law prohibits physicians from referring patients for services, including ancillary services, delivered by providers in which the physician has a financial interest (e.g., a laboratory). An exception is ancillary services delivered in the physician’s office that meet the criteria for the In-Office Ancillary Services Exemption.
The federal Anti-Kickback statute makes it a felony for any person to knowingly and willingly offer, solicit, or receive any remuneration for either referring a patient for an item or service, or for arranging or recommending an item or service, paid in whole or in part under a federal health care program. Many states have also enacted anti-kickback statutes or regulations. The federal Anti-Kickback statute and state anti-kickback laws can make it illegal to create payment models in which physicians are rewarded for following specific guidelines regarding the use of particular drugs or devices that have lower costs and higher quality.
The Office of Inspector General at the U.S. Department of Health and Human Services (OIG), which is responsible for interpreting the federal Anti-Kickback law and is one of the agencies responsible for enforcing it, can issue advisory opinions upon request concerning the applicability of the federal Anti-Kickback statute to specific arrangements. The OIG has created some “safe harbors” that protect certain types of arrangements from liability under the federal Anti-Kickback statute.
Federal and state antitrust laws are designed to prohibit payers and providers from jointly acting in anti-competitive ways, such as payers colluding to reduce provider payments or providers colluding to raise prices. Antitrust laws can also create barriers to the kinds of cooperation or coordination among payers and providers that have the potential to improve quality of care or reduce the cost of care. For example, efforts to reach agreement among multiple health insurance plans to use a new approach to payment (i.e., alignment of payment models) can raise concerns about antitrust violations, even if there is no discussion or agreement on the actual payment levels. Multiple independent providers who want to work together as an Accountable Care Organization or Clinically Integrated Network may fear antitrust action if they attempt to negotiate a joint contract with payers, even if their goal is to create a more efficient and effective method of delivering care. …more
The Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) have issued joint statements indicating that they are not likely to challenge joint conduct of physicians in a physician network joint venture or participants in a multi-provider network if those physicians or participants share substantial financial risk, e.g., through a global payment arrangement such as capitation, or if they are clinically integrated.
States can protect healthcare payers and providers from antitrust liability under the “state action” doctrine of antitrust law if the state (1) has a clearly articulated state policy supporting the need for common approaches, and (2) engages in active supervision of the activities that might otherwise cause antitrust concerns.
Appropriate use criteria are guidelines established by a medical society or other organization to help physicians or other providers to select the services that are appropriate for a particular patient. In general, the term “appropriate” is used to mean that the benefits to the patient are much greater than the risks, but the tradeoff between benefits and risks is inherently a subjective decision. Some payment models require providers to follow appropriate use criteria in order to be paid, or the providers may be paid higher amounts if the criteria are followed. See also Clinical Pathway.
APR-DRGs are a version of DRGs developed and maintained by 3M Information Systems. They are applicable to a broader range of patients than the version of DRGs (called MS-DRGs) used in the Medicare Inpatient Prospective Payment System. See Diagnosis Related Group.
See Average Sales Price.
For physicians: A physician “accepts assignment” in the Medicare program by agreeing to accept the Medicare Physician Fee Schedule payment (80% from Medicare and 20% cost-sharing from the patient) as payment in full for a service to a Medicare beneficiary. A physician who accepts assignment for all services is described as a “participating physician.” For more information, see Participating Physician.
For patients: In many HMO health plans, a patient is assigned to a primary care physician if the patient does not choose a physician or other provider as their designated primary care provider. In some shared savings and other payment models, the word “assignment” is used as a synonym for attribution.
An attachment point is a dollar amount established in a stop-loss policy purchased by a provider or health insurance plan from a reinsurer. When the total amount of costs or claims payments incurred by the provider or health plan reaches the attachment point, the reinsurer pays all or part of the amount of costs or claims above the attachment point. For more information, see Stop-Loss.
By providers: A statement by a healthcare provider that a task has been performed, a goal has been achieved, or a criterion has been met. For example, in pay for performance programs, if it is difficult for a payer to independently measure whether a provider is carrying out a particular activity, the provider may be asked to attest that the activity is being performed.
By patients: In order for a payer to know which provider will be accountable for quality or costs under a payment model, a patient may be asked to attest that the provider is managing the patient’s care under the payment model. For alternative methods of identifying accountable providers, see Assignment and Attribution.
Attribution is a process for determining which healthcare provider or providers should be held responsible for one or more specific aspects of the cost or quality of a patient’s care in the absence of an explicit signal from the patient or a particular provider that the provider will be responsible. For example, when one of a health plan’s members is admitted to the hospital, the health plan may “attribute” responsibility for that admission to a primary care physician that the member had seen during the prior year, even if the physician did not order the admission, did not provide any services during the admission, was not aware that the admission occurred, and did not explicitly accept responsibility for providing services to the patient that could have avoided the admission. …more
NOTE: CMS has used the word “assignment” to describe its attribution process in the Medicare Shared Savings Program; however, this is confusing because “assignment” is commonly associated with a prospective process in which the patient is notified of their assignment. CMS has also used the term “alignment” to describe the Medicare beneficiaries who have been attributed to an ACO or other provider.
Attribution is not needed for issues related directly to a specific service that a specific provider delivered to a patient, because it is obvious which provider delivered that service. Attribution is also not needed if a provider has been assigned in advance the responsibility for that aspect of cost or quality for that patient. For example, if a health insurance plan requires a patient to designate a primary care physician, then the designated PCP can be held responsible for various aspects of the cost and quality of the patient’s care, and there is no need for an attribution methodology. (See also Assignment and Attestation.)
The need for attribution arises when:
An attribution methodology identifies which, if any, providers could potentially be assigned responsibility and then chooses one or more of the providers based on an algorithm or set of rules. The methodology can be designed to choose only a single provider or it can allow more than one provider to be assigned responsibility for the same event or outcome. If more than one provider is assigned responsibility, the methodology may or may not define an allocation of responsibility among the providers (i.e., two providers could both be assigned 100% responsibility for the same event or outcome, or that responsibility could be allocated between them in some proportion).
An attribution methodology generally involves a number of inherently arbitrary decisions about the variables and calculations used in the methodology, such as the providers who are eligible for attribution, the measure used for attribution, the threshold the measure must reach in order for a patient to be attributed based on the measure, the look-back period, what tie-breakers will be used, and how often attribution is done. Studies have shown that the results of the attribution process can differ dramatically depending on the methodology used. Moreover, most attribution methodologies cannot attribute some patients, events, or outcomes to any provider, in which case those patients, events, or outcomes are “unattributed” and no provider is held accountable for them.
Retrospective Attribution. Attribution is inherently a retrospective process – the attribution methodology looks backward in time to determine which providers were involved with a patient’s care and could potentially have influenced the aspect of cost or quality in question and then the methodology chooses one or more of those providers to hold accountable for a performance measure. Despite the confusing name, even what is referred to as “prospective attribution” is still inherently a retrospective process.
Prospective Attribution. Under common retrospective attribution methodologies, a provider does not know which patients they will be held accountable for until after the care has already been delivered. A partial solution to this is what is called “prospective attribution.” It is still a retrospective calculation, i.e., it is based on where a patient received services during a time period prior to when the attribution is determined, rather than where the patient intends to obtain services in the future, but it is prospective in the sense that the attribution is made prior to the beginning of the time period in which a provider’s performance is being measured. However, a patient who had been receiving services from one provider during the period of time on which the attribution calculation is based may decide to use a different provider after the attribution calculation is completed; this means that some patients who are attributed to a provider under prospective attribution will be receiving their care from some other provider during the performance period, and patients who began receiving care from a provider during the performance period will not have been attributed to that provider. As a result, retrospective attribution may still be performed at the end of the performance period to determine which patients will actually be attributed to the provider.
Two-Step Attribution. A two-step attribution methodology first attempts to attribute individuals to a provider using one formula, and if no provider meets the criteria for attribution, a second formula is used. For example, in the Medicare Shared Savings Program, the first step is to try to attribute a beneficiary to a primary care provider, but if the beneficiary has not received any primary care services from a primary care provider, the attribution methodology then looks for specialists who have delivered primary care services to the patient.
In the “buy and bill” system used by Medicare and many commercial payers to pay physicians and hospitals for drugs administered to patients in outpatient settings, the payment to the provider for the drug is based on the “Average Sales Price” (ASP) of the drug. Each drug manufacturer reports the average amount it was paid for each of its drugs on a quarterly basis to enable CMS to calculate the ASP. The amount paid to providers for use of a drug is based on the ASP for the drug two quarters earlier plus a small additional percentage of the ASP (e.g., in Medicare, the total payment to the provider for the drug is 106% of ASP). As a result, the payment from Medicare to a provider for administering a drug can be higher or lower than the amount the provider paid to acquire that drug from the manufacturer or a wholesaler, and the difference will vary from drug to drug, from quarter to quarter, and from provider to provider. See Buy and Bill.
Balance billing is a form of patient cost-sharing. If the amount that a payer is willing to pay for a service (the allowed amount is less than the amount the provider charges for a service, the provider may require the patient to pay the balance of the charge. Many payment contracts prohibit balance billing and require a provider to accept the payer’s allowed amount as payment in full for a service and not to charge the patient more than the cost-sharing amount required by the payer.
Balance billing can serve as an alternative to co-payments, co-insurance, and deductibles for having patients share the cost of healthcare services. Under balance billing, the patient pays the “last dollar” of costs (i.e., the difference between the amounts two providers charge) rather than the “first dollar” of costs; this gives the patient a stronger incentive to choose lower-priced providers and services than under other forms of cost-sharing. Balance billing is also an integral part of a reference price benefit structure, where the payer agrees to pay up to the reference price for a particular service and then the patient pays the remainder of the provider’s charge. However, balance billing could result in very high prices if there is only one provider available to deliver a service a patient needs unless there is way to limit the amount the provider can charge.
A baseline is a provider’s performance level on a spending or quality measure during a period of time (a baseline period) prior to a performance period. A provider’s payment may be based in part on a comparison of its performance during the performance period relative to the baseline.
A baseline period is a period of time in which a provider’s performance is measured to serve as a baseline for measuring changes.
A benchmark is a particular level on a measure of spending or quality that a provider must achieve or exceed in order to qualify for a payment or avoid a payment reduction. In addition, the payment adjustment may be proportional to the amount of difference between the provider’s performance level and the benchmark level. For example, in many shared savings payment models, the spending for a provider’s patients must be below a benchmark spending level and multiple quality measures must be above benchmark quality levels in order for the provider to qualify for a shared savings payment The amount of the shared savings payment is then proportional to the difference between the provider’s spending and the benchmark level for spending (which is described as the “savings”) and the level of quality (as determined by the difference between the provider’s quality scores and the benchmark levels for quality). …more
A benchmark can be determined in many ways. Most approaches fall into one of the following two categories:
A Benchmark Period is a time period used to establish the benchmark used for evaluating how performance has changed. See Benchmark.
In a health insurance plan, the benefit design is a set of rules that describe the types of healthcare services that will be covered by the plan, the providers from which a member of the plan can receive a covered service, the cost-sharing amounts that a member of the plan will be responsible to pay when receiving a service, and any other requirements or restrictions on how or when the plan member can receive covered healthcare services. See also Value-Based Insurance Design.
A billing code is a numeric code identifying a service, procedure, bundle of services, episode of care, patient condition, or type of patient for which a provider is requesting payment under a fee-for-service, bundled payment, episode-of-care payment, or condition-based payment model. Although traditional billing codes have been associated with delivery of a specific service (e.g., knee replacement surgery), billing codes can also be used to request payment for a procedural bundle or episode of care (e.g., all services associated with knee replacement surgery, including post-acute care and treatment of complications) or to request payment for care of a particular condition (e.g., treatment of knee osteoarthritis, regardless of the specific treatment used).
The Bundled Payments for Care Improvement Advanced (BPCI Advanced) Model is a demonstration implemented by the Center for Medicare and Medicaid Innovation in 2018 that replaced the Bundled Payments for Care Improvement (BPCI) demonstration. Although described as a “bundled payment” model, it is actually an episode budget payment model in which a “Target Price” is established for a 90-day episode of care following an inpatient hospital stay or an outpatient procedure. All providers that deliver services to a patient during the episode continue to be paid standard amounts for those services. A retrospective reconciliation process is then carried out to determine whether Medicare spending during the episode was above or below the Target Price; if spending was below the Target Price, Medicare makes an additional payment to the hospital or physician group practice that has agreed to participate in the demonstration (the “Participant”) and if spending is above the Target Price, the Participant is required to make a payment to Medicare. 31 different inpatient hospital stays and 4 outpatient procedures are eligible to serve as episodes. See also Anchor Procedure/Stay, Convener and Episode Initiator.
A change in a payment system is said to be “budget neutral” if (1) the additional spending that is estimated to result from increases in payments or the volume of services is less than or equal to (2) the reduction in spending that is estimated to result from lower payments for other services or lower volumes of other services.
A payment is described as “bundled” when it covers multiple healthcare services, particularly if those services had previously been paid for separately. Bundling is a very generic term and it can apply to many different combinations of services, so the mere fact that a payment is “bundled” does not communicate very much. For example, a bundled payment can involve just one provider or many providers; it can also involve two services or dozens of services. Many current fee for service payments are already “bundled” in some way; for example, surgeons generally receive a fee that covers not only the surgery itself, but also follow-up visits with the patient. …more
At one extreme, bundling two services that a patient always receives in the same combination from the same provider may accomplish little more than to simplify billing and payment slightly (since the provider bills for one combined service rather than two and the patient has one cost-sharing payment rather than two). This is sometimes referred to as a “package” rather than a bundle. At the other extreme, a global payment that includes all services from all providers in a single bundle can potentially lead to dramatic changes in what services are delivered and who delivers them. Many payment models that are described as “bundled payments” are actually bundled budgets, in the sense that the providers are still paid fees for each individual service included in the bundle, and then adjustments are made later by reconciling the total spending against the bundled payment amount. (See also Episode Budget and Episode Payment.)
Depending on how they are structured, bundled payments (or budgets) can potentially help achieve one or more of five distinct goals:
The more services that are bundled into a single payment and the more different kinds of patients for whom the bundled payment is made, the greater the need there will be for risk adjustment as part of the bundled payment, since different patients may need different combinations of services for reasons beyond the control of the provider.
In addition, a bundled payment involving services delivered by two or more independent providers can cause problems under the federal Stark Law and other federal Fraud and Abuse Laws unless waivers are granted in law or by enforcement agencies.
Partial Bundle. A partial bundle is a bundled payment that includes some, but not all, services that are related to delivery of a particular treatment or management of a particular health condition. For example, payments to hospitals under the Medicare Inpatient Prospective Payment System are increasingly seen as partial bundles; although they bundle together all of the services delivered by the hospital as part of a patient’s inpatient stay, they do not bundle the physician services that occurred at the same time as the hospital services and they do not include any post-acute care services. Global surgical fees paid to surgeons are also partial bundles, since they bundle post-surgery visits to patients made by the surgeon into a single payment, but they do not bundle visits made by other physicians even though those physicians may play an integral role in the surgery, such as the anesthesiologist.
Bundled Payments for Care Improvement (BPCI) was a demonstration project operated by the Center for Medicare and Medicaid Innovation (CMMI) that included four different approaches to payment for a range of different hospital inpatient procedures and treatments. Only BPCI Model 4 was a true bundled payment; Models 2 and 3 were shared savings payment models built around an episode budget, and Model 1 was a gainsharing program for hospitals and physicians. The BPCI Program ended in 2016 and was replaced by BPCI Advanced. …more
The four different models in the Bundled Payments for Improvement demonstration were:
A bundled payment discount is the amount by which a bundled payment is lower than the estimated payments that would have been made under the existing payment system. For example, if a bundled payment is being made to a hospital and surgeon for delivery of surgical services in the hospital, the amount of the bundled payment might be set at 5% (the bundled payment discount) below the sum of the hospital payment under the Inpatient Prospective Payment System and the physician payment under the Physician Fee Schedule. See also Discount.
Buy-and-bill is a method of paying physicians and hospitals for pharmaceuticals administered to patients in an outpatient setting. The provider buys a drug from a manufacturer or wholesaler using the provider’s own resources and then, after the provider administers the drug to a patient, the provider bills the payer for the drug. In most cases, the payment for the drug is an amount established in a fee schedule, and is not based on the actual cost to the provider to acquire the drug. The methodology used by Medicare and most commercial payers to set the payment rates for individual drugs is known as ASP+x%: the provider is paid the Average Sales Price for the drug two quarters earlier plus an additional percentage (6% extra in the Medicare program, typically more in commercial insurance contracts).
Capitation is a payment model in which a healthcare provider is paid based on the number of individuals cared for, rather than on the number of services provided to those individuals. (The term capitation means that the payment is made “per person” or “per capita” rather than “per service.”) In recent years, the term “Population-Based Payment” has been used to describe this mode of payment, rather than “capitation.” …more
There are many different forms of capitation, with the differences falling into three major categories:
Condition-Adjusted Capitation. Condition-adjusted capitation is a form of capitation in which the payment is higher for patients with characteristics that would require more services or more expensive services. It is similar to Risk-Adjusted Capitation, except that the payments may be adjusted based on factors other than the diseases typically used in risk-adjustment systems. A alternative term for this is Comprehensive Care Payment.
Condition-Specific Capitation. Condition-specific capitation is a form of capitation in which the payment is intended to cover only the services that provided for care related to a particular condition, rather than all of a patient’s needs. It is a form of Condition-Based Payment.
Contact Capitation. Contact capitation is a form of capitation that is triggered by a patient’s initial visit to a particular provider and is intended to cover all services delivered by that provider for a period of time or all services associated with the condition for which the patient is seeking care from the provider. Contact capitation systems that were used in the 1990s paid a specific per patient amount to a specialist physician group for all of the services that physician group provided to a patient who was referred to the group because of a particular health problem.
Global Capitation. Global capitation is a form of capitation in which the payment for each patient is intended to cover all or most of the services the patient needs for all of their health problems. Most global capitation systems are not truly “global,” but exclude at least some services that are very expensive or used only for rare conditions. (The services excluded are defined in a Division of Financial Responsibility)
Partial Capitation. Partial capitation is a form of capitation in which some services, but not all, are to be delivered in return for a capitation payment, and other services are to be paid for separately. For example, professional services capitation is a form of partial capitation – a physician group or Independent Practice Association accepts a capitation payment to cover all professional services delivered by its physicians, including physician services delivered in hospitals, but the hospitals are still paid separately for their portion of hospital stays. The Affordable Care Act authorized the use of partial capitation payments to Accountable Care Organizations, but this portion of the law has not been implemented by CMS.
Percent of Premium Capitation. Percent of premium capitation is a capitation payment made by a health insurance plan to a provider in which the payment amount is based on a pre-defined percentage of the insurance premiums collected for the health plan members assigned to the provider. Under percent-of-premium capitation, the provider is not only at risk for what kinds of health problems the patient has and how efficiently the provider treats those problems, but it is also at risk for how well the premiums set by the health plan match the costs of treating the health problems of the members the health plan insures.
Practice Capitation. Practice capitation is a capitation payment to a physician practice which replaces fees for the services delivered by that practice for individuals who have enrolled with the practice or who have been assigned to the practice. Services delivered by other physician practices and providers are paid separately.
Primary Care Capitation. In a primary care capitation payment model, a per patient payment is made to a primary care practice to cover all or most services delivered by the primary care practice, but not to cover any services delivered by other providers. Under most primary care capitation systems, the primary care practice receives a monthly payment for each patient enrolled with the practice and does not bill separately for individual office visits with those patients. However, the practice may still be paid fees for procedures or other services (e.g., immunizations) in addition to the capitation payment.
Professional Services Capitation Professional services capitation is a form of capitation in which the payment for each patient only covers professional services delivered by physicians or other clinicians, not services delivered by hospitals or other institutional providers. Professional services capitation is one type of partial capitation.
Risk-Adjusted Capitation. Risk-adjusted capitation is a form of capitation in which the amount of payment made for a particular individual differs depending on a measure of the types, volume, or cost that individual is expected to need. See Risk Adjustment for additional information.
A carve-out is a set of services that is paid for in a way that differs from the way payment is made for other services. For example, a single global payment might be paid to a provider for all services, except for a list of specific services or conditions that would still be paid on a traditional fee-for-service basis or through individual bundled payments. A carve-out may apply to the delivery of services as well as to payment. For example, many purchasers and payers have “carved out” behavioral health services and require that patients receive them from a different set of providers than the providers who deliver physical health services to the patients; the behavioral health providers are paid separately and in different ways than the providers who deliver physical health services. See also Division of Financial Responsibility
Case mix is a general term used to describe the types of patients cared for by a provider during a period of time. A case mix index may be calculated to assess whether a particular provider is caring for patients who have more complex needs or who need more expensive services.
A case mix adjustment is a change in the amount of payment for a provider or a change in a measure of the provider’s performance based on the case mix of the patients who are receiving services. See Risk Adjustment.
Case Mix Groups (CMGs) is a risk adjustment system used in the Medicare payment system for Inpatient Rehabilitation Facilities (the Inpatient Rehabilitation Facility Prospective Payment System). There are 92 different CMG categories, and the patient is assigned to a category based on the diagnosis that led to their need for rehabilitation, their comorbidities, their age, and their functional and cognitive status.
The Case Mix Index for a hospital measures the relative severity of the needs of its patients. The Case Mix Index is calculated by determining the DRG weight for each patient discharged from the hospital, adding all of those weights together, and dividing the sum by the total number of discharges.
A case rate is a generic term describing a single payment for all or most of the services a provider delivers for a particular patient “case.” Although there is no one way to define a “case,” the term is generally used to connote services associated with a particular condition or procedure. For example, a single payment for a hospital stay (such as the DRG payments made in the Medicare Inpatient Prospective Payment System) and a global surgical fee are case rates.
CC is an abbreviation for “Complications and Comorbidities.” See Diagnosis Related Groups.
CCM is often used as an abbreviation for “Chronic Care Management.”
An abbreviation for Certified EHR Technology.
The Center for Medicare and Medicaid Innovation (CMMI) is a division of the Centers for Medicare and Medicaid Services (CMS) that was created by the Affordable Care Act to test payment models “where there is evidence that the model addresses a defined population for which there are deficits in care leading to poor clinical outcomes or potentially avoidable expenditures,” with a focus on “models expected to reduce program costs while preserving or enhancing the quality of care received by individuals.” The law also permits the Secretary of Health and Human Services (HHS) to expand the use of a payment model developed by CMMI, including nationally, if the Secretary determines the payment model is expected to “reduce spending without reducing the quality of care or improve the quality of patient care without increasing spending” and if the Chief Actuary of CMS certifies that the expansion would reduce or not result in any increase in net federal spending.
The law contains a list of “innovative payment and service delivery” models that CMMI is specifically authorized to test on a demonstration basis, but CMMI is not limited to testing these models nor is it explicitly required to test any of them.
The Centers for Medicare and Medicaid Services is the federal agency responsible for administering the Medicare and Medicaid programs and carrying out other functions with respect to healthcare and health insurance.
The term Center of Excellence is generally used to describe a particular service line of a specific provider that has been determined in some way to provide higher quality services at the same or lower cost than other providers.
In a Center of Excellence contract, a purchaser or payer contracts with a provider that has been designated as a Center of Excellence to provide a specific set of services to the purchaser or payer’s members under a payment model for the provider and a benefit design for the patient that differ from those used for other providers. For example, an individual member of the purchaser or payer who obtains a service from a Center of Excellence may have lower cost-sharing or no cost-sharing at all for using the service and may receive reimbursement for costs involved in traveling to and from the Center of Excellence.
CG-CAHPS is an abbreviation for Clinician and Group Survey – Consumer Assessment of Healthcare Providers and Services, which is one of a family of CAHPS surveys that ask consumers and patients to rate their experiences receiving care in a variety of healthcare settings. The CG-CAHPS survey is specifically designed for services delivered in physician offices. The results of CAHPS surveys are used as a performance measure in some payment models. See also HCAHPS.
The charge for a service is the payment amount that a provider states that it wishes to receive in return for delivery of the service. In general, third-party payers require or negotiate with a provider to accept a payment for a service that is lower than the charge. The actual payment is known as the allowed amount, and the difference between the allowed amount and the charge is the payer’s discount. Self-pay patients (i.e., those with no insurance) may be required to pay the full charge unless they can negotiate their own personal discount with the provider or the provider determines the patient qualifies for charity care.
A list of the charges for all services in a hospital is known as a Chargemaster.
Cherry-picking is a colloquial term used to describe a situation in which (a) a healthcare provider seeks out patients for whom the cost of services is expected to be less than the payment for those services or for whom the outcomes will be better than average, or (b) a health insurance plan seeks out members for whom the expected spending on healthcare services will be lower than the premium charged for their health insurance. See also Lemon-Dropping.
The federal Civil Monetary Penalty statute imposes financial penalties on hospitals that make payments to physicians as an inducement to reduce or limit services to Medicare or Medicaid beneficiaries. The law has been interpreted by the Office of Inspector General (OIG) as prohibiting such payments even if the services being reduced are not medically necessary or appropriate. Consequently, gain-sharing programs designed to reward physicians for reducing unnecessary services or unnecessary elements of services could make a hospital liable for civil money penalties. (Gainsharing arrangements may also be in violation of the federal Anti-Kickback statute and the Stark law.) Although the law applies only to Medicare or Medicaid beneficiaries, the OIG has viewed it as prohibiting such payments even for commercially insured patients, since the assumption is that incenting changes in practice for commercial patients would likely also result in changes in practice for Medicare or Medicaid patients, or that the amounts of payment incentives for changing practices, even though applied only to commercial payments, would be set at levels designed to incent the changes for all patients. For more information, see Fraud and Abuse Laws.
An invoice submitted by a provider to a payer seeking payment for services delivered to a patient. Physicians file claims using a CMS-1500 form, and hospitals file claims using a CMS-1450 or UB-04 form.
Information that is recorded on the forms used to submit claims for payment. Two key types of information recorded on claims forms are (1) one or more procedure codes describing specific services the patient received, and (2) one or more diagnosis codes describing the problem that was being treated. The primary goal of a claim form is to document that a specific service is eligible for payment from the payer, not to provide comprehensive information about a patient’s health problems and other characteristics.
If information is being collected from claims data about services that were delivered during a specific period of time, the claims runout is an additional period of time after the end of the period in which services are being measured in order to allow adequate time for providers to file claims for those services. For example, if the claims runout is 90 days, then a measure of how many services were delivered or how much was spent on services during a calendar year is not calculated until at least 90 days after the end of the year. A longer claims runout provides more complete and accurate information about the services delivered during the period of time being measured, but it also delays the calculation of spending during that period of time. (For more information, see Completion Factor and IBNR.) The term claims runout (or claims runoff) is also used to define the deadline or maximum period of time in which a claim must be submitted after a service is rendered in order to receive payment from a payer.
A “clean period” is a specific length of time in which an individual receives no healthcare services related to a particular condition or treatment. If an episode of care is defined as all services related to a particular condition or procedure regardless of when the services were delivered, an episode grouper needs to have a way of determining when the episode has ended, so the episode grouper may be programmed to look for a clean period in order to make a determination that the episode has ended. Any service that occurs after the clean period is then assumed to be part of a new or different episode.
Clinical data are pieces of information about a patient and their care that are recorded in a patient’s medical chart, in an electronic health record, or a clinical data registry. Two key types of information in clinical data are the services that the patient receives and the health problems the patient has. Clinical data generally have information about more types of services and more health problems than are available from claims data, since they will include (a) services that are not eligible for separate payment and therefore are not described on claims forms, and (b) information about health problems that were not explicitly treated by the provider or did not need to be documented on the claims form in order for the provider to receive payment for the services delivered. However, claims data can include more comprehensive information about the services a patient has received than any individual provider’s clinical data will contain if the patient receives services from multiple providers.
A clinically integrated network is a term used to describe a collection of providers from different specialties who create processes and systems for managing and coordinating the care they deliver to individual patients. If a clinically integrated network meets specific standards established by the Federal Trade Commission (FTC), the providers in the network can jointly negotiate with payers in ways that could otherwise be deemed to be a violation of anti-trust laws, even if they are not taking financial risk.
The things that a network must do to show it is clinically integrated under FTC rules include:
A Clinical Pathway (often called a “pathway” for short) is a set of appropriate use criteria and other clinical practice guidelines describing what types of services or procedures a provider should deliver to or order for specific patients. For example, a number of clinical pathways have been developed to guide decisions about the appropriate types of chemotherapy to use in treating cancer.
A Clinical Pathway Program is a program designed to encourage providers to use a clinical pathway in choosing the services and procedures they deliver or order for patients. For example, in oncology, many payers require oncologists to use a clinical pathway in order for the oncologists to receive payment for treating cancer patients.
Clinical practice guidelines are recommendations developed by a medical society or other organization to help physicians or other providers to deliver care efficiently and effectively. Guidelines will generally be based on evidence where it exists, but where evidence does not exist, guidelines may simply codify professional judgments about which treatments should be delivered. See also Appropriate Use Criteria and Clinical Pathway.
Clinical Risk Groups (CRG) is a risk adjustment system developed by 3M Health Information Systems that uses a patient’s diagnoses and past medical interventions to determine whether the patient has chronic conditions, acute conditions, or both and the severity of those conditions. This information is then used to assign the patient to one of 269 different “Base CRGs” and to one of up to 6 different severity levels, for a total of 1,080 potential different groupings.
See Case-Mix Group.
The CMS-1450 is the claims form used by hospitals to submit claims to Medicare for payment of healthcare services. The same form is known as a UB-04 for claims submitted to commercial payers. (Physicians submit claims using the CMS-1500 form.)
The CMS-1500 is the claims form used by physicians and other non-institutional providers to submit claims to payers for payment of healthcare services. (Hospitals submit claims using the CMS-1450 or UB-04 form.)
Co-insurance is a form of cost-sharing; the co-insurance amount is calculated as a percentage of the total allowed amount for a service. The patient is required to pay the co-insurance amount to a provider in order to receive a service; the remainder of the payment to the provider is then paid by the insurance plan or other payer. The patient is expected to pay an additional co-insurance amount each time an additional service is rendered (if the service requires co-insurance).
A comorbidity is a health condition other than the condition being treated that may affect the cost of the treatment or the outcomes that can be achieved. For example, obesity is an important comorbidity that can affect outcomes for a patient undergoing surgery.
The Competitive Acquisition Program was a program created by Congress that was intended to control the cost of drugs administered in physician offices. CMS implemented the program in 2006 but suspended the program at the end of 2008 due to lack of participation by vendors and other problems.
A completion factor is an adjustment made to a measure calculated based on claims data in order to compensate for claims that have not yet been submitted by providers at the time the measure is calculated. For example, if it is estimated that 2% of the claims for services that were delivered during the calendar year will be submitted for payment more than 90 days after the end of the calendar year (these are called services that are Incurred But Not Reported), then the spending calculated based on the claims that were filed by 90 days after the end of the year (i.e., the Claims Runout period) would be increased by 2% to estimate what the total spending would be once all claims were filed.
A complication is a new health problem that results from a procedure or treatment of a health problem. For example, a surgical site infection is a complication of surgery.
A composite measure is a measure of quality, utilization, or spending that is calculated based on performance on two or more other more narrowly-defined measures. For example, quality care for diabetes requires multiple activities, including management of blood sugar and blood pressure and early treatment of diabetic foot ulcers, and there are quality measures available for each of those individual activities, so a composite measure of performance on diabetes care could combine those individual measures in some way. …more
There are two basic approaches to constructing composite measures:
Comprehensive Care for Joint Replacement is a payment model created by the Center for Medicare and Medicaid Innovation in which hospitals are held accountable for spending during an episode of care following hip or knee replacement. It is an episode budget payment model, not a true “comprehensive care” payment for the underlying problems that led to joint replacement surgery.
A Comprehensive Care Payment is a payment that is intended to support comprehensive services for all of a patient’s health needs, in contrast to a Condition-Based Payment that is designed to support the care needed for a condition or related set of conditions. For example, a Comprehensive Care Payment would support all of the health care services a woman needs, including care for pregnancy, whereas a Condition-Based Payment for pregnancy would only support prenatal care, delivery, and postpartum care services. An alternative term for this is Condition-Adjusted Capitation.
The Comprehensive ESRD Care Model is a demonstration project created by the Center for Medicare and Medicaid Innovation in which dialysis clinics and nephrologists form organizations called ESRD Seamless Care Organizations (ESCOs) that function similar to Accountable Care Organizations specifically for Medicare beneficiaries with end-stage renal disease (ESRD).
The Comprehensive Primary Care Initiative was a demonstration project implemented by the Center for Medicare and Medicaid Innovation in collaboration with private health plans in seven geographic regions to evaluate the impact of a specific change in the way primary care practices are paid. The primary care practices received a per member per month (PMPM) payment in addition to standard fee-for-service payments and were eligible to receive an additional shared savings payment if the total spending on all of the patients in all of the participating practices in their geographic region was lower than the spending in a comparison group of patients. The Comprehensive Primary Care Initiative ended in 2016 and was replaced by Comprehensive Primary Care Plus (CPC+).
Comprehensive Primary Care Plus is a demonstration project implemented by the Center for Medicare and Medicaid Innovation in 2017. Primary care practices in 18 regions were eligible to participate in the project. Those selected to participate receive three different kinds of payments from Medicare than other primary care practices:
Concierge medicine describes a mode of care delivery by a physician practice that provides more time with patients and more rapid response to requests for assistance than is possible under typical physician payment schedules, including longer office visits, phone calls, 24-hour access, etc. Typically, a patient pays a monthly, quarterly, or annual fee of some kind for concierge care in addition to fees for individual services, or the concierge fee may cover some services (such as office visits) but not other services.
A condition is a characteristic of a patient that results in the need for healthcare services or in the need for different services than a patient without that condition. “Condition” is not synonymous with “disease;” for example, obesity can affect the number and types of healthcare services a patient needs as much or more than many mild diseases. The term “condition” can also apply to a combination of diseases or a combination of diseases and other characteristics that result in a need for a different approach to treatment than simply using the most appropriate treatment for each individual disease.
A Condition-Based Payment is a payment that is triggered by a patient’s health condition, rather than by delivery of a specific procedure or service delivered to address the condition. The “condition” may consist of more than one disease, particularly if the treatments for the diseases must be closely coordinated. For example, a condition-based payment could be paid for pregnancy care, rather than paying for a particular form of delivery; a condition-based payment could be paid for care of knee osteoarthritis, rather than for knee surgery, physical therapy, etc.; and a condition-based payment could be paid for management of heart failure and emphysema over a period of time.
A Condition-Based Payment would support all of the services needed to address the condition that triggers it. Because patients with more severe conditions or comorbidities will likely need more services and because providers will have greater difficulty achieving good outcomes for them, there will need to be (a) separate condition-based payments for different groups of patients or (b) a method of risk adjusting the payments based on the severity of the condition or comorbidities. (In a fee-for-service payment model, the services delivered serve as an implicit risk adjustment system, because a patient with greater needs will receive more services and that will generate higher payment.)
A billing code that indicates that a physician or other provider is managing the care of a health condition for a particular patient for a particular period of time and will serve as the Accountable Provider for a Condition-Based Payment for that condition for that period of time.
The contribution margin from a service is the difference between the payment received for delivery of the service and the variable cost to the provider of delivering that service. The total contribution margin from all services is used to cover the provider’s fixed costs, and then any funds remaining represent the provider’s margin.
In Medicare payment models, a Convener is an organization that accepts the financial risk under the payment model but does not deliver any of the healthcare services directly. The Convener will then enter into agreements with healthcare providers who will deliver or manage the care to patients.
A conversion factor is a dollar amount that is multiplied by a relative value unit (RVU) or payment weight assigned to a particular service or bundle in order to determine the amount that will be paid to a provider for delivering that service or bundle. The use of a conversion factor allows an entire set of payments to be uniformly updated for inflation while leaving the relative values among the services unchanged. For example, in the Medicare Physician Fee Schedule, two different services will be assigned two different RVUs, and those RVUs will be multiplied by the same conversion factor to determine the actual dollar amounts that Medicare will pay for those services. In the Medicare Inpatient Prospective Payment System, the payment for a hospitalization is determined by multiplying the weight for the DRG assigned to the patient by a conversion factor determined through a formula.
A Coordinated Care Organization is a regional entity in the State of Oregon that includes both payers and providers and takes responsibility for managing the quality and cost of care for Medicaid patients living within the CCO’s defined region.
A co-payment is a form of cost-sharing. It is a fixed dollar amount that a patient is required to pay to a provider in order to receive a particular service; the remainder of the payment to the provider is then paid by the insurance plan or other payer. The patient is expected to pay an additional co-payment each time an additional service is rendered (if the service requires a co-payment).
In terms of healthcare services and payment, the term “cost” is used to mean two very different things depending on the context in which it is used:
It is desirable to use different terms for these two concepts – spending for the first and cost for the second – because the payer’s spending may be either higher or lower than the provider’s cost. A provider may be paid more than it costs to deliver a service, in which case the provider also generates a profit margin. A payer may pay less than it costs providers to deliver a service, in which case the providers lose money.
Average Cost. The cost incurred in delivering a specific number of healthcare services divided by the number of services delivered. The average cost of most services will differ depending on the total number of services delivered because a portion of the cost of delivering the service is a fixed cost that remains the same when the number of services increases or decreases.
Fixed Cost. The fixed cost of delivering a service is the component of costs incurred by a provider that does not vary in proportion to the number of services delivered. For example, a hospital must spend money to furnish, equip, and maintain a surgery suite in order to do any surgeries at all; these costs will not change if one more or one fewer surgery is performed. Fixed costs are only “fixed” in the short run, however; once the useful life of equipment and facilities is reached, a decision could be made not to replace all or part of them.
Semi-Variable Cost. The semi-variable cost of delivering a service includes aspects of cost that increase or decrease only if there are sufficiently large changes in the number of services delivered. For example, on a hospital nursing unit, one more or one fewer patient will generally not result in a change in the number of nurses needed to staff the unit, but if there is a large enough reduction in the number of patients, the hospital may need fewer nurses to safely staff the unit. A quantity discount for purchasing a minimum volume of an item is also a semi-variable cost, since the quantity discount will appear or disappear when the number of items purchased is above or below the minimum volume threshold.
Variable Cost. The variable cost of delivering a service includes the aspects of costs incurred by a provider that vary in direct proportion to the number of services delivered. For example, a hospital must purchase a knee implant device for each surgery to replace a patient’s knee, but it does not need to purchase an implant if no surgery is performed, so the implant is a variable cost. If one fewer surgery is performed, the hospital’s costs will decrease because it will need to acquire one fewer knee implant, and if more surgeries are performed, the hospital will need to spend more on knee implants.
In a cost-based reimbursement system, a provider calculates the total amount it spent to deliver one or more healthcare services for a patient, and the payer reimburses the provider for those costs. If costs cannot be specifically associated with an individual patient, the provider would calculate the total costs for delivering those services to all patients and then the payer would pay a percentage of those costs based on the percentage of the provider’s total patients who are insured by that payer. For example, Medicare payments to Critical Access Hospitals are calculated as 101% of the portion of the hospital’s costs attributable to Medicare beneficiaries who received services from the hospital.
Cost-sharing is the amount that a patient pays out-of-pocket to a healthcare provider in return for a service, with no reimbursement from a third-party payer. The four principal approaches to cost-sharing are co-payments, co-insurance, deductibles, and balance billing.
“Cost-shift” is generally used to denote situations in which a particular payer pays less for a service than it actually costs a provider to deliver that service, but rather than incurring a loss or not delivering the service at all, the provider charges another payer more than the service actually costs (or charges more for a different service than that service costs) in order to offset losses from the payments made by the first payer. In effect, the provider has “shifted” the costs associated with services for the first payer to the second payer or from the one service line to the other service line.
The cost-to-charge ratio is calculated by dividing a provider’s reported total expenses during a period of time by the sum of the charges associated with all of the services delivered during that period of time. The cost-to-charge ratio is often used to estimate the cost of a specific service from the provider’s charge for that service by multiplying the charge by the cost-to-charge ratio. However, in general, the amount a provider charges for a particular service bears no systematic relationship to the cost of delivering that service (moreover, the cost of delivering the service will depend on the volume of services delivered), so service-specific costs estimated in this way are likely to be inaccurate.
A covered service is a healthcare service that a patient’s health insurance plan will pay a healthcare provider to deliver.
The CPT Editorial Panel is a committee appointed and staffed by the American Medical Association to oversee the addition, deletion, and modification of CPT Codes.
A Critical Access Hospital is a hospital with 25 or fewer inpatient beds that is located in a rural area and is a minimum distance from other hospitals. In contrast to larger hospitals that are paid through the Medicare Inpatient Prospective Payment System, Critical Access Hospitals are paid using a cost-based reimbursement model.
Current Procedural Terminology is a listing of definitions and alphanumeric codes for reporting medical services and procedures performed by physicians. It is maintained by the American Medical Association under the supervision of the CPT Editorial Panel. The CPT system was first developed in 1966; in 2000, it was designated by the U.S. Department of Health and Human Services as the national coding standard for services and procedures delivered by physicians and other health care professionals. CPT Category I codes are also considered Level I HCPCS codes.
CPT® Category I. CPT® Category I consists of the principal codes used to document services that are delivered by physicians and that are used to bill for payment for those services. Examples of CPT Category I Codes are:
CPT® Category II. CPT® Category II codes are codes used for performance measurement. They facilitate documentation that a particular task was performed (e.g., that the patient’s blood pressure was measured) as part of an evaluation and management service that is billable using a CPT Category I code, or documentation of a patient condition, test result, or treatment outcome (e.g., whether the patient’s blood pressure was high or low). A CPT Category II code is not intended to be used as a billing code for payment, but a payment model may be structured to modify the payment amount for a service described by a CPT Category I code based on whether a CPT Category II code indicates that a task was performed as part of that service, an outcome was achieved as a result of that service, or a particular patient condition was present. Examples of CPT Category II codes are:
CPT® Category III. CPT® Category III codes are temporary codes for emerging technology, services, and procedures. They are designed to allow data collection for these services in a systematic way.
Prior to the creation of the Resource Based Relative Value Scale (RBRVS), Medicare payments to physicians were based on Customary, Prevailing, and Reasonable (CPR) charges. The CPR system was based on the UCR (usual, customary, and reasonable) concept, but it included specific metrics for determining “customary,” “prevailing,” and “reasonable.” (“Customary” was defined as the median of an individual physician’s charges for a service over a particular period of time; “prevailing” was defined as the 90th percentile of the customary charges for all physicians in the same specialty in a geographic area, and “reasonable” was defined as the lowest of the actual fee, the customary charge, and the prevailing charge.)
A deductible is a form of cost-sharing. Under a health plan with a deductible, the patient is required to pay 100% of the cost of all services until the patient’s total spending reaches the deductible, at which point other cost-sharing rules such as co-payments and co-insurance apply. Some services, such as preventive care services, may be exempt from the deductible requirement, and for those services the patient may be expected to pay other forms of cost-sharing, or the patient may have no cost-sharing at all.
A Delivery System Reform Incentive Payment Program is a special pool of funds that can be used by a state Medicaid program to encourage or support changes in care to Medicaid beneficiaries and other low-income individuals by hospitals and other providers . The programs are created on a state by state basis through Section 1115 Medicaid waivers approved by the Centers for Medicare and Medicaid Services.
In a performance measure, if the measure is not applicable to a particular group of patients, or if there is a reason why performance should not be measured for a patient with particular characteristics, those patients are excluded from the denominator of the measure. (They are also implicitly excluded from the numerator.) For example, if one is calculating the percentage of patients with a health problem who have received medication to treat that problem, but some patients have conditions that contraindicate the available medication, those patients would be excluded from the denominator of the measure so the provider is not penalized for not giving a medication to a patient who should not receive it.
A program approved in some states under Section 1115 Waivers to allow Federal Medicaid funding to be used for services that are not typically eligible for such funding.
Diagnosis Related Groups (DRGs) is a system of classifying patients into categories based on their expected relative use of inpatient hospital services. A version of DRGs called MS-DRGs is used as part of the Medicare Inpatient Prospective Payment System (IPPS) to pay hospitals for inpatient admissions of Medicare beneficiaries, and a version called APR-DRGs is used by many commercial health insurance plans to pay hospitals for admissions of their members. In general, payments based on DRGs have been used only to cover the costs of the services delivered by the hospital, not on physician services or post-acute care services, but there are bundled payments and episode payments based on DRGs that do include those services.
DRGs are a clinical category risk adjustment system that uses information about patient diagnoses and selected procedures to identify patients that are expected to have similar costs during a hospital stay. Each DRG is assigned a weight that reflects the relative cost of caring for patients in that category relative to other categories. …more
In current versions of DRGs, there may be two or three different DRGs defined for any major condition or procedure, based on whether the patient has other health problems (i.e., comorbidities) that would affect services and spending for treatment of that specific condition or delivery of that specific procedure, or if the patient experiences complications during the hospital stay. If there are three DRGs for patients with a specific condition or surgical procedure, one of the DRGs is for patients without complications or comorbidities (abbreviated as “w/o CC/MCC”), a second DRG is for patients with complications or comorbidities that are not classified as major (abbreviated as “w CC”) and a third DRG is for patients with major complications or comorbidities (abbreviated as “w MCC”). If there are only two DRGs for a condition or procedure, one is used for patients without major complications (abbreviated as “w/o MCC”) and one is for patients with major complications (abbreviated as “w MCC”).
Direct contracting is an arrangement between a purchaser and a provider to deliver health care services for the purchaser’s members in return for a payment specified in a contract with the purchaser rather than in a contract with a separate health insurance company. A direct contract may be focused on particular types of services, e.g., the purchaser may agree to pay a provider for knee replacement surgeries performed on the purchaser’s members, or a direct contract may involve an agreement by the provider to deliver or arrange for all or most types of health services for the purchaser’s members. In general, in order to have direct contracting for a broad range of services, either the provider will need to have a provider-owned health plan that can manage the benefits and payments, or the purchaser and provider will need to jointly agree to use a third-party administrator to manage the terms of the contract.
A Direct Contracting Organization (DCO) is an organization of healthcare providers that engages in direct contracting with one or more purchasers. See Direct Contracting.
Direct Primary Care (DPC) is a term used to describe a payment model in which a primary care practice charges a monthly, quarterly, or annual fee to a patient that covers all or most of the services the primary care practice provides to the patient, including patient visits, laboratory testing, care management, etc., and there are no separate fees charged for individual services. Direct primary care is a bundled capitation payment, but with the payment coming from the patient rather than a health insurance plan. In contrast, “concierge medicine” is typically a structure where a patient pays a fee of some kind in addition to fees for individual services, with the additional fee assuring that the patient will receive services that would not otherwise be possible under current fee schedules, including longer visits, phone calls, 24-hour access, etc.
Fee-for_Service Payment: The difference between the amount that a provider charges for a service and the amount that a health plan or other payer pays the provider for delivering the service.
Bundled Payment: The difference between the amount paid for a bundle of services and the level of spending on the services that would have been expected in the absence of the bundled payment.
A dispensing fee is a payment to a pharmacy from a pharmaceutical insurance plan or other payer for each medication that the pharmacy dispenses to a patient insured by the plan or paid for by the payer. The payment is intended to cover the costs of the pharmacy’s operations other than the cost of acquiring the drug itself. The dispensing fee is paid in addition to whatever mechanism is defined for paying the pharmacy for its cost of acquiring the drug. See also Buy-and-Bill.
A hospital that has a higher-than-average number of Medicaid patients or a large number of low-income patients may be classified as a “Disproportionate Share Hospital” and be eligible to receive additional payments under Medicare or Medicaid.
A division of financial responsibility (DOFR) is an agreement between a payer and a provider, or between a payer and multiple providers, as to which services delivered by which providers are to be covered by a bundled payment or capitation model that covers some but not all services or providers. For example, the DOFR for a professional services capitation payment model would define which services are considered “professional services” that are covered by the capitation payment and which services would be paid separately. A DOFR will typically use service/procedure billing codes and diagnosis codes to define which services will be paid through the bundled payment and which will be paid in a different way. See also Carve-Out.
A “doughnut hole” is a feature of a benefit design in which a patient who has received services that exceed a certain threshold of spending is responsible for higher cost-sharing for subsequent services than the patient was responsible for paying prior to that point, but where the cost-sharing then declines again after a second threshold of spending is met. The Medicare Part D drug insurance program has had a “doughnut hole” that requires seniors to pay almost the full cost of drugs for a period of time after they have reached a certain spending level on drugs.
A DRG grouper is a computer program that takes all of the diagnosis codes and procedure codes describing a patient’s hospital stay and uses them to assign that stay to a particular Diagnosis Related Group (DRG) based on a set of rules for making such assignments.
A DRG payment is a bundled payment or case rate in which the amount of payment is based on the DRG classification assigned to the patient’s care. In the Medicare Inpatient Prospective Payment System, the hospital receives a single “DRG payment” for a patient admitted to the hospital that is intended to cover all of the hospital’s costs of caring for that patient, with the payment amount for each patient determined by multiplying the DRG weight by a conversion factor.
A DRG weight is a value assigned to a specific Diagnosis Related Group (DRG) that indicates the relative amount of resources or spending that is expected to be used for patients classified in that DRG. An advantage of a clinical category system such as DRGs is that the same categories can be used for payments to different providers or different patient populations but with different weights based on their different costs. For example, Medicare uses essentially the same MS-DRG categories for paying both acute care hospitals and long term care hospitals, but different weights are assigned to the same MS-DRG in each payment system because of the different costs of care in the two different types of facilities. (The weights for long term care hospitals are referred to as MS-LTC-DRGs.)
An individual is said to be “dual-eligible” if he or she is eligible for both Medicare and Medicaid benefits. Although they are often discussed as though they were a homogeneous class of individuals, dual eligibles are very diverse because of the different ways that individuals can become eligible for both Medicare and Medicaid. There are three major categories of dual eligibles:
An encounter is an interaction between a provider and a patient. In a capitation payment model or other payment model that does not tie payment to the specific number or types of services delivered, a purchaser or payer may still wish to know what services were delivered to patients, so instead of submitting a claim for each service (since a claim is generally associated with a payment), a provider may be asked to submit a form documenting an encounter. Encounters include services that would be eligible for payment under a fee-for-service payment model, but they may also include other services or interactions that are not typically paid for under fee-for-service, such as telephone calls or e-mails with patients.
The End-Stage Renal Disease Prospective Payment System (ESRD PPS) is the payment system Medicare uses to pay outpatient dialysis centers for services to patients with end-stage renal disease (ESRD). Under the ESRD PPS, a separate payment is made for each dialysis treatment. The payment is a bundled payment that covers the costs of administering dialysis to a patient and the costs of ESRD-related drugs, laboratory services, and medical equipment and supplies. Oral-only ESRD-related drugs are excluded from the bundle but scheduled to be added in 2025. The payment covers two different methods of dialysis – hemodialysis and peritoneal dialysis – and covers dialysis whether it is administered in a dialysis center or in the patient’s home. …more
The amount of payment for a dialysis treatment is determined by adjusting a national base payment rate for geographic differences in costs using the Hospital Wage Index, then further adjusting for characteristics of the patient (age, body mass index, body surface area, and the presence of six specific comorbidities). The payment is also increased for treatments during the first four months of dialysis for a patient and for treatment at low-volume dialysis facilities. An additional outlier payment is paid if the cost of treating the patient exceeds an outlier threshold, and an additional payment is made for training patients to self-administer dialysis. The payments are reduced by up to 2% based on dialysis facilities’ achievement and improvement on specified quality measures.
The ESRD PPS is a single-provider treatment-based bundled payment. It bundles together a series of services related to a single treatment. The bundle does not include the cost of physician services associated with the dialysis treatment. Although the number of services included in the bundle has increased over time, the bundled payment does not include any costs of complications of treatment and it does not cover an episode of care longer than the treatment itself. It includes a pay-for-performance penalty component based on quality.
The word “episode” is used in two somewhat different ways in the context of payment models:
An episode can be defined to be triggered by the presence of a particular patient condition (e.g., diabetes) or by the delivery of a particular service or procedure (e.g., heart surgery). A “complete episode” is ordinarily only defined in relation to an acute condition that appears at a particular point in time and is resolved at a later point in time. When the term episode has been used to describe the services related to a chronic condition that continues indefinitely, it has typically been defined as the services related to that condition that occur during a calendar year, even though other services related to the same condition were provided before and/or after the episode period. Limiting episodes to a year or less facilitates the use of payment contracts that are one year in length since many patients change health plans from year to year.
An episode budget is an amount used in retrospective episode payment models that define an amount of spending that is presumed to be adequate to cover the costs of all or most of the services delivered during an episode of care. The payment model then modifies the payments to the providers of those services in some way based on whether actual spending is within the budget, such as through use of retrospective reconciliation. See also Episode Payment.
The services covered by the episode budget will depend on how the episode of care is defined. For example, an episode budget for knee surgery might be defined to include the services related to the surgery itself, the services delivered in the hospital for recovery from the surgery, the rehabilitation services the patient receives during and after discharge from the hospital to regain the ability to use the repaired knee, and services needed to address any infections or other complications that arise from the surgery.
An episode grouper is an algorithm, typically implemented as part of a software system, that retrospectively examines individual claims for services and determines whether they fall within the definition of one or more episodes of care. Since claims forms are not designed to indicate the type of episode for which a service was delivered, episode groupers typically rely heavily on the diagnosis and procedure codes recorded on claims and on the relative timing of various services to determine which types of episodes have occurred and how to assign individual claims to those episodes; this can result in errors in determining which types of episodes have occurred and can cause services to be erroneously assigned to episodes.
In the BPCI Advanced payment model, an Episode Initiator is a hospital or physician group practice that delivers a procedure or treatment (an “Anchor Procedure” or “Anchor Stay”) that triggers an eligible episode of care. The Episode Initiator may accept financial risk for the episode, or the risk may be borne by a Convener.
The episode length is the number of days or months defined to be included in an episode of care. If a provider is accepting an Episode (of Care) Payment, the episode length is the period of time in which services are expected to be covered by the episode payment rather than billed separately for individual payments. An episode length can be defined as a fixed or variable amount. In a fixed-length episode, the episode is the same fixed length of time for all patients, e.g., a year, and any related services that occur during that time period are included in the episode. A variant of this approach is to define an episode as a fixed length of time after completion of a particular service; for example, the episode length might be defined as 90 days after discharge from the hospital, in which case the actual length of the episode will depend on the length of time the patient spent in the hospital. In a variable length episode, the length of the episode varies from patient to patient. For example, if the episode is defined as ending when all related services have been delivered, then the length of the episode for a patient will depend on how long it took to deliver all of those services, whether the patient experienced complications that required additional services, etc. Variable length episodes are often terminated after a “clean period” occurs in which no related services are delivered. (See Clean Period.)
An “episode payment” is a payment intended to cover all or most of the services delivered during an episode of care. In contrast to an Episode Budget, an episode payment replaces payments for the individual services that are delivered within the episode, i.e., a provider or group of providers receives the episode payment as compensation for the services and does not receive any fees for the individual services. (Many payment models described as “episode payments” actually use episode budgets and retrospectively reconcile the fees paid for individual services against the budget after the episode ends.)
The services covered by the episode payment will depend on how the episode of care is defined. For example, an episode of care payment for knee surgery might be defined to include the services related to the surgery itself, the services delivered in the hospital for recovery from the surgery, the rehabilitation services the patient receives during and after discharge from the hospital to regain the ability to use the repaired knee, and services needed to address any infections or other complications that arise from the surgery. If the episode is not a “complete episode” but rather an arbitrary period of time, then the episode payment covers the services that occur during that period of time, and services that occur before or after that time period are paid with an additional episode payment or through some other means.
An episode spending measure calculates how much was spent on services for a patient during an episode of care. The providers who deliver the services to the patient may be paid under traditional fee-for-service payment models, and the episode spending measure may then be used to modify the amount of the fee-for-service payments to a provider in some way based on whether the amount of spending in the episodes in which that provider was involved is viewed to be high or low. For example, CMS is using several episode spending measures in its Hospital Value-Based Purchasing Program and MIPS to increase and decrease payments to hospitals and physicians based on the levels of spending in the episodes they were involved in relative to the levels of spending on similar episodes that other hospitals and physicians were involved in. See also Episode Budget.
Some payers are using “episode spending measures” that include services that may be unrelated to the hospitalization or other service that triggered the episode. For example, the Medicare Spending Per Beneficiary measure includes the spending on all services received by a Medicare beneficiary during the 30 days following their discharge from the hospital, including services for conditions different from those that were treated during the hospital stay and services for conditions that may have first developed after the patient was discharged from the hospital.
An abbreviation for ESRD Seamless Care Organization. See Comprehensive ESRD Care Model.
The Current Procedural Terminology (CPT®) system defines codes for a range of different services that are collectively referred to as Evaluation and Management Services. The most commonly used Evaluation and Management (E/M) Services codes are for patient visits to a physician for evaluation of a symptom or management of a condition. If the physician carries out a specific test or performs a particular procedure during the visit, a separate procedure code would be billed for that service.
The term “evidence-based medicine” is used to describe the processes for determining which healthcare services a patient should receive based on explicit consideration of research showing whether a service is effective or which services are more effective. Contrary to popular belief, there is rarely evidence that “proves” a treatment will work or that a particular service is the best possible way to treat a patient; most evidence merely indicates that one treatment is more effective than others, on average, for a group of patients with particular characteristics. There are also different levels of evidence, with different levels of confidence as to the reliability of the results.
An Evidence-Informed Case Rate is a methodology developed by the Health Care Incentives Improvement Institute (HCI3) for defining an appropriate amount of spending on a particular health condition. ECRs have been defined for both acute conditions and chronic conditions, and each ECR defines an episode of care that includes services related to the triggering condition delivered over a period of time. A key element of the ECR is the identification of services within the episode of care that are classified as Potentially Avoidable Complications (PACs), so that performance measures and payments can be defined separately for PAC services. ECRs incorporate a regression-based risk adjustment system for determining how the spending level should vary based on patient comorbidities.
ECRs are used as part of the PROMETHEUS payment model but they can also be used for measuring spending as part of a pay-for-performance system or other payment model. Many of the payments based on ECRs are a form of Condition-Based Payment, since many ECRs are triggered by a patient’s condition (as defined by diagnosis codes recorded on claims forms) rather than by the specific procedures delivered.
Of outliers: Exclusion is a statistical process that drops the most extreme values from a distribution. For example, in any group of patients with a particular condition, some patients may have unusual problems that require a large number of expensive services for that condition (“outlier patients”). If a provider is penalized when spending for a group of patients exceeds the amount of an episode budget, payment, or spending measure, the small number of patients requiring the large number of expensive services could cause losses for the provider. This problem can be mitigated by excluding these patients from the payment model. The threshold for exclusion can be set at a relative level (e.g., patients with costs above the 99th percentile) or at an absolute level (e.g., patients with costs above $100,000). See also Exclusion vs. Outlier Payment vs. Truncation vs. Winsorization.
Of services: In a global payment model, some specific services may still be paid separately and thereby are excluded from the global payment arrangement. See Carve-Out and Division of Financial Responsibility.
A facility fee is an additional charge for a healthcare service when it is delivered in a hospital or other facility that bills for its services separately from the physician or other provider who actually performs the service.
A facility-independent payment pays the same amount in the same way for a particular service or procedure regardless of the type of facility where the service or procedure is delivered, instead of separate payment systems or different payment amounts for the same service depending on whether it performed in a hospital or an ambulatory surgery center or physician office. A facility-independent payment may require a different risk adjustment system than facility-specific payments in order to distinguish patient characteristics that may require use of a more expensive setting for care.
A payment for a service where the amount of the payment differs based on the type of facility where the service is delivered. For example, Medicare pays for the same surgery if it is performed in a hospital than in an ambulatory surgical center. See also Facility-Independent Payment.
A Federally Qualified Health Center (FQHC) is an outpatient clinic that serves low-income populations and meets specific federal requirements. Under the Federally-Qualified Health Center Prospective Payment System (FQHC PPS), Medicare pays an FQHC a bundled payment for each patient visit to the clinic instead of separate payments for individual services under the Physician Fee Schedule. Different types of visits are paid different amounts, and CMS has established a series of HCPCS G-Codes that FQHCs use to indicate what type of visit a patient received. For example, G0466 indicates that the visit was made by a new patient, G0467 indicates that the visit was made by an established patient, and G0469 indicates that the visit was for a new patient who received a qualified mental health service during the visit. Although the payments under the FQHC PPS are not tied directly to specific types of services, the patient must still make a visit to the clinic in order for the clinic to receive a payment.
A fee-for-service payment model is one in which a specific amount is paid when a particular service is delivered, and generally where the payment amount differs depending on which specific service is delivered. Most bundled payment and episode payment models are still essentially fee-for-service payment models, since the payments are only made when at least one service is delivered and the payments differ for different bundles and types of episodes.
In a shared savings payment model, if the provider’s share of savings is calculated based on the total amount of savings generated, it is said to receive “first dollar shared savings.” This is in contrast to a structure where the payer keeps all of the initial savings until a certain threshold is reached and only then shares additional savings with the provider. However, even a first dollar shared savings model may not guarantee that a provider will receive a share of savings no matter how the small the savings are. For example, in the Medicare Shared Savings Program, the savings must exceed the Minimum Savings Rate in order for an Accountable Care Organization to be eligible for any shared savings payment, but if the Minimum Savings Rate is achieved, then the share of savings is calculated based on the total savings achieved.
FMAP is an abbreviation for Federal Medical Assistance Percentage, which is the percentage of a state’s Medicaid spending that the Federal government will pay for.
Health insurance: A list of pharmaceuticals that a health insurance plan will pay for. If a physician orders a medication that is not on the formulary, the physician will need approval from the payer to use the medication or the patient may have to pay the full cost of the medication.
Providers: A list of pharmaceuticals that a hospital maintains in its inventory and has available for use in patient care. A physician may be unable to order or use a medication during an inpatient stay if it is not on the hospital’s formulary.
FQHC is an abbreviation for Federally Qualified Health Center.
The federal government and many state governments have enacted a series of laws designed to control fraud and abuse in healthcare payment. In some cases, the concerns about potential abuses under current payment systems may not exist (or may be significantly less) under a different payment model. However, because fraud and abuse laws are not tied to a particular payment model, the restrictions in the laws can serve as a barrier to delivering care or distributing funds in different ways under a different payment model. The principal federal fraud and abuse laws are:
The Affordable Care Act authorized CMS to grant waivers of these and other laws to providers participating in alternative payment models where necessary.
An employer or other purchaser is said to be fully-insured if they purchase a health insurance policy for each of their employees or members and pay premiums to a health insurance company to cover the costs of claims for healthcare services. For contrast, see Self-Insured.
A gain-sharing payment is made by one provider to another provider if the first provider experiences savings or higher profits due to actions taken by the second provider. For example, if a physician redesigns care delivery in a way that reduces the costs the hospital incurs and thereby increases the hospital’s profit margin, the hospital could make a gain-sharing payment to the physician from those increased profits. A gain-sharing arrangement will generally require agreement between the two providers as to how costs and “gains” are to be measured. See also Fraud and Abuse Laws and Shared Savings vs. Gain-Sharing.
A G-Code is a subset of the Level II codes that CMS creates and maintains as part of the Health Care Common Procedure Coding System (HCPCS). G-codes define procedures and professional services that Medicare will pay for but that have not been incorporated into the CPT coding system. Examples of G-Codes are:
A Geographic Adjustment Factor is a number that indicates how much more will be paid for a service in one geographic area compared to other geographic areas based on differences in the cost of living and cost of purchasing services needed in the delivery of medical care. In the Medicare Program, payments to hospitals and other providers are adjusted by the Hospital Wage Index, and physician payments are adjusted using three separate factors used called Geographic Practice Cost Indices (GPCIs).
In the Medicare Physician Fee Schedule, in order to determine the actual dollar payment to an individual physician for a service, the Work, PE, and PLI RVUs are each adjusted by a corresponding Geographic Practice Cost Index that is intended to reflect differences in the costs of living, operating a practice, and obtaining insurance in different geographic areas of the country.
A global budget is an amount of money that is expected to cover the cost of all or most of the services that a provider delivers to a group of patients during a specific period of time. In a global budget payment model, a hospital or other provider continues to bill for and be paid through the fees or other payment models that are typically used for the services. After the end of the time period for which the global budget is defined, all of the payments made for services covered by the global budget are tabulated and compared to the global budget. If there is a difference between the actual payments and the budget, adjustments are made in one of two ways:
A global fee is a single payment made to one provider for performing a group of services over a period of time (the global period) instead of paying the provider individual fees for the individual services. For example, surgeons receive a global surgical fee which covers a visit with a patient before the surgery is performed and visits with the patient after the surgery is completed, and a surgeon receiving the global fee does not bill for separate fees for the individual visits. Similarly, obstetricians receive a global fee that covers prenatal care, delivery, and post-partum care, and the obstetrician receiving the fee does not bill separately for the individual prenatal and post-partum care visits.
A global payment is a payment that covers all or most of the services that a patient needs from all providers during a particular period of time. The term “global payment” is generally used in reference to a payment that covers multiple episodes of care for multiple types of conditions, whereas the term “episode payment” is used for a payment that is limited to a particular time period or to care associated with a particular procedure, and the term “condition-based payment” is used for a payment that is limited to a specific patient health condition or group of conditions.
Risk-Adjusted Global Payment. In a risk-adjusted global payment model, the amount of global payment a provider receives is adjusted up or down based on the risk or acuity level of the individuals whose care is to be covered by the global payment.
A global period is a period of time in which services delivered by a provider are covered by a global fee rather than separately billed for individual service fees.
An abbreviation for Hospital-Acquired Condition.
An abbreviation for Hospital-Acquired Infection.
HCAHPS is an abbreviation for Hospital Survey – Consumer Assessment of Healthcare Providers and Services, which is one of a family of CAHPS surveys that ask consumers and patients to rate their experiences receiving care in a variety of healthcare settings. The HCAHPS survey is specifically designed for services delivered in hospitals. The results of CAHPS surveys are used as a performance measure in some payment models. See also CG-CAHPS.
An abbreviation for Health Care Innovation Awards.
The Health Care Common Procedure Coding System is a comprehensive set of billing codes maintained by the Centers for Medicare and Medicaid Services in accordance with the Health Insurance Portability and Accountability Act of 1996 ( HIPAA). HCPCS Level I codes are the Current Procedural Terminology (CPT) Category I codes developed and maintained by the American Medical Association, and HCPCS Level II codes are additional billing codes for additional services and medications not covered by the CPT system.
A program created by the Center for Medicare and Medicaid Innovation in which healthcare providers received grant funds to support innovative approaches to care delivery.
The Herfindahl-Hirschman Index is a measure of the concentration of buyers or sellers in a geographic area. It is often used by economists and anti-trust enforcement agencies to assess whether a consolidation of providers or payers in a state or region, or an organizational arrangement to allow joint contracting with a group of providers (such as an Accountable Care Organization), would be likely to excessively limit competition in a particular community.
HHA is an abbreviation for Home Health Agency.
HHS-HCC is an abbreviation for the HHS-Hierarchical Condition Categories risk adjustment model that is used to risk adjust spending for private health plans. In contrast to the prospective CMS-HCC risk adjustment model used for Medicare Advantage plans and in CMS alternative payment models, the HHS-HCC risk adjustment is a concurrent risk adjustment model that utilizes information on a patient’s health problems that occur during the year in which services are being delivered as well as information on health problems that existed prior to the beginning of the year. The HHS-HCC risk adjustment model is also designed to predict both medical and drug spending whereas the CMS-HCC model is only designed to predict medical spending.
Hierarchical Condition Categories (HCCs) is a risk adjustment system originally developed by the Centers for Medicare and Medicaid System to pay Medicare Advantage plans that is also being used in many of the payment models being implemented by CMS, such as the Medicare Shared Savings Program. The CMS-HCC system uses information about the diagnoses reported on claims forms for an individual patient during the preceding year in order to calculate a single numeric “risk score” for that patient. These risk scores are averaged across all of the patients associated with a provider or health plan to determine the Risk Adjustment Factor (RAF) for that group of patients. Then the total spending during the year for a group of patients is divided by their RAF score to determine the risk-adjusted spending. …more
The HCC system is a regression-based risk adjustment system; CMS changes the weights for individual conditions from year to year based on which factors achieve the best results in regression-based predictions of actual spending in the most recent year, not based on changes in clinical evidence about what patients need. CMS also implements HCCs as a prospective risk adjustment system that does not consider any health problems that occur during the performance year in determining the risk score for a patient; only diagnosis codes for health problems that occurred prior to the current year are considered. Moreover, the HCC system explicitly gives zero weight to many acute conditions, even though these conditions would likely result in a need for services during the year in which they occurred and could also affect service needs in the subsequent year. The HCC system uses only diagnosis information from claims data, and it does not consider many factors other than health conditions that can affect patient needs. See also HHS-HCC.
A Health Maintenance Organization (HMO) is an entity that accepts a fixed premium or capitation payment for individuals enrolled in the HMO and takes responsibility for delivering or arranging for all of the covered healthcare services for those individuals through a defined group or network of providers. Typically, an HMO requires that a patient be assigned to a primary care provider and that the patient have a referral from the assigned primary care provider before the patient can receive a non-emergency service from a specialist in the network. In contrast, in a Preferred Provider Organization (PPO), a patient can typically obtain most services from specialists in the PPO network without a referral or prior approval.
Network Model HMO. A network model HMO is the most common form of HMO. It is usually created by a health insurance plan contracting with multiple physician practices and hospitals to serve as the HMO providers. In a network model HMO, the HMO does not directly employ any of those providers.
Staff Model HMO. In a staff model HMO, a physician group serves as the HMO and takes the payment directly from the patient, rather than contracting through a separate health insurance plan. In a staff model HMO, most of the physicians are employed by the HMO.
The Home Health Prospective Payment System (HH PPS) is the system Medicare uses to pay Home Health Agencies (HHAs). Home health agencies are paid with a single payment to cover all of the services that are delivered during a 30-day “episode.” Since different patients will need different amounts of service within a 30 day period, patients are assigned to one of 432 Home Health Resource Groups (HHRGs) based on their health problems, functional status, and other factors. The Home Health Agency’s payment for a patient is based on the HHRG assigned. Different HHAs also receive different payment amounts for the same HHRG based on a geographic adjustment factor. The HHA can receive an additional Outlier Payment if the patient requires unusually costly services, and the HHA is paid on a per-visit basis if the patient receives only a small number of visits.
Home Health Resource Groups is a categorical risk adjustment system used in the Medicare Home Health Prospective Payment System (HH PPS). Patients are assigned to one of 432 Home Health Resource Groups (HHRGs) based on their health problems, functional status, and other factors.
In the Medicare program, a hospice agency is paid a flat daily rate for each day that a beneficiary is enrolled in the hospice program. There are four different payment levels, depending on the type of care being provided – Routine Home Care (RHC), Continuous Home Care (CHC), Inpatient Respite Care (IRC), and General Inpatient Care (GIC). The payment rate for an individual patient is also adjusted by a geographic adjustment factor based on the location of the patient (not the location of the hospice agency, unlike the geographic adjustments for other providers)….more
Hospice payment is a form of capitation payment, since a fixed payment is made per beneficiary per day (at the RHC rate) regardless of how many services are provided on a given day (or whether any services are provided at all on a given day). A higher payment is only made if a service is provided which qualifies for the CHC, IRC, or GIC payment levels (and this typically only happens on a very small proportion of the days a patient is in hospice care). Hospice payment is also a bundled payment, since the payment is intended to cover a range of services that would otherwise be paid for separately under other Medicare payment programs, including home health services, drugs, physical, occupational, and speech therapy, and inpatient care. Moreover, the hospice payment is a prospective bundle, since after a Medicare beneficiary enrolls in hospice, providers are no longer eligible to receive direct payments from Medicare for delivering these kinds of services to the patient (if they are related to the hospice diagnosis) and any payments for those services must come through the hospice agency from the hospice payment.
The Deficit Reduction Act of 2005 required CMS to develop a list of hospital-acquired conditions that are (a) high cost or high volume or both, (b) result in the assignment of a case to a DRG that has a higher payment when the hospital-acquired condition is present as a secondary diagnosis, and (c) could reasonably have been prevented through the application of evidence‑based guidelines. Since 2008, these conditions can no longer be used in determining the DRG for a hospital admission unless there is a specific indication that the condition was “present on admission.” In some cases, this can cause the hospital to receive a lower payment than it might otherwise, but if additional complications resulted from the hospital-acquired condition, these complications can still result in an increased payment to the hospital. The current list of Hospital-Acquired Conditions includes:
Beginning in October 2014, CMS began implementing the Hospital-Acquired Condition Reduction Program, which reduces Medicare payments for inpatient stays in hospitals that have the highest rates of certain hospital-acquired conditions (HACs). The worst performing quartile of hospitals is identified by calculating a Total HAC score based on the hospital’s performance on three quality measures (Patient Safety Indicator 90 composite, central-line associated bloodstream infection, and catheter associated urinary tract infection). If a hospital has a Total HAC score above the 75th percentile of the distribution of Total HAC scores for all hospitals, the hospital’s payments are reduced by 1% for all of its patients.
An infection that a patient acquires as a result of care or treatment in a hospital.
Since October 2012, CMS has reduced payments to a hospital for its inpatient admissions if the hospital is determined to have “excess” readmissions. A “readmission” is defined as an admission to the same or another acute care hospital within 30 days of discharge, other than for specifically planned readmissions such as for chemotherapy or rehabilitation, and a hospital has “excess readmissions” if its rate of readmissions is higher than an expected readmission rate. Initially, the program measured readmissions only for Medicare patients with diagnoses of acute myocardial infarction (heart attack), heart failure, or pneumonia. If the hospital is determined to have excess readmissions, the payments for all of its patients are reduced, not just those in the categories where readmissions were high. The maximum penalty was initially capped at 1 percent and can now be as high as 3 percent per year. (The hospital is still paid for the readmissions themselves; the penalty is a reduction in payment for all admissions, including the readmissions.)
A special payment rate for inpatient admissions in some Medicare Dependent Hospitals and Sole Community Hospitals that is higher than the standard payment available under the Inpatient Prospective Payment System.
Since October 2012, CMS has modified payments to hospitals based on their performance on a series of quality and spending measures under the Medicare Hospital Value-Based Purchasing (Hospital VBP) Program. There are three steps in the VBP:
The net effect of the reductions in the first step and the increases in the third step is that some hospitals will see a net increase in their payments and some hospitals will see a net reduction in their payments through the Hospital VBP program, in addition to any increases or decreases they experience through other changes in Medicare payments.
The Hospital Wage Index (HWI) is a Geographic Adjustment Factor used by Medicare to adjust payments to hospitals, skilled nursing facilities, and other providers to account for differences in the wage rates in their local labor markets. The hospital wage index for a labor market area is calculated by taking the average hourly wage (AHW) paid to full-time, part-time, and contract workers by all hospitals in the labor market area that are paid through the Medicare IPPS, and dividing that average by the AHW for all IPPS hospitals nationwide. The HWI for each labor market area is then used to adjust the payment rate for each patient discharged from a hospital in that labor market area, so that hospitals in areas with higher average wage rates receive higher payments from Medicare.
An abbreviation for Hospital-Specific Rate.
If providers have delivered services but have not yet submitted claims for those services to the payer who is obligated to pay the claims, then the claims are described as “Incurred But Not Reported (IBNR).” If a payer has agreed to pay claims for services rendered from a fixed premium (or if a provider has agreed to accept a bundled payment and pay other providers for specific types of services they render), then IBNR claims represent a liability that the payer or provider is obligated to pay, but the payer/provider does not know the amount of the liability until the claims are actually filed. Consequently, in order for the payer (or the provider managing a multi-provider bundled payment) to know whether its expenses will be lower or higher than its revenues, it needs a way to estimate IBNR.
ICD-9 is the International Classification of Diseases, 9th Edition, Clinical Modification. It was the official national mechanism in the United States for coding diagnoses on claims forms before the transition was made to ICD-10. Alphanumeric codes are assigned to diseases as well as some of the causes of health problems. Examples of ICD-9-CM diagnosis codes include:
ICD-9-CM also defines procedure codes that are used by hospitals for billing purposes. Examples include:
ICD-10 is the International Classification of Diseases, 10th Edition, Clinical Modification. It has more detailed coding for some diagnoses than ICD-9-CM, and it only contains diagnosis codes; procedure codes are included in ICD-10-PCS. Examples of ICD-10-CM diagnosis codes include:
ICD-10-PCS contains an updated set of the procedure codes that were previously included as Volume III of ICD-9-CM. These procedure codes are used by hospitals for billing purposes.
In a payment model where the amount of payment is based on performance on one or more measures of quality or spending, “improvement” is used to refer to the change in the provider’s level of performance in a performance period compared to the provider’s performance in a baseline period. In contrast, “achievement” is a measure of how the provider’s level of performance compares to a benchmark that is established based on what other providers have achieved or what the provider is expected to be able to achieve. Since a provider that failed to meet an achievement threshold may still have significantly improved its performance, and a provider that has met an achievement threshold may still be able to improve performance further, many pay-for-performance systems are based on both achievement and improvement.
In a pay for performance system, an improvement threshold is a level of improvement that must be reached in order to qualify for a payment or an adjustment in payment.
An Independent Practice Association is an organization consisting of two or more independent physician practices that work jointly in some way. Some IPAs accept payment contracts on behalf of their members, others provide mechanisms for multiple practices to share infrastructure costs or staff that would otherwise not be affordable for small practices.
Under the Medicare Inpatient Prospective Payment System (IPPS), hospitals that have medical residents in approved graduate medical education (GME) programs receive higher payments for each Medicare patient who receives care in the hospital. The Indirect Medical Education (IME) adjustment increases the DRG payment amount for each patient by a specific percentage called the IME adjustment factor. The size of the adjustment factor is based on the ratio of the number of medical residents to the number of beds in the hospital.
“Infrastructure” is a generic term used to describe systems and services that a provider needs to have in order to deliver quality care to patients. The term is used to refer to fixed assets such as computer equipment, software systems such as electronic health records or data analysis software, or personnel such as nurse care managers.
In healthcare, an infrastructure payment is a payment that is specifically designed to support the costs of “infrastructure” that a provider uses to deliver or manage care. In some cases, payer have required that the payment only be used for specific kinds of “infrastructure,” whereas in others, the payment is made because of a recognition that a provider needs adequate payment to support the infrastructure required to deliver high-quality care but no restrictions are placed on how the provider can spend the payment.
In-network care is a healthcare service delivered by a provider that is part of the network of providers that a patient is being encouraged or required to use. Typically, a patient is expected to pay less if they receive a service from an in-network provider than from an out-of-network provider. A provider is said to be “in-network” if it has signed a contract to be part of the network the payer or purchaser is encouraging patients to use. See also Narrow Network.
The In-Office Ancillary Services Exception (IOASE) is a provision of the federal Stark Law that exempts physician practices from the general prohibition on referral to providers in which physicians have a financial interest. It applies in the case of ancillary services delivered in a physician’s office or practice site by the physician, by another physician who is a member of the same practice, or by an individual supervised by the physician.
The Inpatient Prospective Payment System (IPPS) is the payment system used by Medicare to pay most large acute care hospitals for inpatient hospitalizations. (Critical Access Hospitals are paid on a cost-based retrospective reimbursement system.) In the IPPS, a hospital is paid a case rate for each patient, i.e., it receives a single payment for the patient’s entire stay. The case rate is determined by taking a conversion factor called the base rate, adjusting it for geographic cost differences using the Hospital Wage Index for the area where the hospital is located, and then multiplying the adjusted rate by on the weight of the MS-DRG (Medicare Severity Diagnosis Related Group) to which the patient is assigned based on the diagnoses recorded for the patient and the procedures performed.…more
The case rate is further adjusted through three other programs:
Selected hospitals receive still further adjustments to their payments:
A hospital can receive an additional Outlier Payment for an individual patient if the patient requires unusually costly services; it can receive an additional payment it has used certain new technologies for care of the patient; and it can receive additional payments for bad debts resulting from patients’ non-payment of cost-sharing amounts. If a patient has a very short stay and is transferred to another acute care hospital or to post-acute care, the hospital will be paid on a per diem basis (i.e., based on the number of days the patient was in the hospital) rather than based on the case rate it would otherwise qualify for based on the patient’s characteristics and the services delivered.
The Inpatient Psychiatric Facility Prospective Payment System (IPF PPS) is the system Medicare uses to pay Inpatient Psychiatric Facilities. In contrast to the Inpatient Prospective Payment System, which pays an acute care hospital a single case rate (the DRG payment) regardless of the length of stay, an Inpatient Psychiatric Facility (IPF) receives an additional payment for each day the patient stays in the hospital, i.e., the hospital is paid on a per diem basis. The amount of payment for each day decreases the longer the patient is in the hospital, but the total payment still increases the longer the patient stays. The per diem amount is also adjusted based on the patient’s characteristics, the nature of the facility, and the location of the facility. The hospital receives additional payments if electroconvulsive therapies are delivered and the hospital can receive an outlier payment if the patient requires unusually expensive services.
An Inpatient Rehabilitation Facility is an inpatient facility that provides rehabilitative services to patients as well as hospital-level acute care over an extended period of time. An IRF can provide the kind of intensive rehabilitation services and higher level of medical care services needed by patients with conditions such as stroke, spinal cord injury, or brain injury that are beyond what a Skilled Nursing Facility (SNF) can provide. Medicare pays IRFs under the Inpatient Rehabilitation Facility Prospective Payment System (IRF PPS).
The Inpatient Rehabilitation Facility Prospective Payment System (IRF PPS) is the system used by Medicare to pay inpatient rehabilitation facilities (IRFs). Similar to the Inpatient Prospective Payment System for acute care hospitals, the IRF PPS pays IRFs a case rate for each patient, i.e., a single payment for the patient’s entire stay. The case rate is determined by taking a conversion factor called the base rate, adjusting it for geographic cost differences based on where the IRF is located, and then multiplying the adjusted rate by the weight of the Case-Mix Group (CMG) to which the patient is assigned. There are 92 different CMG categories, and the patient is assigned to a category based on the diagnosis that led to the need for rehabilitation, their comorbidities, their age, and their functional and cognitive status. The facility can receive an additional Outlier Payment if the patient requires unusually costly services. For patients who have short stays, a lower payment is made.
An intermediate outcome measure is a form of quality measure that determines whether specific kinds of results were achieved from healthcare services that are viewed as valuable solely or primarily because they have been shown to lead to other desirable outcomes. For example, a low hemoglobin A1c (HbA1c) level for a patient is an intermediate outcome measure that is viewed as desirable because it reduces the risk of other complications of diabetes, such as blindness and amputations. Compare the definitions of Process Measure and Outcome Measure.
Internal cost savings is the amount by which a provider’s cost decreases for the services delivered in return for a particular payment if a different mix of services is used within the payment bundle or if changes are made in the way individual services are delivered. If the provider achieves higher internal cost savings in delivering services for the same payment amount, its margin will increase. A payer will not directly benefit from a provider’s internal cost savings unless the payment model explicitly provides for a way to reduce the payer’s payment when internal cost savings are achieved. The provider will not benefit from internal cost savings if the payment model allows the payer to reduce its payment by an amount equal to the internal cost savings (as is the case in cost-based reimbursement).
IPF is an abbreviation for Inpatient Psychiatric Facility. See Inpatient Psychiatric Facility Prospective Payment System.
The abbreviation used for Inpatient Prospective Payment System.
An abbreviation for Inpatient Rehabilitation Facility.
A J-Code is a subset of the Level II codes that CMS creates and maintains as part of the Health Care Common Procedure Coding System (HCPCS). J-codes define specific types of drugs that Medicare will pay physicians to administer.
“Leakage” is said to occur when a patient receives a service from a provider other than the provider that expected to deliver that service to the patient. When leakage occurs, the payment for the service will go to the other provider, which means the provider who expected to deliver the service will receive less revenue than they would have otherwise expected. For example, if an individual living near a hospital travels to a more distant hospital to receive a service, the nearby hospital would consider that to be “leakage” from the patient population they expect to serve.
In a payment model in which an entity is being held accountable for total spending on services for a group of patients, leakage of services to providers that are not part of the accountable entity could increase spending for the group of patients sufficiently to result in a financial penalty for the accountable provider.
In a bundled payment, episode payment, or capitation payment model where a provider is being paid a fixed amount to deliver a set of services to a group of patients, if a patient receives one of those services from a different provider that is paid a fee for that service, the payer would essentially be paying twice for the same service. (For example, if a primary care practice is receiving a capitation payment for primary care services and a patient goes to an emergency department for a problem that could have been addressed by the primary care practice, the payer would be paying for the ED visit in addition to the capitation payment.) Consequently, the payment model may have a mechanism for reducing the amount of the payment to the provider based on the proportion of services delivered by these other providers. Since the services delivered by the other providers are often described as leakage, the payment change may be called a Leakage Adjustment.
Lemon-dropping is a colloquial term used to describe a situation in which (a) a healthcare provider avoids caring for a patient for whom the cost of services is expected to exceed the payment for those services or who will have worse outcomes than other patients, or (b) a health insurance plan avoids providing insurance coverage for an individual for whom health insurance premiums are expected to be lower than the amount spent on healthcare services. See also Cherry-Picking.
Length of stay is the amount of time that a patient spends in a hospital or other facility in order to receive a particular service or group of services.
In the Medicare program, the Limiting Charge is the maximum amount that a physician can charge a Medicare Beneficiary for a service if the physician is a Non-Participating Physician. A non-participating physician is paid 95% of the Medicare approved amount for participating physicians, the Limiting Charge is 115% of that amount, and the difference between Medicare’s payment to the physician and the Limiting Charge can be Balance Billed to the patient.
A “linear exchange function” is a formula for translating a provider’s performance score on one or more measures of quality or spending into a change in the provider’s payment. In the Medicare Hospital Value-Based Purchasing Program, hospitals are assigned a Total Performance Score between 0 and 100 based on the hospital’s performance on a series of different measures, and then a linear exchange function is used to convert the Total Performance Score into the Value-Based Incentive Payment Adjustment.
A Long-Term Care Hospital (sometimes called a Long-Term Acute Care Hospital and abbreviated either LTAC or LTACH) is a hospital that provides hospital-level acute care for patients who require inpatient stays that are much longer than a typical acute care hospital would provide, but who require more complex medical care than an Inpatient Rehabilitation Facility or Skilled Nursing Facility (SNF) can provide. Medicare pays an LTCH under the Long-Term Care Hospital Prospective Payment System (LTCH PPS) rather than the Inpatient Prospective Payment System (IPPS) if the average length of stay at the LTCH is 25 days or more.
The Long-Term Care Hospital Prospective Payment System is the payment system Medicare uses to pay long-term care hospitals (LTCHs). Similar to the Inpatient Prospective Payment System for acute care hospitals, the LTCH PPS pays LTCHs a case rate for each patient, i.e., a single payment for the patient’s entire stay. The case rate is determined by taking a conversion factor called the base rate, adjusting it for geographic cost differences based on where the LTCH is located, and then multiplying the adjusted rate by the weight of the MS-LTC-DRG (Medicare Severity Long-Term Care Diagnosis Related Group) to which the patient is assigned. The facility can receive an additional Outlier Payment if the patient requires unusually costly services. For patients who have short stays, an alternative methodology is used to determine the payment based on actual costs and length of stay.
A look-back period is a prior period of time for which data are collected to compute a measure. For example, a quality measure may be based on actions taken by a provider or a patient’s test results that occurred during a specific number of months prior to the date the measure is calculated. Attribution methodologies typically include a look-back period for determining which provider had the largest number of visits or delivered the largest number of services to a patient.
In the Medicare Low-Volume Hospital Payment Adjustment program, small hospitals receive higher payments for inpatient services than they would otherwise receive if the number of inpatient admissions during the previous year was below a specific level. This program was created to compensate for the fact that all else being equal, a hospital that delivers inpatient care to a small number of patients will have higher average costs per patient than hospitals that treat larger numbers of patients because the hospital’s fixed costs will have to be allocated to a smaller number of patients.
A minimum number of patients or services required for a provider to be subject to a performance-based payment. In the Medicare Merit-Based Incentive Payment (MIPS) program, physicians who treat fewer patients or deliver fewer services than the Low-Volume Threshold established by CMS are not eligible for bonus or penalty payments under MIPS.
An abbreviation for Long-Term Acute Care. See Long-Term Care Hospital.
An abbreviation for Long-Term Acute Care Hospital. See Long-Term Care Hospital.
An abbreviation for Long-Term Care Hospital. See Long-Term Care Hospital.
The Medicare Access and CHIP Reauthorization Act of 2015.
A health insurance company or provider organization that contracts with a purchaser to provide all of the healthcare services needed by a specific set of individuals in return for a pre-defined amount of money, such as a capitation payment. The MCO is both permitted and expected to “manage” the care delivered to these individuals in order to hold the costs of services within the amount it is paid, such as through the use of care management, prior authorization, and other techniques that are designed to limit the utilization of services by patients.
The difference between total revenues and expenses for an organization or service line. A “positive margin” on a service means the organization made a profit delivering that service and a “negative margin” means there was a financial loss in delivering the service. See also Contribution Margin.
In order to update payment rates from year to year, the Office of the Actuary within the Centers for Medicare and Medicaid Services (CMS) calculates a “market basket” for each of its payment systems that is designed to measure the price changes each type of provider (hospitals, skilled nursing facilities, home health agencies, etc.) experiences for the supplies and services it purchases. Market basket levels are released quarterly.
MCC is an abbreviation for Major Complications and Comorbidities that is used in the DRG system. See Diagnosis Related Group.
In a payment model that defines a performance score based on a provider’s performance on multiple measures, each measure is assigned a measure weight to specify how performance on that measure will be adjusted in order to combine it with performance on other measures in calculating an overall performance score. A measure weight is partly an indication of a measure’s relative importance in assessing overall performance (since a measure with a higher measure weight will have a greater impact on the total performance score) and partly a method of adjusting for differences in the measurement scales for different measures (e.g., if the performance level on one measure can vary from 0 to 10 and the performance level on another measure can vary from 0 to 100, then if the measures are viewed as equally important, the first measure will need to have a weight that is 10 times the weight for the second measure).
A health insurance company or provider organization that contracts with a state Medicaid agency to provide or purchase healthcare services for Medicaid beneficiaries in return for a capitated payment. See Managed Care Organization.
A medical home is a generic term used to describe a physician practice which operates in ways consistent with one or more of the principles of the Patient-Centered Medical Home. Although a “medical home” was originally intended to apply to primary care practices, it has also been used to refer to specialty practices that provide care to patients with a particular health problem in ways that are consistent with one or more of the principles of the Patient-Centered Medical Home.
A wide range of different approaches to “medical home payment” have been created by payers to assist or encourage primary care practices, and in some cases specialty physician practices, to deliver care consistent with one or more of the principles of the Patient-Centered Medical Home. These payment models have generally been structured in one of the following ways.
For insurers: The “medical loss ratio” means the total amount a health plan spends on payments for healthcare services divided by the total premium revenues received to cover those payments. The medical loss ratio is typically described as a percentage, the ratio must be lower than 100% in order for the insurance plan to remain solvent, since administrative expenses and profits are not included in the “medical loss,” and a health plan must also retain some portion of premiums as a reserve against variations in the medical loss ratio. The Affordable Care Act established minimum thresholds for the Medical Loss Ratios of commercial insurance plans.
For providers: Although not typically used in the context of payment models, the concept of Medical Loss Ratio is equally applicable to provider payments, since the entity that manages a bundled payment, episode payment, or global payment must ensure that the total cost of all services required to be delivered (including fees the entity pays to providers to deliver services) are lower than the amount of payment the entity receives from the payer, while also leaving enough funds to cover any administrative costs associated with managing the payment and to provide a reserve for variations in the need for services within the payment amount. If a payer begins using more accountable payment models to pay providers, the payer will be transferring some portion of its administrative costs and risks to the providers, which will affect medical loss ratios for both the payer and the provider and require different judgments about whether those ratios are too high or low.
A “medical neighborhood” is a set of specialists and other providers who provide healthcare services to the patients who are part of a primary care medical home.
A Medically Unlikely Edit is part of the National Correct Coding Initiative and defines combinations of services or types of services that are unlikely to occur and may indicate either an error in coding or potential fraudulent billing.
A Medicare Dependent Hospital is a rural hospital with 100 or fewer beds where at least 60% of inpatient days or discharges are Medicare beneficiaries. Medicare Dependent Hospitals may qualify for a higher payment rate for inpatient admissions (the Hospital-Specific Rate) than the standard rate that would be paid under the Inpatient Prospective Payment System.
The Medicare Economic Index (MEI) is a method of measuring inflation in the cost of operating a medical practice. It is conceptually similar to the Consumer Price Index and the Producer Price Index used for other industries, but it is based on the cost of items that are relevant to medical practices. CMS calculates and publishes the MEI on a quarterly basis.
The Medicare Shared Savings Program is a payment program established by the Affordable Care Act (in Section 1899 of the Social Security Act) that providers can voluntarily choose to participate in if they meet the qualifications for an Accountable Care Organization (ACO) established in the statute and in regulations promulgated by CMS. Although CMS has used a shared savings model to pay ACOs under the Shared Savings Program, the law authorized the use of “Other Payment Models,” including a partial capitation model. See Shared Savings for more information.
Medicare Spending Per Beneficiary is one of the performance measures used to determine the Value-Based Incentive Payment Adjustment for a hospital and it is also used in the Merit-Based Incentive Payment System (MIPS) for physicians. Total Medicare Part A and Part B spending (i.e., payments for institutional and professional services, but not for prescription drugs) are tabulated for a hospitalized patient from the point 3 days prior to hospital admission through the point 30 days after discharge from the hospital, and then the sum is risk adjusted for patient characteristics using the HCC risk adjustment system and further adjusted using standardized payments.
In the Value-Based Incentive Payment for a hospital, the Medicare Spending Per Beneficiary measure is calculated for all patients discharged from the hospital, and then the average is compared to the average for the measure for all hospitals. In MIPS, a hospitalization is attributed to the physician that provided the plurality of professional services during the hospital stay (as measured by the total payments for the services), and the MSPB is calculated for that hospitalization. The average of the MSPB measures for all patients attributed to the physician is then compared to the average for all physician practices after adjusting for the mix of specialties in the practice.
An abbreviation for Monthly Enhanced Oncology Services, which is a payment that oncology practices participating in the Oncology Care Model receive.
The Merit-Based Incentive Payment System is a Medicare pay-for-performance system for physicians created by the Medicare Access and CHIP Reauthorization Act (MACRA). It consolidates several previous Medicare pay-for-performance programs – the EHR Incentive program, the Physician Quality Reporting System, and the Value-Based Payment Modifier – into a single pay-for-performance program that will be based on four categories of performance measures: quality, resource use, clinical practice improvement activities, and meaningful use of certified EHR technology. Physicians receive either increases or decreases in their payments under the Physician Fee Schedule based on their performance in the MIPS program; because the program is supposed to be budget-neutral, the magnitude of any increases received by physicians who qualify for increases will depend on the number of physicians receiving decreases in payments and the magnitude of those reductions.
Physicians participating in Alternative Payment Models that meet the criteria defined in MACRA are exempt from the MIPS payment adjustments.
In a Shared Savings program, the minimum loss rate is the minimum amount that the actual spending must be above the benchmark in order for the provider to be obligated to pay the payer a share of the increased spending the payer has incurred. A minimum loss rate is used in order to avoid a provider having to make payments to a payer based simply on random variation in spending. For more information, see Minimum Savings Rate.
In a Shared Savings program, the minimum savings rate (MSR) is the minimum amount that the actual spending must be below the benchmark in order for the provider to qualify for a shared saving payment. A minimum savings rate can be used for two separate purposes:
In the Medicare Shared Savings Program, the Minimum Savings Rate is set at higher level for an ACO with fewer attributed patients to reflect the fact that random variation in spending will be larger with fewer patients. See also Minimum Loss Rate.
The abbreviation for the Merit-Based Incentive Payment System.
A MIPS APM is an Alternative Payment Model that has been implemented in the Medicare program but does not qualify as an Advanced Alternative Payment Model. Physicians participating in a MIPS APM are subject to different requirements under the Merit-Based Incentive Payment System.
A modifier is an additional code appended to a billing code to communicate additional information about the circumstances in which the service was delivered. The modifier is often used to indicate that the payment for the service should be different than what is paid for the unmodified code. For example, Modifier 33 is added to CPT codes to indicate that a service was preventative in nature and that patient cost-sharing does not apply.
An abbreviation for Multiple Procedure Payment Reduction.
MS-DRGs are the version of DRGs used in the Medicare Inpatient Prospective Payment System. In the current MS-DRG system, there are 751 different MS-DRGs to which an inpatient admission can be assigned.
MS-LTC-DRGs are used to determine payments to Long-Term Care Hospitals in the Medicare Long-Term Care Hospital Prospective Payment System. They have the same definitions and structure as MS-DRGs, but the payment weights are different in order to reflect the differences in costs for patients in long-term care hospitals instead of acute care hospitals. See Long-Term Care Hospital Prospective Payment System.
See Minimum Savings Rate.
When the same medical procedure is performed twice on a patient by the same provider (or a physician in the same medical group) during the same patient encounter (either in a physician office, a hospital, or an ambulatory surgical center), Medicare and other payers pay less for the second and subsequent procedures than for the first procedure. The standard reduction in payment is 50%. For example, if a patient has cataract surgery on both eyes on the same day, Medicare will only pay 50% as much for the second surgery as it pays for the first surgery, but if the surgeries are performed on separate days, Medicare will pay the same amount for each surgery.
A multi-provider bundle is a bundled payment that includes services delivered by multiple providers. Multi-provider bundles are more complicated to administer than single-provider bundles because an entity needs to be defined to receive the payment on behalf of all of the providers and a method is needed to allocate the bundled payment among the individual providers.
A “musculoskeletal medical home” is a provider such as an orthopedic physician practice that delivers care to individuals with musculoskeletal problems (such as osteoarthritis of the joints) in ways that are consistent with one or more of the principles of the Patient-Centered Medical Home.
A narrow network is a network of providers used by a health insurance plan or a purchaser that excludes some providers the patients would otherwise be likely to use. The choice of which providers are in the narrow network may be based on their willingness to accept lower payments, their scores on measures of quality or cost, their willingness or ability to coordinate care, or other factors.
The National Correct Coding Initiative is a program operated by CMS that is designed to avoid payment for inappropriate or duplicative services. NCCI defines a series of rules that are applied when a payer processes healthcare claims in order to identify codes that should generally not be billed at the same time and combinations of codes that are not consistent with typical or appropriate patterns of care.
In a retrospective reconciliation process, the Net Payment Reconciliation Amount is the amount of money that must be transferred between a payer and a provider to ensure that the total payment is equal to the agreed-upon amount or budget.
In healthcare delivery and payment, a network consists of two or more providers who will deliver services in return for agreed-upon payment and cost-sharing amounts for patients who are covered under a particular health insurance plan or who are receiving services as part of a bundled or global payment.
The adequacy of a network is the ability of the providers in the network to provide sufficient access to healthcare services for the patients who are being required or encouraged to use the network. The most basic standard of adequacy is to have at least one provider in the network who can deliver each service that a patient could potentially need under the insurance plan or payment. However, adequacy requirements can also include the distance a patient must travel to receive care from a provider who can deliver the service the patient needs, the quality of care the providers in the network deliver, etc.
A non-covered service is a healthcare service that a patient’s health insurance plan will not pay any healthcare provider to deliver. If the patient wants the service, they would need to pay a provider for the service using the patient’s own funds.
A physician or other clinician who has not agreed to accept Assignment for all services delivered to Medicare beneficiaries. Non-Participating Physicians may choose to accept assignment on a service-by-service basis. See Assignment.
A provider that is not designated as a Preferred Provider. See Preferred Provider.
An abbreviation for National Provider Identifier, an identification number assigned to each physician or other provider that bills Medicare for services.
A nursing facility provides long-term nursing care to elderly and disabled individuals. Nursing facilities are often referred to as “nursing homes.” Most nursing facilities that provide long-term care are classified as Skilled Nursing Facilities (SNFs) because they also provide short-term rehabilitative services that qualify for Medicare payment. Medicare does not pay for long-term nursing care, only short-term rehabilitative care (usually following a hospitalization), but state Medicaid programs pay for long-term nursing care for eligible individuals. See also Skilled Nursing Facility.
See Oncology Care Model.
The Oncology Care Model (OCM) is a demonstration project created by the Center for Medicare and Medicaid Innovation in 2015 that is intended to improve the quality and reduce the cost of care for cancer patients. OCM is a combination of a supplemental capitation payment and either an upside-only shared savings model or a shared-risk model.…more
An oncology practice participating in the program is able to bill for a new $160 Monthly Enhanced Oncology Services (MEOS) payment each month for a six month “episode” following the initiation of chemotherapy for a patient, regardless of how many months during the six month period the patient continues to receive chemotherapy. This payment is in addition to standard fee-for-service payments for visits, administration of drugs, etc. If the patient continues to receive chemotherapy more than 6 months after the initial chemotherapy treatment, then the oncology practice can again bill for a $160 monthly payment for another six-month episode.
In the upside-only shared savings option, the oncology practice is eligible to receive an additional payment if the average total Medicare spending for the practice’s patients (on all services, not just oncology services) during the six month episodes is more than 4% lower than an expected level of spending calculated by CMS. The amount of the payment to the practice is based on the difference between the actual spending and 96% of expected spending and also on the practice’s performance on a series of quality measures.
Under the shared-risk option, and oncology practice would be eligible to receive an additional payment if actual spending during the episodes averaged at least 2.75% below expected spending levels, but it would also be liable to pay CMMI a portion of any spending that is more than 2.75% of the expected spending level.
An “oncology medical home” is a general term being used to describe an oncology practice that delivers care to individuals with cancer in ways that are consistent with one or more of the principles of the Patient-Centered Medical Home. A key issue that oncology medical homes are seeking to address is to better manage complications of chemotherapy to reduce the rate at which their patients make emergency room visits and are hospitalized for complications.
An abbreviation for “out-of-pocket.” See Out-of-Pocket Maximum for more information.
An outcome measure is a form of quality measure that assesses the result of healthcare services in terms of patient health, quality of life, or functionality. See also Intermediate Outcome Measure and Process Measure.
An outlier patient is a patient who receives or requires a much larger number of services or much more expensive services than other patients. See Exclusion vs Outlier Payment vs Truncation vs Winsorization for methods by which payment models adjust payments for outlier patients.
An outlier payment is an additional payment made to a provider to cover all or part of the additional costs of services delivered to an outlier patient. For example, in the Medicare Inpatient Prospective Payment System, a hospital receives a payment for each patient based on the Diagnosis Related Group (DRG) to which the patient is assigned, but if the cost of treating a particular patient exceeds the DRG payment by a minimum amount, the hospital will receive an additional outlier payment from Medicare for that patient.
Out-of-network care is a healthcare service delivered by a provider that is not part of the network of providers that a patient is being encouraged or required to use. Typically, a patient is expected to pay more (or to pay the full cost) if they receive a service from an out-of-network provider.
In a health insurance plan, if the cumulative amount of cost-sharing payments (i.e., co-payments, co-insurance, and deductibles) paid by a patient for healthcare services during a year (or other period of time) reaches the out-of-pocket maximum or out-of-pocket limit, the health plan then pays 100% of the payments for services to providers for the remainder of the year (or whatever time period the maximum applies).
The Outpatient Prospective Payment System (OPPS) is the payment system used by Medicare to pay most large acute care hospitals for outpatient services. Prior to 2000, Medicare paid for outpatient services based on hospitals’ costs. (Critical Access Hospitals are still paid on a cost-based retrospective reimbursement system for inpatient and outpatient services.) The OPPS bases payments on the same CPT and HCPCS codes that are used in the Physician Fee Schedule, but the payment amount is based on the Ambulatory Patient Classification (APC) to which the code is assigned. Moreover, if multiple services in the same Ambulatory Patient Classification are delivered at the same time, only one payment is made, so the OPPS is a “partial bundled” payment model.…more
As in the Inpatient Prospective Payment System, the payment amount for the same service differs from hospital to hospital based on geographic adjustments using the Hospital Wage Index, and a hospital can receive an Outlier Payment for patients who required unusually costly services. Additional payments are made for services delivered in Sole Community Hospitals, cancer hospitals, and children’s hospitals and for use of new technologies.
In general, the payment rate for a service under the OPPS is higher than if the same service is delivered in a physician’s office (this is called a Site-of-Service Differential), but under the OPPS, services in the same APC will not receive separate payments if they are delivered at the same time, whereas if the services are delivered in a physician’s office, separate payments will generally be made for each service. As a result, it is difficult to directly compare the costs of services delivered in an outpatient hospital department to services delivered in physician offices without knowing what combination of services are used to treat the same condition or deliver the same procedure.
Two different payment models are said to overlap if a provider can be eligible for payments under both models for the same services or patients or for the same change in spending or quality. For example, because many alternative payment models use a shared savings methodology based on the total cost of care for a group of patients during a period of time, a reduction in spending on a particular service could be counted as “savings” in an episode payment model focused on a specific procedure or condition that is being treated for a patient as well as in an ACO to which the patient has been assigned. Medicare has established rules in its APMs that are intended to reduce or eliminate these overlaps, including rules precluding a provider from participating in two model simultaneously and rules assigning savings to one model rather than another.
Overuse is the use of a particular service more often than is necessary or justified based on evidence about its effectiveness.
See Pay for Performance.
See Bundled Payment.
In the Medicare program, a Partial QP is a physician or other eligible clinician that is participating in an Advanced Alternative Payment Model (AAPM) but receives less than the minimum amount of payments or receives payments for less than the minimum number of patients needed to qualify for QP status.
A physician who agrees to accept Medicare Physician Fee Schedule payments as payment in full for services delivered to Medicare beneficiaries. (This is described as “Accepting Assignment.”)
See Clinical Pathway.
“Pathways to Success” is the name CMS gave to a set of revised payment structures for Accountable Care Organizations in the Medicare Shared Savings Program that took effect in 2019.
A Patient-Centered Medical Home is a primary care practice that is structured and operated consistent with a set of principles jointly developed by the American Academy of Family Physicians (AAFP), the American Academy of Pediatrics (AAP), the American College of Physicians (ACP), and the American Osteopathic Association (AOA). …more
The principles are:
A Patient-Centered Payment Model has the following characteristics:
The Patient Driven Payment Model is the method of determining payments for Skilled Nursing Facilities (SNFs) used in the Medicare program. The total payment is the sum of five case-mix adjusted payment components (the Nursing Component, the Physical Therapy component, the Occupational Therapy Component, the Speech-Language Pathology Component, and the Non-Therapy Ancillary Component) and one non-case-mix adjusted component. The case-mix adjustment for each component uses a Case-Mix Index based on the Case-Mix Group (CMGs) to which the patient is assigned based on clinical characteristics of the patient and the services they receive. See Skilled Nursing Facility Prospective Payment System (SNF PPS).
A Patient-Reported Outcome is a measure of a patient’s health status or ability to function for which the data are collected and reported primarily or exclusively by the patient, not by a physician or other healthcare provider. The patient’s report may be obtained by a healthcare provider or payer for use in a payment model, but the information in the report is generated by the patient, not through measurements made by the provider.
A payer is a generic term used to describe an organization that transfers funds to a provider to compensate it for the delivery of healthcare services. A payer transfers funds directly to the provider rather than through an intermediary. For example, health insurance companies are payers, and self-pay patients are also payers. See Payer vs Purchaser.
In a pay-for-performance payment model, the amount that a provider is paid for its services is changed in some way based on one or more aspects of the provider’s performance. For example, in a pay-for-performance system intended to encourage higher-quality care, providers with higher scores on one or more measures of quality may receive higher fees than other providers.…more
A pay-for-performance system can provide rewards (either increases in payments for individual services or lump-sum bonus payments), penalties (such as reductions in payments for services), or both. A bonus or penalty can be either retrospective (a bonus is paid or a penalty is imposed at the end of a performance period) or prospective (future payments to the provider are higher or lower based on performance in a prior period). In some P4P systems, payments for all providers are simply reduced across the board and then some providers are given increased payments based on performance; in these systems, the net effect on an individual provider depends on the size of the initial reduction and the size of the increases. For example, the Medicare Hospital Value-Based Purchasing Program reduces all payments to hospitals and then hospitals receive performance-based payment increases that may be more or less than the amount by which their payment was reduced.
A pay-for-performance system can be designed to reward or penalize absolute achievement (i.e., performance relative to a fixed achievement threshold), relative achievement (i.e., performance relative to other providers), improvement (i.e., the provider’s current performance relative to its own performance in an earlier, baseline period), or some combination of the three.
In a pure pay for performance system, there is no change in the basic method by which the provider is paid for services delivered. Services that can currently be billed for payment can continue to be billed and paid at the same payment rates, and services that cannot be billed for payment still cannot be billed or paid directly. In a retrospective P4P model, any additional payment awarded for high performance is paid after the services that resulted in the high performance have already been delivered. This means that if the provider has to deliver services that are not paid for directly in order to achieve the high performance level, they will have to have a way of paying for those services until the pay-for-performance bonus is paid, and the bonus payment may or may not be sufficient to cover those costs. In some payment models, a pay-for-performance program is combined with other payment changes, such as use of medical home payments, in order to give providers additional resources to deliver additional or different services but also encourage them to do so in ways that achieve higher performance on one or more measures of quality or spending.
Pay for Achievement. Pay for achievement is a form of pay-for performance in which rewards or penalties are based on the extent to which a provider’s performance reaches a specified performance standard.
Pay for Improvement. Pay for improvement is a form of pay-for-performance in which rewards or penalties are based on the extent to which a provider’s performance is better than it was in an earlier period of time.
Pay for Reporting. In a pay for reporting system, a provider’s payments are modified based on whether they report certain kinds of information to the payer (e.g., quality measures), but the payments are not modified based on the actual performance on those measures. Some payers have used pay for reporting systems as a first step in moving to a pay-for-performance system, since it is difficult to establish performance benchmarks in a P4P system without having baseline data on how providers perform on the measures that are going to be used.
Tournament Pay for Performance. A pay-for-performance model that rewards or penalizes a provider based on how its performance compares to how other providers performed during the same performance period is sometimes referred to as “tournament” pay for performance, since a provider does not know in advance what performance level will be viewed as high or low, and whether it “wins” or “loses” (in terms of bonuses or penalties) will depend on how other providers perform. Tournament models can discourage providers from sharing information on how to improve care because a provider is more likely to receive higher payments if other providers perform poorly.
A “payment model” is a description of a method for paying providers for healthcare services. A payment model may define a methodology for determining the relative amounts that will be paid for different services or patients, rather than the exact dollar amounts that will be paid to a specific provider. A payment model is typically implemented through a contract between a payer and a provider that may include additional specifications regarding the patients who will receive services covered by the payment model, the parameters that will be used to convert the methodologies of the payment model into actual payment amounts, etc.
A payment model has four fundamental elements or building blocks:
There are multiple ways that each of these building blocks can be structured, and some approaches to payment may address multiple building blocks simultaneously. For example, “bundling” payments can both provide greater flexibility for a provider in choosing the specific services to be delivered and can provide a mechanism for controlling utilization and spending on the services included in the bundle.
A payment system consists of one or more payment models that have been implemented by a payer in which specific amounts of payment have been determined and are being used to pay providers for services.
A payment update is a change in the dollar amount of payments under a payment model to reflect changes in the costs of delivering services over time.
PBM is an abbreviation for Pharmacy Benefit Manager.
PBPM is an abbreviation for Per Beneficiary Per Month, which is a term used in the Medicare program that means the same thing as Per Member Per Month (PMPM) in commercial insurance.
PBPY is an abbreviation for Per Beneficiary Per Year.
See Primary Care First.
PDL is an abbreviation for Preferred Drug List. See Formulary for more information.
A per diem payment is a payment that is made for each calendar day on which one or more services are provided to a particular patient. For example, if a payer pays a hospital for inpatient care on a per diem basis, the total payment to the hospital for an individual patient would depend on how many days the patient spent in the hospital before being discharged, but not on how many services were delivered on any of those days. The amount of the per diem payment need not be the same for all days and all patients. For example, Medicare pays Inpatient Psychiatric Facilities on a per diem basis (see Inpatient Psychiatric Facility Prospective Payment System), but the per diem payments are higher for earlier days in a patient’s stay than for later days, and the per diem payment on any day varies from patient to patient based on the characteristics of the patient.
A period of time during which a provider’s performance on quality or cost measures is calculated. In many payment models, spending on services during the performance period is compared to a target price or benchmark spending level to determine whether to pay a bonus or penalty. The target price or benchmark may be based in part on the provider’s performance during a Baseline Period.
In many payment models, a provider’s performance is evaluated based on multiple measures of quality or spending. Rather than making separate adjustments to payment based on the provider’s performance on each individual measure, a performance score may be defined by multiplying the performance levels on each measure by a measure weight and then summing the products to calculate a single performance score that is then used to modify payment.
A performance standard is a term generally used to describe a minimum level of performance that must be achieved by a provider in order to receive payment for a service or to participate in a payment model.
A performance threshold is a term generally used to describe a level of performance which must be reached by a provider in order to qualify for an increase in payment or to avoid a payment reduction. See also Quality Gate.
See Performance Period.
A “per member per month” payment is a form of capitation payment that is made to a healthcare provider each month for each of the members of a health insurance plan who are assigned or attributed to that provider. The key characteristic of the PMPM payment is that it does not vary based on how many services a particular patient receives. The size and purpose of the payment can vary dramatically, and the payment can be made in addition to service-based payments or it can be paid in place of service-based payments (i.e., a provider would receive a PMPM payment and no longer be able to bill for one or more other types of services). Payments are generally made monthly because the membership of a particular health plan can change frequently and to also allow individuals to change providers.
An abbreviation for Physician-Focused Payment Model.
“Pharmacy benefit” is health insurance coverage and payment for prescription drugs that a patient obtains from a community pharmacy. Drugs that are administered to the patient by a physician or nurse in a physician’s office or hospital are typically paid for under a patient’s general health insurance plan (and coverage for those drugs are described as a “medical benefit”). In Medicare, the pharmacy benefit comes through a Part D plan.
A Pharmacy Benefit Manager is a company that administers pharmacy benefits for patients with drug insurance, i.e., the PBM determines which drugs will be covered and how much pharmacies will be paid for dispensing the drugs the patient is prescribed.
The Physician Fee Schedule is the system Medicare uses to pay physicians. In the PFS, an RVU weight assigned to the CPT code describing a service is multiplied by a Geographic Practice Cost Index (GPCI) specific to the community where a physician practices and by an overall national Conversion Factor in order to establish the dollar amount that Medicare will pay for the delivery of that service. Additional adjustments are made depending on whether the service is being delivered by a physician or other health professional, whether the physician is a Participating Physician, whether the services is delivered in a Health Professional Shortage Area (HPSA), and whether any special adjustments have been created for specific providers (such as primary care providers).
Medicare will also pay for certain services that are not included in CPT codes by using HCPCS Level II codes. CMS assigns payment amounts to HCPCS Level II codes using various methods; for example, payments for drugs (J-codes) are established using the ASP+x% payment model.
Many private payers use the Medicare Physician Fee Schedule to set their own payment rates, but they may use a different Conversion Factor than Medicare. This is often done by simply defining the payer’s fee schedule as a percentage of the Medicare fee schedule, e.g., the payments are “120% of Medicare.”
In the Medicare program, a Physician-Focused Payment Model is an Alternative Payment Model (APM) in which physicians or other clinicians play a central role and which targets aspects of qualiy and cost that those physicians or clinicians provide, order, or can significantly influence.
The Physician-Focused Payment Model Technical Advisory Committee (PTAC) is a committee established under the Medicare Access and Chip Reauthorization Act (MACRA) to provide recommendations to the U.S. Secretary of Health and Human Services as to whether proposals for physician-focused payment models submitted by individuals and organizations to the Committee meet the criteria for physician-focused payment models established in regulations.
A Physician-Hospital Organization is an organizational mechanism that allows a hospital and one or more physician practices to each remain independent but to jointly manage payment contracts or share certain kinds of services.
A physician incentive plan is a compensation arrangement between a physician and a physician practice, health plan, MCO, IPA or other entity that may directly or indirectly have the effect of reducing or limiting services furnished with respect to individuals enrolled with the entity.
PMPY is an abbreviation for “per member per year” payment. See Per Member Per Month Payment for more information.
The term “population-based payment” is a generic term used to describe a capitation payment that is paid for each individual in a group or “population” of individuals, and that is not tied directly to the number or types of health care services those individuals receive. A population-based payment may be paid in addition to fees for individual services, or it may replace some or all of those fees. It may be a “global” payment designed to cover all services that a patient needs for all health problems, or it may be a condition-specific payment designed only for services related to a particular health condition or group of conditions. A key issue is whether and how the amount of the population-based payment is adjusted based on differences in patient needs and other characteristics. See Capitation for more information on the different forms of capitation payments and population-based payments, and Population-Based Payment vs Capitation for a comparison of Population-Based Payment and Capitation.
Population Health Management describes an approach to care delivery that is designed to help the individuals in a defined population avoid illness as well as to treat their illnesses when they occur. For example, population health management services include proactive efforts to ensure individuals receive preventive screenings, and to help them improve their health, to help them manage chronic conditions effectively. The “population” whose health is managed is a group of individuals who are defined or selected in some way other than through them seeking services to address health problems, e.g., a population could be all of the employees of an employer, all of the residents of a community, or all of the members of a health insurance plan.
Post-Acute Care is a general term describing healthcare services that are delivered to a patient following their discharge from a hospital or the completion of other acute care services, and that are related in some way to the condition that was treated or the procedure that was used as part of the acute care services. Post-acute care services may be delivered in an institution, such as a Skilled Nursing Facility, in the patient’s home, such as through Home Health Services, or in an ambulatory care setting such as a physician’s office.
A Potentially Avoidable Complication is a problem experienced by a patient during or after treatment that could potentially have been avoided if care had been delivered in a different way. As part of its Evidence-Informed Case Rates (ECRs), the Health Care Incentives Improvement Institute (HCI3) developed specific definitions for the potentially avoidable complications associated with each of a range of conditions and procedures. The rate of potentially avoidable complications can be used as a performance measure in pay-for-performance systems as well as a method of implementing a payment model with a warranty for such complications.
A Potentially Preventable Event is a problem experienced by a patient or a service delivered by a healthcare provider that could potentially have been prevented if care had been delivered in a different way. 3M Information Systems developed detailed definitions for a series of different Potentially Preventable Events, including “Potentially Preventable (Initial) Hospital Admissions,” “Potentially Preventable Emergency Department Visits,” “Potentially Preventable Complications,” and “Potentially Preventable Readmissions.”
See Prior Authorization.
Prior Authorization (or pre-authorization) is a process whereby a provider must seek explicit approval from a payer before delivering a particular service to a patient in order to receive payment for delivering that service.
A predictive modeling system is a mathematical algorithm that uses information about a patient’s characteristics to predict future spending or outcomes for the patient. The typical purpose of predictive modeling is to identify patients who are likely to have high spending or poor outcomes so that additional or different services can be targeted to those patients in an effort to reduce spending or improve outcomes. Many predictive modeling systems are simply a variant of a risk adjustment system.
A preferred provider is a provider that a patient is encouraged to use because the services delivered by the provider are of higher quality or lower cost than other providers.
A PPO is a type of health insurance plan in which patients have lower cost-sharing or fewer restrictions if they receive services from a network of “preferred providers” who have contracted with the plan. Typically, providers are expected to accept lower payments for services from the payer (i.e., they give the payer a discount) in order to be designated as “preferred providers.”
The Present on Admission Indicator is a letter code entered onto a hospital billing form to indicate whether a particular diagnosis code entered on the billing form reflected a health condition that existed when the patient was admitted to the hospital or whether the condition developed after admission and during the course of the hospital stay. If the POA Indicator is not present, diagnosis codes for Hospital-Acquired Conditions (HACs) are excluded when determining the DRG payment level for a patient who has been hospitalized and the rate of HACs is compared to other hospitals to determine whether a payment penalty will be applied.
Primary care is the principal source of healthcare services for an individual, particularly preventive healthcare services. Most people will receive primary care from a physician or other provider who specializes in primary care services, but some patients who have serious health problems may receive their primary care from a specialist.
Primary Care First is a payment demonstration created by the Center for Medicare and Medicaid Innovation (CMMI) that began in 2021. Primary care practices in 26 regions were eligible to apply. There are two separate components to the demonstration: a payment model designed to support primary care services for all types of patients (called Primary Care First), and a Seriously Ill Population (SIP) option for patients selected by CMS.
Under Primary Care First, a participating practice no longer receives standard Medicare fees for office visits, but instead receives (1) a monthly Professional Population-Based Payment (Professional PBP) for each assigned beneficiary and (2) a $40.82 Flat Visit Fee (FVF) for any face-to-face patient encounter. The Professional PBP payment for every patient in the practice is either $28, $45, $100, or $175 depending on the average HCC risk score for all of the practice’s patients. (This is different from Comprehensive Primary Care Plus, where the payment for each patient depends on the risk score for that individual patient.)
In addition, there is a Performance-Based Adjustment (PBA) that increases or decreases the Professional Population-Based Payment and the Flat Visit Fee based on the practice’s performance on quality measures and either the rate of hospitalizations or (for practices with higher-risk patients) the level of Medicare spending per beneficiary.
A procedure code is a combination of letters and numbers used to uniquely identify a particular healthcare service for purposes of record-keeping and billing for payment. For purposes of payment, services performed by physicians and services performed in physician offices and hospital outpatient departments are coded using CPT and HCPCS codes; services performed by hospital staff during hospital inpatient stays are coded on claims forms using the ICD system. Because physicians and hospitals generally bill separately for their services, the exact same service delivered to the same patient will be coded one way on the physician’s claim form and a different way on the hospital’s claim form. There is not a one-to-one crosswalk between the two systems, in many cases, CPT codes are more detailed than ICD procedure codes, but there are also ICD procedure codes for services for which there is no corresponding CPT code. A third method of coding procedures called SNOMED-CT (Systematized Nomenclature for Medicine – Clinical Terms) is used in electronic health record systems.
A type of quality measure based on whether a provider delivered a particular service or followed a particular process in delivering a service. A process measure indicates whether something was done, not what the outcome was.
PROMETHEUS is an acronym for “Provider Payment Reform for Outcomes, Margins, Evidence, Transparency, Hassle-reduction, Excellence, Understandability, and Sustainability.” PROMETHEUS Payment was intended to serve as a comprehensive system of bundled payments called “Evidence-Informed Case Rates” that would provide an appropriate amount of payment for treatment of patient conditions and discourage potentially avoidable complications, but it has been primarily used as a method of analyzing healthcare utilization and spending. See also Evidence-Informed Case Rate.
Prospective payment is a generic term for a payment model in which the amount of payment for delivery of a particular service or care of a particular condition is defined prior to the delivery or the service or care of the condition, and the amount of payment does not change depending on the actual cost of delivering the service or caring for the condition. In contrast, in a cost-based reimbursement system, the amount of payment is determined retrospectively after services are delivered based on the actual costs incurred in delivering the services.
Prospective payment does not generally mean that the payment is given to a provider before services are actually delivered. Even in population-based payment systems, the payment is generally paid after the month in which a patient was eligible to receive services.
In the Medicare program, large hospitals are paid under the Inpatient Prospective Payment System (IPPS), which is so named because it replaced the cost-based reimbursement system under which most hospitals had been paid prior to 1983. However, in the Inpatient Prospective Payment System, the amount of payment is not actually determined prospectively; a DRG is assigned to the hospital stay after discharge based on what services the patient received and what complications may have occurred during the stay, and the IPPS payment amount is based on that DRG.
Under federal law, the term “provider” means any individual or organization that furnishes, bills for, or is paid for healthcare services, including physicians, hospitals, skilled nursing facilities, home health agencies, etc.
In some contexts, the word “provider” is used more narrowly to describe individuals such as physicians and nurse practitioners who deliver healthcare services, not hospitals or other institutions.
A provider-owned health plan is a health insurance company that is owned by a healthcare provider. A provider-owned health plan may offer health insurance products that primarily or exclusively require plan members to receive covered healthcare services from the provider, or it may offer health insurance products that permit plan members to receive services from a broader network of providers. A provider’s financial risk under any given payment model is lower in a contract with its own health plan than with a separate third-party payer, because any differences between the amounts of payments for services and the costs of those services will ultimately go to the provider organization rather than to a completely separate health insurance company. A provider-owned health plan also enables a provider to enter into direct contracts with employers and other purchasers where the purchaser retains insurance risk and the provider accepts performance risk. However, if the provider-owned health plan is selling insurance products that cover services delivered by other providers in return for a fixed premium, the provider organization is taking on more insurance risk through the health plan than it would under typical contracts with a separate health insurance company.
An abbreviation for Provider-Sponsored Organization.
Purchaser is a term used to describe an individual or organization that purchases health insurance or healthcare services on behalf of itself or individuals affiliated with it (e.g., its employees) using funds derived from its own business operations or deductions from the compensation paid to its employees, rather than health insurance premiums paid by others. A purchaser may pay providers for healthcare services directly or through a third-party payer, such as a health insurance company. For example, a self-insured employer is a purchaser, because the employer uses funds generated through its business operations to pay for healthcare services for its employees. The federal government’s Medicare program is a purchaser, because it uses general tax revenues to pay for a significant portion of services to Medicare beneficiaries. See Payer vs. Purchaser for the differences between payers and purchasers.
An abbreviation for Qualified Clinical Data Registry.
An abbreviation for Qualified Entity.
An abbreviation for Qualifying APM Participant.
An abbreviation for Quality Payment Program.
A database that stores clinical data to measure improvement in the quality of care provided to patients. A QCDR can serve as a mechanism for reporting quality measures for use in a payment model.
A Qualified Entity is an organization that is authorized by federal law to receive Medicare claims data and to use it for public reporting of performance measures about healthcare providers and for analysis of opportunities to improve healthcare quality and affordability.
In the Medicare program, a QP is a physician or other eligible clinician that receives a minimum amount of payments or receives payments for a minimum number of patients through an Advanced Alternative Payment Model (AAPM). See also Partial QP.
CMS produces Quality and Resource Use Reports for physician practices to enable them to compare the quality measures and spending measures for their patients to the patients of other physician practices.
A quality gate is a threshold level on one or more quality measures that a provider must meet in order to receive a supplemental payment, such as a Shared Savings payment. See also Performance Threshold.
The Quality Payment Program is the name used by CMS to describe both the Merit-Based Incentive Payment System (MIPS) and Advanced Alternative Payment Models implemented pursuant to the provisions of MACRA.
Rebasing is a process by which a new baseline performance level is established. For example, in a shared savings payment contract between a payer and a provider, savings may initially be calculated based on a comparison of spending in each performance year relative to spending in a baseline year that occurred just before the contract began. When the contract is up for renewal, the payer may want to reset the baseline spending level to the last year of the previous contract, and then calculate savings based on comparisons of spending in future years to the new baseline year. However, this means that the provider would no longer receive credit for any savings that were generated between the original baseline year and the new baseline year.
A reference price is a payment amount that a payer believes is sufficient to enable patients to obtain a particular service or bundle of services from at least one provider. In a payment model that uses reference prices, the payer indicates that it will pay no more than the reference price for a particular service, but the patient can still receive the service from a provider that charges more than the reference price by paying the provider the difference between the reference price and the provider’s charge (i.e., a balance billing amount). If the payer will only pay for the service at providers who agree to charge the reference price without balance billing, the payer has merely created a narrow network consisting of provider who agree to be paid at or below the reference price amount.
A Regional Health Improvement Collaborative is a non-profit multi-stakeholder organization that implements initiatives to improve the quality and affordability of healthcare services in a state or substate region. An RHIC does not deliver or pay for care, and it is governed by a multi-stakeholder group including balanced representation from purchasers, payers, providers, and patients.
Regression to the mean describes the expectation that when a provider’s performance on a measure of quality, utilization, or spending is affected by random variables beyond the provider’s control, a higher-than-average score on the measure during one measurement period will likely be followed be a lower score in the subsequent measurement period, and a low score will likely be followed by a higher score, even if there is no change in the underlying processes used to deliver services that would affect the measure. A corollary of this is that if the measures indicate that one provider has better performance than another provider in one performance period, their relative positions may be reversed in the subsequent period simply due to random variation, not because of any conscious effort by the poorer-performing provider to improve or failure of the better-performing provider to maintain their performance. Regression to the mean is a problem in shared savings payment models and pay-for-performance payment models because measures of savings and performance will change because of random variation as well as conscious action by providers to reduce spending or improve performance. Many shared savings payment models include minimum savings rate provisions in an effort to avoid making shared savings payments based on random variation. See Minimum Savings Rate.
Reinsurance is an insurance policy purchased by a payer or provider to cover a portion of its risk under a health plan or payment model. The form of reinsurance commonly used in healthcare is Stop-Loss Insurance.
A reinsurer is an insurance company that offers reinsurance policies.
The Relative Value Scale Update Committee (RUC) is a committee staffed by the American Medical Association (AMA) that makes recommendations to CMS regarding the number of Relative Value Units (RVUs) that should be assigned to a CPT code.
A Relative Value Unit (RVU) is the unit of measurement in the Resource Based Relative Value Scale (RBRVS) that is used to assess the relative magnitude of the resources associated with delivering a specific healthcare service compared to other services. In the Medicare Physician Fee Schedule, the number of RVUs assigned to a service is multiplied by a conversion factor to determine the actual payment amount for the service.
Work RVU (wRVU). The number of Work RVUs assigned to a service is intended to measure the relative amount of work a physician must perform to deliver the service compared to other services. Physician work is defined as a combination of the time required to perform the service, the technical skills and physical effort involved, the mental effort and judgment required, and the psychological stress associated with concern about risk to the patient. In addition to its use in determining payments under the Physician Fee Schedule, many organizations who employ physicians use wRVUs to measure the relative workload of physicians in order to determine their compensation.
Practice Expense (PE) RVU. The number of Practice Expense RVUs assigned to a service is a measure of the relative expenses incurred by a physician practice when a physician delivers the service, other than the expenses for compensation to the physician and professional liability insurance costs.
Non-Facility Practice Expense RVU. The Non-Facility Practice Expense RVUs measures the relative expenses incurred by a practice when the physician performs the service in the practice’s own office and not in a hospital or other facility that charges a separate Facility Fee.
Facility Practice Expense RVU. The Facility Practice Expense RVUs measures the relative expenses incurred by a practice when the physician performs the service in a hospital or other facility, rather than in the physician’s own practice office.
Professional Liability Insurance (PLI) RVU. The number of Professional Liability Insurance RVUs measures the relative cost of professional liability insurance associated with delivering a particular service compared to other services.
Total RVUs. The Total RVUs is the sum of the Work RVUs, the Practice Expense RVUs, and the Professional Liability Insurance RVUs. There are two Total RVU amounts, the Non-Facility Total RVUs and the Facility RVUs, which are used based on whether the service is performed in a facility that charges a Facility Fee or not. The Medicare payment for a service is based on the Total RVUs multiplied by the Conversion Factor, after adjusting the individual RVUs using the applicable Geographic Practice Cost Indices.
For health plans: A reserve is a pool of funds that a health insurance company maintains in order to pay for claims for services delivered by providers when the total premiums received for the insured members fall short of the cost of the claims for covered services delivered to those insured members. A health insurance plan is required to sets its premiums high enough to maintain adequate reserves.
For providers: A reserve is a pool of funds that a provider maintains in order to cover the costs of delivering services if the total cost of the services during a period of time exceeds the total amount of payments the provider receives for the services.
The Resource Based Relative Value Scale payment system for physicians was phased into the Medicare program between 1992 and 1996 and replaced the Customary, Prevailing, and Reasonable (CPR) system. The RBRVS assigns a number of Relative Value Units (RVUs) to each of the services defined in CPT codes, and the RVUs are then multiplied by a conversion factor to determine the dollar amount Medicare will pay for the services under the Physician Fee Schedule. Many payers other than Medicare use the RBRVS to establish their payments for physician services, but other payers may use a different conversion factor to determine a different dollar amount of payment for a service based on the same number of RVUs.
Resource use is a measure of the relative amount of resources needed to deliver a particular set of services to patients. A resource use measure is calculated by estimating the relative amount of resources needed to deliver a particular service compared to other services, multiplying the number of each type of service by the resource use measure for that service, and then totaling all of the products together. The “resource use” for an individual service may or may not be defined based on the cost to a provider of delivering that service.
Resource Utilization Groups (RUGs) was a risk-adjustment system used to adjust Medicare per diem payments to Skilled Nursing Facilities based on the type and intensity of rehabilitation and other services delivered to the patient, the patient’s health conditions, and the patient’s ability to carry out activities of daily living. There were 66 RUGs to which patients could be assigned, each of which has a specific weight used to adjust the payment amount. This system was replaced in 2019 by the Patient Driven Payment Model (PDPM). See Skilled Nursing Facility Prospective Payment System (SNF PPS).
Under many bundled payment, episode payment, and global payment models, the provider continues to receive payment for each individual service through standard fee-for-service payment systems. After the services are delivered, all of the payments associated with an individual patient or episode are summed and compared to the total payment amount that has been assigned to the patient or episode under the payment model. If there is a difference between the two, an additional payment is made to the provider or the provider transfers a portion of the payments back to the payer so that the total actual payments are equal to the planned amount. (This additional payment or transfer is called the Net Payment Reconciliation Amount.) Alternatively, the payer may withhold a portion of the provider’s fee-for-service payments, and then return all or part of the withhold only if the fee-for-service payments are below the expected payment amount; this avoids the need for the provider to transfer funds to the payer.
The process is called “retrospective reconciliation” because it is done retrospectively, i.e., after the services are delivered, in order to reconcile the actual payments to the total payment amount under the payment model. The total payment amount may be determined prospectively, i.e., before the services are delivered, or it may also be determined retrospectively based on factors such as changes in the costs of individual services or changes in spending by other providers that occurred during the period of time in which services were being delivered.
Revenue cycle is a term used by financial professionals in the healthcare industry to describe the complete process needed to prepare claims for payment for they services they deliver and obtain payment for those claims. Different payment models will affect the revenue cycle in different ways and changes in cash flow under different payment models can create financial advantages or disadvantages for a provider beyond the nominal comparison between the amount of payment and the service costs. For example, in a typical shared savings program, there is no change in the basic payment model, so if a provider begins delivering a new service for which there is no direct payment, the provider’s costs will increase but there will be no immediate change in the provider’s revenue, so the change in care delivery will reduce the provider’s margins in the short run. If the delivery of the new service reduces overall spending and results in a shared savings payment, the shared savings payment will be received well after the service was delivered, so the provider may incur financing costs during the time between when the costs were incurred and when the shared savings payment was ultimately received.
See Rural Health Clinic.
For payers: A payer is taking risk when it accepts fixed premium payments for a group of members in return for an obligation to pay for services to those members that may require spending exceeding the total premium revenue received.
For providers: In the context of payment models, a provider is said to be taking “risk” if the provider agrees to take responsibility for delivering or arranging for the delivery of healthcare services to one or more patients in return for payment and if the total payments for those healthcare services may differ from the total cost of delivering those healthcare services in ways that cannot be definitively determined in advance. Virtually any payment model other than cost-based reimbursement involves some degree of risk for a provider. Even fee-for-service payment involves risk for providers, because the fee for each service is fixed in advance, but the time and cost required to deliver the services to a group of patients may be higher or lower than the revenues received from the fee-for-service payments.
Downside Risk. The term “downside risk” has been used to describe two different types of situations:
Insurance Risk. Insurance risk describes the components of risk resulting from factors related to patient health status or other factors that are beyond the control of a provider. For example, the risk that a provider will have patients whose health problems are more serious than average is an insurance risk.
One-Sided Risk. The term “one-sided risk” is generally used to describe a payment model such as shared savings that only has “upside risk” and no “downside risk.” However, pay-for-performance systems that include only penalties and no bonuses are one-sided risk payment models that involve only downside risk.
Many “one-sided risk” payment models actually involve both upside and downside risk because even if the provider receives higher payments, the increase in payments may be less than the increase in costs incurred in order to qualify for those payments, thereby resulting in a reduction in the provider’s margin.
Performance Risk. Performance risk describes the components of risk resulting from factors that are within the control of the provider. For example, the risk that a provider will cause a patient to be infected during surgery so that the patient also needs treatment for the infection, and the risk that a provider will order unnecessary services for a patient are performance risks, since these are factors that could be controlled by the provider. Under a bundled, warrantied, or global payment system, these additional services could cause a provider’s costs to increase without corresponding increases in revenue.
Shared Risk. Shared risk is a generic term for a payment model in which a payer and provider share responsibility in some way when the funds available for payment differ from the costs of delivering services.
Two-Sided Risk. Two-sided risk means that the payment model gives the provider both “upside risk” and “downside risk.”
Upside Risk. The term “upside risk” has generally been used to describe a payment model in which a provider could receive higher payments for services than it would otherwise have received. The “risk” is simply the uncertainty the provider has regarding whether its payments will increase and by how much. However, many payment models that are described as only having “upside risk” actually involve downside risk in the sense that the higher payments may be less than the increase in costs incurred by the provider in order to qualify for those payments, thereby resulting in a reduction in the provider’s margin.
Risk adjustment systems are used in payment models to avoid holding providers accountable for factors affecting performance levels or costs that they cannot control. (Other terms used to describe a concept similar to “risk adjustment” include “acuity adjustment,” “severity adjustment,” and “case-mix adjustment.”) Risk adjustment systems are used in two different ways in payment models:
There are a variety of different risk adjustment systems used in payment models. Some risk adjustment systems are focused on particular types of services; for example, Diagnosis Related Groups (DRGs) are designed to risk adjust payments for inpatient hospital admissions and Home Health Resource Groups (HHRGs) are designed to risk adjust payments for home health agency services. Other risk adjustment systems, such as Hierarchical Condition Categories (HCCs), Clinical Resource Groups (CRGs), and Adjusted Clinical Groups (ACGs) are designed to risk adjust total spending on a patient population. In some cases, individualized risk adjustment systems have been developed for specific procedures, conditions, or episodes of care.
Most risk adjustment systems are calibrated based on their ability to predict current levels of spending or provider performance for a patient or group of patients, with no distinction among factors affecting spending or performance that a provider can or cannot control. For example, a risk adjustment system will generally assign a higher risk score to a patient if the amount that is typically spent on that patient is higher, even if those patients did not actually need all of the services they received. Similarly, a risk adjustment system for a quality measure will assign a higher risk score to patients for whom providers generally have lower quality scores, even if the factors leading to the low quality scores could have been changed by the providers. Consequently, a risk adjustment system may be adjusting away factors that providers can control while leaving them at risk for factors they cannot control.
Claims-Based Risk Adjustment. A claims-based risk adjustment system is a risk adjustment system that is based only on data recorded on healthcare claims data. Various studies have shown that factors about patients that are not recorded on claims data, such as the patient’s functional status and access to community resources, can have a significant impact on spending and quality performance levels.
Clinical Category Risk Adjustment. In a clinical category risk adjustment system, individuals are classified into groups based on differences in characteristics that are viewed as affecting spending or other performance measures. For example, individuals with one chronic condition may be placed into a different category than individuals with multiple chronic conditions, since, all else being equal, individuals with multiple chronic conditions will require more healthcare services and have poorer outcomes than those with only one chronic condition. A clinical category will typically be defined based on multiple characteristics, which means that there could potentially be hundreds of different categories to which a patient could be assigned based on different combinations of those characteristics. Each category is then assigned a weight indicating how much higher or lower a measure of spending or quality is expected to be for patients in that category than for patients in other categories. For example, the Diagnosis Related Group (DRG) system used by Medicare and many other payers to pay for inpatient hospital care is a clinical category risk adjustment system.
Concurrent Risk Adjustment. In a concurrent risk adjustment system, the information used in determining a risk score for a patient or assigning a patient to a risk category can include information about changes in a patient’s characteristics that occurred during the time period in which spending or performance is being measured. For example, if a patient has just been diagnosed with cancer or has just broken a bone, that information can be used in a concurrent risk adjustment system to modify the payment for the patient in the current year, since all else being equal, a patient newly diagnosed with cancer or a broken bone will need more healthcare services in the current year than a patient who does not have those problems or who had them in previous years.
Prospective Risk Adjustment. In a prospective risk adjustment system, the information used in determining a risk score for a patient or assigning a patient to a risk category only includes information about a patient’s characteristics prior to the period for which payment is being made or performance is being measured. For example, if a patient has just been diagnosed with cancer or has just broken a bone, that information cannot be used in a prospective risk adjustment system until the following year (or whatever period of time is used to calculate risk scores) and the payment for the patient in the current year will be the same as it would have been if the patient had not been diagnosed with cancer or broken a bone, even though, all else being equal, a patient with cancer or a broken bone will need more healthcare services than a patient without those problems.
Regression-Based Risk-Adjustment. A regression-based risk adjustment system uses linear regression analysis to develop a formula for assigning risk scores to patients. The regression analysis chooses the patient characteristics and the weightings of those characteristics that are statistically best at predicting spending in the year for which the regression analysis was performed. Each patient is then assigned a risk score by measuring them on each of the characteristics selected by the regression model, multiplying those individual measures by the weights assigned in the regression analysis, and then adding the products together to create an overall score. For example, the Hierarchical Condition Category (HCC) risk adjustment system used in the Medicare program is a regression-based risk adjustment system.
A risk corridor in a payment model is a method of limiting the financial risk a provider faces if multiple patients need above-average numbers of services or if an unexpectedly large number of patients need expensive services. These situations could occur because of random variation in patient characteristics that are not captured effectively by a risk adjustment system, particularly for providers with relatively small number of patients, or because of non-random but unexpected factors, such as a significant increase in the price of an essential drug or medical device or a pandemic. A risk corridor can also be used to protect a payer against paying much more for care than it costs a provider to deliver care if the provider develops a much more efficient way of delivering care after a payment arrangement has been finalized.…more
A risk corridor has two elements: (1) a specific range of values for the difference between the payer’s payment and the provider’s costs of delivering services in return for that payment, and (2) a formula for allocating the portion of the gap between payment and costs in that range between the payer and provider. For example, the provider and payer might agree that if the total cost of services for all of the patients being cared for under a particular treatment bundle, condition-based payment, or population-based payment exceeds 110 percent of the total payments that are made for all of those patients, the payer will make an additional payment to the provider to cover all or part of the costs above the 110 percent threshold. (The payer and provider could also agree that if the total cost turns out to be significantly lower than the total payments that are made, the provider will return to the payer all or part of the payments that are made beyond a certain percentage above the costs incurred.)
A payment model can have multiple risk corridors, not just one. For example, one risk corridor might define how the payer and provider will share excess costs if the costs are between 110% and 120% of payments, and a second risk corridor might define what will be done if costs are more than 120% of payments.
A risk limit is a cap on how much risk a provider accepts before additional payments are made to cover its costs. In many payment models, risk limits are implicit rather than explicit; for example, in the Medicare Inpatient Prospective Payment System, hospitals can receive an Outlier Payment to cover a portion of the costs of an unusually expensive patient. The cost threshold that triggers the Outlier Payment is, in effect, a Risk Limit for the hospital, since the hospital’s risk in accepting a fixed DRG payment for patients with varying needs is limited by the ability to obtain an Outlier Payment if costs reach a certain level.
A risk score is a numeric value assigned to a particular patient in a risk adjustment system that indicates the relative level of spending that is expected for that patient or the relative level of quality or outcomes that can be expected to be achieved through the delivery of care to that patient compared to other patients.
Risk stratification is a way of adjusting payments for differences in patient characteristics by assigning patients to two or more categories based on characteristics that influence the costs or outcomes of care and then adjusting the payment for a particular patient based on the category to which the patient is assigned. Risk stratification can be done using either a regression-based risk adjustment system or a clinical category risk adjustment system. If a regression-based risk adjustment system is used, the stratification categories are defined based on ranges of risk scores; if a clinical category risk adjustment system is used, the categories defined in the system can serve as the stratification categories. For example, the DRG system used by Medicare and other payers to pay hospitals is a risk stratification system based on a clinical category risk adjustment system.
A Rural Health Clinic (RHC) is a medical clinic specifically designated as such based on its location in a rural area designated as having a shortage of health professionals. Medicare pays RHCs an “all-inclusive rate” (AIR) based on their costs, but there is a maximum payment per visit for RHCs, with higher maximums for RHCs that are part of a small hospital.
An S-Code is a subset of the Level II codes that CMS creates and maintains as part of the Health Care Common Procedure Coding System (HCPCS). S-codes are created for procedures and professional services that have not been incorporated into the CPT coding system, and that private payers but not Medicare will pay for. Examples of S-Codes include:
Section 1115A of the Social Security Act was added as part of the Affordable Care Act to establish the Center for Medicare and Medicaid Innovation (CMMI) to test payment models “where there is evidence that the model addresses a defined population for which there are deficits in care leading to poor clinical outcomes or potentially avoidable expenditures,” with a focus on “models expected to reduce program costs while preserving or enhancing the quality of care received by individuals.” See Center for Medicare and Medicaid Innovation.
A Section 1115 waiver is a waiver granted by CMS to a state under Section 1115 of the Social Security Act to allow it to spend Medicaid funds in different ways than what would otherwise be required.
A self-funded employer is a business that is self-insured for the healthcare services that it has agreed to cover for its employees. See Self-Insured.
An employer or other purchaser is said to be self-insured if it takes direct responsibility for paying claims for healthcare services for its employees or members rather than purchasing health insurance policies from a separate health insurance company for each employee. The majority of individuals in the U.S. who have employer-sponsored health insurance are part of a self-insured plan. Most self-insured employers are not completely self-insured; in addition to maintaining some level of financial reserve to cover claims costs, they generally purchase stop-loss insurance to protect them against large claims expenses (see Stop-Loss). Also, most self-insured employers do not pay the claims themselves, but they hire a Third Party Administrator (TPA) to pay those claims (under what is known as an Administrative Services Only (ASO) contract) and then the self-insured employer pays the TPA for the actual cost of the claims plus an administrative fee. The TPA may or may not be a company that also sells health insurance policies. See Fully-Insured for comparison.
A self-pay patient pays a provider for its entire charge for a service from the patient’s own funds, rather than relying on an insurance company or other third-party payer to pay for all or part of the provider’s charge for the service. If the patient has a health insurance plan with a deductible, the patient may pay for a service out of the patient’s own funds, but the patient may only have to pay the payment amount that the insurance company has negotiated for that service from the provider.
See Risk Adjustment.
“Shared savings” generally describes a payment arrangement between a payer and a provider in which the total amount of payment to the provider for its services is related in some way to how much the payer is spending in aggregate on those services or on a broader set of services and how that aggregate spending compares to a benchmark.…more
Most hospitals are considered “short-term” acute care hospitals because most patients are treated and released within a few days. Patients who require more extended hospital-level acute care will likely be admitted to or transferred to an Inpatient Rehabilitation Facility or Long-Term Care Hospital. Medicare pays short-term acute care hospitals either through the Inpatient Prospective Payment System (IPPS) or through cost-based reimbursement.
A payment for a service is said to be site-neutral if the amount of payment does not differ based on the type of facility or site where the service is performed, e.g., the payment is the same whether the service is performed in a physician’s office or a hospital outpatient department.
A site of service differential is a difference in the amount of payment for the same service depending on where the service is performed. In the Medicare program, if a service is performed by a physician in a hospital outpatient department, the hospital is paid under the Outpatient Prospective Payment System and the physician is paid under the Physician Fee Schedule (using the Facility payment rate), whereas if the same service is performed in the physician’s office, there is only a payment to the physician under the Physician Fee Schedule (using the higher Non-Facility payment rate). (The payment to the hospital outpatient department is known as a Facility Fee and is billed separately from the physician’s fee for performing the service.) It is important to note that the payment to the physician may be higher if the service is performed in the physician’s office than in the hospital, but if the service is performed in the hospital, both the physician and the hospital are paid separately, and the combined payment is generally higher if the service is performed at the hospital than in the physician’s office. Consequently, determining the site-of-service differential requires comparing combinations of payments from two different payment models or fee schedules.
A Skilled Nursing Facility is an institution that provides 24-hour nursing services and other medical services for patients who require nursing care but do not require inpatient hospitalization. See also Nursing Facility, Inpatient Rehabilitation Facility, and Long-Term Care Hospital.
The Skilled Nursing Facility Prospective Payment System (SNF PPS) is the system Medicare uses to pay Skilled Nursing Facilities (SNFs). Under this payment model, a SNF receives an additional payment for each day that a patient is in the SNF (i.e., a per diem payment). The daily payment amount is the sum of six separate payment components reflecting differences in the services patients receiv in a SNF. Each of the six payment components is adjusted for geographic differences in costs, and five of the components are adjusted for case-mix based on the clinical characteristics of the patients served and the services they receive. Prior to 2019, the case-mix adjustment was based on Resource Utilization Groups (RUGs) and it is now determined through the Patient Driven Payment Model (PDPM).
In the Medicare program, a sole community hospital is a hospital that meets one of a series of criteria based on its distance from other hospitals, the travel time to other hospitals, and the proportion of inpatient care it provides for the residents of the hospital’s service area. Payments for Sole Community Hospitals are based partially on the Inpatient Prospective Payment System and Outpatient Prospective Payment System, but special adjustments are made in the amounts of payments they receive.
The term “spending” is generally used to describe the total amounts that a payer pays for the services delivered by healthcare providers. See Cost.
A Specialist is a physician who delivers services in a particular area of medicine and does not deliver primary care to patients other than those with a medical problem in the physician’s area of specialty.
Because Medicare payments to providers are adjusted based on geographic cost differences (see Geographic Adjustment Factor) and other factors that are unrelated to the type of service delivered, the total spending for one provider or one community may differ from the total spending for another provider or another community even though the same number and types of services are delivered by both. To eliminate these unrelated differences, Medicare spending measures are often calculated using a single standardized payment for each service rather than the actual payment amounts. A similar approach can be used in comparing spending by private payers, since private payers pay different amounts for the same service in different communities and when the services are delivered by different providers.
Standby Capacity Cost is the cost of facilities, equipment, and staff needed to ensure that a hospital or other healthcare provider will be ready (i.e., has the standby capcity) to deliver a service or an additional service at any time. For example, an Emergency Department will need at least one physician, nurse, and appropriate equipment available 24 hours a day, 7 days per week in order to respond to emergencies, and the cost incurred during times when there are no emergencies (or when the number of emergencies could have been handled by fewer staff) represents the standby capacity cost of the Emergency Department. Since hospitals and other providers are generally only paid when they deliver a service, they have to generate sufficient revenues from services to cover both the costs of delivering those services and their Standby Capacity Costs.
A Standby Capacity Payment is a payment specfically designed to cover a provider’s Standby Capacity Cost.
The federal Ethics in Patient Referrals Act, commonly known as the “Stark Law,” prohibits physicians from referring Medicare and Medicaid patients to entities such as hospitals with which the physicians have a financial relationship (i.e., an ownership interest or a compensation arrangement) for the provision of “designated health services” except in a number of specifically exempt circumstances, e.g. where the physician is an employee of the entity, or for services meeting the In-Office Ancillary Services Exemption. In addition to the federal law, a number of states have enacted laws or regulations that also prohibit some types of self-referrals, including for services reimbursable by private health plans.
The Stark law and similar state self-referral statutes or regulations are intended to avoid having financial considerations influence physicians’ referral decisions. However, under a system that bundles payments to physicians and hospitals (or to physicians and other types of entities) to enable and encourage the delivery of coordinated services, physicians will inherently need to refer their patients to the provider with which they have the bundled payment arrangement, and this may violate state and/or federal self-referral laws or regulations. Moreover, because the laws or regulations typically have exemptions for employment arrangements, they can create a disadvantage for organizational structures in which physicians are independent compared to health systems that employ physicians.
In 2020, CMS issued regulations that provided exceptions from the Stark Law for physicians and other providers that are engaged in “value-based arrangements” for provision of “value-based activities.”
For more information, see Fraud and Abuse Laws.
Under the “state action” doctrine of antitrust law, a state can encourage and facilitate joint efforts by healthcare payers (e.g., aligning payment methods and amounts) and joint efforts by providers (e.g., forming an Accountable Care Organization) without antitrust liability if the state (1) has a clearly articulated state policy supporting the need for common approaches, and (2) engages in active supervision of the activities that might otherwise cause antitrust concerns.
The State Innovation Models (SIM) Initiative was a program operated by the Center for Medicare and Medicaid Innovation that provided grants and technical assistance to state governments to facilitate planning and implementation of multi-payer payment reforms and delivery reforms in the state that were expected to reduce costs and improve the quality of care for Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) beneficiaries.
A Step Therapy requirement in a health plan requires a provider to treat a patient’s condition with a lower-cost therapy to determine whether it is effective before the health plan will pay for a higher-cost therapy.
Stinting means delivering fewer healthcare services than a patient needs to properly address their health problem(s).
A stop-loss is a provision in a payment contract that limits the amount that the provider must spend on healthcare services, either for an individual patient or in aggregate for all patients. If costs exceed the threshold for triggering the stop-loss provision (referred to as the attachment point), the provider will receive an additional payment from the payer to cover all or part of those costs.
Stop-loss insurance is a form of reinsurance that protects a provider against unexpectedly high costs of delivering services by making a stop-loss payment when costs exceed a stop-loss threshold. A provider that accepts a bundled payment from a payer may wish to purchase stop-loss insurance to cover unexpectedly high costs of services or high numbers or costs of claims from the other providers. Self-insured purchasers also purchase stop-loss insurance to protect them from high claims costs.
Aggregate Stop-Loss. An Aggregate Stop-Loss provision or reinsurance policy provides for additional payment if the total cost of services for a group of patients exceeds a specific amount. For example, if the Aggregate Stop-Loss is 110% of payments, then the provider will receive an additional payment if the total cost of services for all patients exceeds 110% of the total payments made for those patients. An Aggregate Stop-Loss provision/policy does not provide any additional payment to a provider with individual patients requiring expensive services if a sufficient number of other patients require fewer or lower-cost services. An aggregate stop-loss provision is equivalent to a risk corridor.
Individual Stop-Loss. An Individual Stop-Loss provision or reinsurance policy provides for additional payment if the cost of services for an individual patient exceeds a specific amount (the “Attachment Point”). For example, if the Individual Stop-Loss is $100,000, then the provider will receive an additional payment if the cost of services for an individual patient exceeds $100,000. An Individual Stop-Loss provision/policy does not provide any additional payment to a provider with a large number of patients who need many expensive services if none of the patients individually costs more than the individual stop-loss level. An individual stop-loss provision is equivalent to an outlier payment.
A “surprise bill” is a bill to a patient for a service delivered to the patient by a provider that the patient did not know was “out-of-network” in the patient’s health insurance plan. Surprise bills can occur when a patients is in a hospital; even though the hospital is in-network, one or more of the physicians that provides services during the hospital stay may not be employed by the hospital and may not have a contract with the patient’s health insurance plan.
In a hospital, a “swing bed” can be used either for patients who need acute care inpatient services, for patients who need skilled nursing facility (SNF) services, or for patients who need long-term care (NF) services. In many small rural hospitals, the majority of patients in the hospital’s inpatient unit are swing bed SNF or swing bed NF patients, not acute inpatients.
In Medicare payment models, a Target Price is the level of spending that must be achieved in order for a provider to qualify for an additional payment or avoid a payment penalty. The Target Price may be set higher or lower than a Benchmark spending level in order to encourage better performance. For example, if a Benchmark spending level is based on the amount of spending that would be expected to occur in the absence of any action by a provider, the Target spending level could be set lower than the Benchmark amount by the minimum amount of savings that Medicare wishes to achieve. The provider would not be deemed successful if the actual spending was above the Target, even if it was below the Benchmark. The Target Price for an episode of care is not actually a “price” paid as a lump sum amount for the services in the episode, but rather is an episode budget. See also Discount.
See Total Cost of Care.
A Third-Party Administrator is an organization that receives and pays claims on behalf of a self-funded employer or other self-insured purchaser, but does not take any direct risk related to the cost of those claims. The claims-processing and other services are delivered by the TPA under an Administrative Services Only (ASO) contract with the purchaser.
In many attribution methodologies, a patient or service is attributed to the provider based on which provider was highest on a measure such as the number of visits with the patient, the number of services delivered, etc. If two providers each were highest on that measure, then a second measure – the tie-breaker – is used to determine which of the two providers will be selected for attribution. For example, if a patient had the same number of visits during the year with two different providers, then the tie-breaker might be to identify the provider who had the most recent visit with the patient.
In a tiered cost-sharing system, providers or services are divided into two or more groups (“tiers”) based on one or more measures of cost or quality. When a patient uses a provider or receives a service, the patient’s cost-sharing will depend on the tier to which the provider or service is assigned. For example, the patient might be required to pay a higher co-payment for seeing a physician with lower quality scores, or the patient might be required to pay a higher proportion of the cost of a drug that is more expensive or less effective than another drug.
A tiered network is a network of providers in which the providers are divided into two or more tiers based on measures of cost or quality, and different cost-sharing requirements or other rules apply depending on which tier a provider is in. In a tiered network, all providers are generally considered to be “in-network” but with different cost-sharing requirements. A narrow network is an extreme form of a tiered network in which there are two “tiers” – in-network providers and out-of-network providers – and there is a large difference in cost-sharing requirements and benefits between in-network and out-of-network providers.
TIN is an abbreviation for Taxpayer Identification Number. Payments for a physician’s services may not be paid directly to that physician but to a different corporate entity that employs the physicians or bills for services on the physician’s behalf, and this entity is identified by its Taxpayer Identification Number.
A peformance measure is said to be “topped out” if performance on the measure is very high for almost all providers and additional improvements are expected to be unlikely or difficult to achieve. Many pay-for-performance systems drop topped-out measures and replace them with other measures that are not topped out. However, performance could decrease on a measure that is topped out if performance on the measure is no longer evaluated or encouraged.
The term “Total Cost of Care” is used to refer to the total amount that is spent by one or more payers on all of the healthcare services received by a group of individuals. It is technically a measure of payer spending, not cost, since the amounts payers pay for services may be more or less than the actual costs incurred by the providers who deliver those services. If Total Cost of Care is calculated for patients who have a particular health problem or who are receiving a particular procedure, it includes not only spending related to that problem or procedure, but spending for services related to all other health problems and procedures.
Total Per Capita Cost is a measure calculated by dividing a payer’s total spending on healthcare services for a group of individuals (regardless of whether the individuals received any services) by the number of individuals in the group.
A treatment-based bundled payment is a payment that is triggered by delivery of a particular type of treatment (e.g., surgery or chemotherapy) and involves multiple services related to that treatment. In contrast, condition-based payment is a payment that is triggered by the appearance or existence of a health problem.
Noun: The trend in spending or premiums is the rate at which they have increased or decreased over a period of time.
Verb: In many payment methodologies, a measure of spending calculated during a baseline time period is “trended” forward to estimate what the spending would be expected to be during a performance period if no changes are made in the way care is delivered. For example, if the average spending per person in a base year was $10,000, and if the average annual inflation in spending was expected to be 3% per year, the $10,000 baseline amount could be trended forward by 3% per year to estimate that spending five years later would be expected to be $11,593 per person. (If actual spending in the fifth year was lower than $11,593, the payment model might determine that “savings” were generated, even though the amount of spending would still be higher than it was in the base year.) There are many different methodologies that can be used to do the trending; for example, in the Medicare Shared Savings Program, CMS has trended baseline spending measures using a blend of the percentage growth in spending and the absolute growth in per-beneficiary spending.
In order for a provider to receive a payment, something must be done to “trigger” the receipt of the payment. In fee-for-service payment, the trigger is the delivery of a service – a provider delivers a service for which a patient or payer has previously agreed they will pay, and then the provider invoices the payer (by submitting a claim). In a capitation payment model, the payment is not based on specific services (indeed, the capitation payment may be paid even if no services are delivered at all), so the trigger is something that associates the patient with the provider – typically a formal assignment of the patient to the provider or a statistical rule attributing the patient to the provider. In a condition-based payment model, the trigger is a combination of the presence of the condition and an indication that the provider will be treating that condition for a specific patient.
Truncation is a statistical process that takes the most extreme values in a distribution and limits them to a fixed, pre-determined amount. For example, in any group of patients with a particular condition, some patients may have unusual problems that require a large number of expensive services for that condition (“outlier patients”). If a provider is penalized when spending exceeds a predetermined amount, the small number of patients requiring the large number of expensive services could cause the provider to be penalized even though spending had been reduced on most patients. This problem can be mitigated by requiring the provider to only be responsible for the truncated spending on these patients, i.e., the provider would pay up $100,000 of spending, and then the payer would pay for spending on the expensive patients above $100,000. The patient remains a high cost patient for the provider, but not as high cost as the patient would have been without truncation. See also Exclusion vs. Outlier Payment vs. Truncation vs. Winsorization.
The UB-04 is the standard form used for submitting claims to payers for payment of hospital services. Its content and design is maintained by the National Uniform Billing Committee. The UB-04 form is called a CMS-1450 form in the Medicare program.
Individuals are frequently being described as “underinsured” if they have health insurance but either (a) the health insurance plan does not pay for one or more services the patient needs, or (b) the cost-sharing requirements in the benefit design are such that the patient cannot afford to pay the cost-sharing for the needed services.
Underuse is the use of a particular service less often than is necessary or justified based on evidence about its effectiveness.
See Upper Payment Limit.
Upcoding is a term used to describe assigning a diagnosis code to a patient or using a billing code for a service that results in a higher payment for a provider than the payment that would result from using an alternative diagnosis or billing code that would be appropriate for the patient or service. In cases where payments to a health plan are risk adjusted, such as in the Medicare Advantage program, upcoding of diagnosis codes by providers can result in higher payments to the health plan but not to the providers. Upcoding does not necessarily mean that the codes used are inaccurate or inappropriate; in many cases there are multiple codes that can be used for the same patient condition or service and there is ambiguity about which code is appropriate to use in specific circumstances. However, if the weight assigned to a service or a diagnosis in a payment or risk adjustment system was based on one pattern of coding, then the weights may no longer be accurate if the pattern of coding changes.
See Payment Update.
An “uplift” is an increase in the amount of payment for one or more services beyond the amount that would otherwise be paid. In some prospective pay-for-performance systems, a provider who meets the performance criteria will receive an uplift in the payment rates for certain services, i.e., the provider will receive a higher payment when they bill for those services.
In the Medicaid program, states have discretion as to the amount providers are paid, but the federal government will only share the costs of payments up to the Upper Payment Limit.
See Shared Savings.
The “Usual, Customary, and Reasonable” amount is the amount that healthcare providers in a particular geographic region routinely charge for the same service to self-pay patients. Many payers used the UCR payment system to pay physicians before the creation of the Resource Based Relative Value Scale (RBRVS).
By patients: Utilization by a patient is the number of times the patient receives one or more services. For example, a patient who visits the emergency room frequently is said to have high utilization of emergency services.
By providers: Utilization by a provider is a measure of the number of times the provider delivers or orders a particular service for a group of patients. For example, a physician who orders imaging studies frequently is said to have high utilization of imaging studies.
In healthcare, the word “value” has been used for over two decades in the Relative Value Units (RVUs) defined in the Resource-Based Relative Value Scale (RBRVS) to establish payments for physicians. In RBRVS, “value” is defined as the resources required to provide a service, including the physician’s time and the complexity of the service as well as out-of-pocket expenses such as office rent, equipment costs, insurance costs, etc.
In recent years, the term “value” has been used to describe the combined assessment of both the quality and cost of a healthcare service or group of services. Conceptually, a “high-value” service is one that has high quality and low cost. However, because quality and cost are measured on fundamentally different scales and different people will convert one to the other in different ways (i.e., some people will be willing to pay more for an increment of quality than others), value is inherently a relative and partially subjective concept. Although one can objectively say that a service is “higher value” than another service if the first service has higher quality and the same cost, or if it has the same quality and lower cost, a subjective judgment is required if one service has both higher quality and higher cost than another service.
Because of this, value cannot be defined as “quality divided by cost” as many have suggested. For example, assume that Provider 1 delivers cancer treatment to a group of patients at a total cost of $25,000 per patient and Provider 2 delivers a different type of cancer treatment to patients with similar characteristics at a total cost of $50,000. The patients treated by Provider 1 live an average of 5 years, and patients treated by Provider 2 live an average of 8 years. Dividing the outcome by the cost shows that Provider 1 delivers 10.4 weeks of life per thousand dollars of treatment, while Provider 2 delivers only 8.3 weeks of life per thousand dollars of treatment. If one defines “value” as “outcomes/cost,” Provider 1 would be the higher-value provider, yet most people would likely say the opposite, since Provider 2 gives people an average of three extra years of life at an additional cost of only $25,000. If the two providers had different survival rates at the same treatment cost, or the same survival rates at different costs, the ratio wouldn’t be needed to make the comparison, but when costs and outcomes both differ, the ratio is not very helpful in determining which provider has higher “value.”
See also Value-Based Purpose.
Under federal regulations, a “value-based activity” is an action (including refraining from taking an action) for a “value-based purpose.”
Under federal regulations, a “value-based enterprise” consists of two or persons or entities are engaged in value-based activities:
In the Medicare Hospital Value-Based Payment Program, the value-based incentive payment adjustment is a percentage amount assigned to each hospital in each year based on the hospital’s scores on a series of performance measures. The hospital’s payments are then adjusted up or down by the percentage in the value-based incentive payment adjustment.
The term Value-Based Insurance Design is used to describe provisions of a health insurance plan’s benefit design that are explicitly structured to encourage plan members to use higher quality services, lower cost services, or both or to encourage patient or provider behaviors that lead to better outcomes. This may include elements such as reducing patient cost-sharing for services deemed to be of high value, eliminating coverage for services deemed to be of low value, or encouraging or requiring patients to use a narrow network or providers designated as Centers of Excellence for specific types of services.
The Value-Based Payment Modifier was a program established by Congress to adjust the Medicare payment for a service delivered by a physician to a Medicare beneficiary based on measures of the quality of care and the cost of care delivered by the physician during a performance period. It was replaced by the Merit-Based Incentive Payment System (MIPS).
Value-based payment is a generic term used to describe a payment model where the amount of payment for a service depends in some way on the quality or cost of the service that is delivered. There is no accepted minimum standard as to how much the payment must vary or what type of value measure must be used, so some payment models have been described as “value-based” even though there is very little difference in the amount of payments based on differences in quality or cost.
Value-Based Purchasing is a generic term used to indicate that a purchaser is contracting for healthcare services in ways that are designed to improve quality, reduce costs, or both. Value-Based Purchasing may include the use of some form of Value-Based Payment, but it also can include Value-Based Insurance Design, Narrow Networks, and other approaches.
Under federal regulations, a “value-based purpose” means:
An abbreviation for Value-Based Enterprise.
If individual physicians have too few patients or deliver a service too frequently to allow their performance to be measured in a statistically reliable way, the performance of two or more physicians could be combined to create a larger number of patients or services for the measure. If a physician is part of a group practice, the measurement could be done on the entire group, but if a physician is not part of a group (or if their group is too small), the physician’s performance could be combined with other physicians through a “virtual group,” i.e., a group of physicians that only exists for the purposes of measurement. Each physician in the group is then assessed based on the average performance of all the physicians in the group, even if their individual performance is better or worse than the average.
A volume-based adjustment is a mechanism by which the amount of payment to a provider explicitly differs based on the number of patients the provider cares for or the number of services or procedures the provider delivers. To the extent that providers incur a minimum level of fixed costs to deliver a particular service or to care for patients with a particular condition, the average cost of the service and the average cost per patient will be higher for a provider that delivers fewer of the services or cares for fewer patients with the condition, so the payment amount per service or per patient will need to be higher in order to cover the total costs of delivering the service. For example, Medicare has used a Low-Volume Adjustment to increase payments to hospitals with small numbers of patients. See also Standby Capacity Payment.
A warrantied payment is payment that not only obligates a provider to deliver a procedure or treatment, but if specific complications from that procedure or treatment occur, the provider also agrees to deliver or pay for the services needed to address those complications without receiving additional payment for those services. For example, a provider accepting a warrantied payment for surgical infections might agree that it would cover the costs of any hospital readmissions required to address infections from the surgery without receiving any additional payment. A warrantied payment is not an outcome guarantee, i.e., the provider is not guaranteeing that the warrantied events will not occur, the provider is merely agreeing that if one of those events does occur, there will be no additional payment for the services needed to address that event. Most warrantied payments will involve a “limited warranty” that defines specific circumstances in which the warranty applies and those in which it does not (e.g., treatment for some types of complications may be included but not others).
In payment models: A value assigned to a payment category or payment code that defines how large or small the payment for patients or services in that category or code should be relative to payments for patients or services in other categories or code. The weight is then multiplied by a conversion factor to determine the actual dollar amount of payment for that service. For example, in the Medicare Inpatient Prospective Payment System, each MS-DRG category is assigned a weight based on the level of hospital services and spending that are expected for patients in that category. The weight is multiplied by a conversion factor to determine how much a hospital will receive in dollars for a patient classified in that MS-DRG category.
In performance measurement or risk adjustment: system that is used as part of a payment model, a weight is a value that is multiplied by a particular measure or risk adjustment factor in order to combine that measure or factor with other factors in determining an overall performance score or risk score. A measure or factor with higher weight will have a greater influence on the overall performance or risk score.
Two different payment models may use the same performance measures or risk adjustment factors, but they may apply different weights to those measures or factors reflecting differences in expected costs, spending, or performance on the particular patients for whom they are paying or the particular services for which they are paying. If one payment model uses bundles that include more services than a second payment model, both systems may choose to risk adjust the payments using the same factors, but the risk adjustment weights will likely be different. For example, the Medicare Inpatient Prospective Payment System and Long Term Care Hospital Prospective Payment System both use similar DRG categories, but different weights are assigned to the categories in each system to reflect the different costs expected for patients with similar characteristics depending on whether they are receiving acute inpatient care or long-term hospital care.
Winsorization is a statistical process that takes the most extreme values in a distribution and replaces them with smaller values that are “closer” to the average for the distribution, e.g., any values above the 99th percentile in a distribution are replaced by the exact value at the 99th percentile. For example, in any group of patients with a particular condition, some patients may have unusual problems that require a large number of expensive services for that condition (“outlier patients”). If a provider is penalized when spending exceeds a predetermined level, the small number of patients requiring the large number of expensive services could cause penalties for the provider even though spending has been reduced for other patients. This problem can be mitigated by requiring the provider to only be responsible for the Winsorized spending on these patients, i.e., the provider would pay up to the amount of spending at the 99th percentile of the spending distribution for all patients, and then the payer would pay for spending on the expensive patients above the 99th percentile amount. The patient remains a high cost patient for the provider, but not as high cost as the patient would have been without Winsorization. See also Exclusion vs. Outlier Payment vs. Truncation vs. Winsorization.
In a payment model that includes penalties for poor performance, a payer may reduce payments to the provider during the performance period below what the provider would otherwise expect to receive (the reduction is the “withhold” amount); the payer then pays the withhold amount at the end of the performance period if the provider’s performance met the threshold for avoiding a penalty. The use of a withhold avoids requiring the provider to send funds to the payer if the provider’s performance is poor; instead, the provider has already received less money because it forfeits all or part of the withhold amount.