Payments in a healthcare facility are made in various ways. The different payment methods have different implications for healthcare financial health. The healthcare covers a variety of services, Medicaid, Medicare, government agencies, partial payments, and complex policies. The primary reason as to why the providers, payer or patients have different preference to payment is due to the different kind of incentives for quality, efficiency, and usage of the healthcare services provided by the different payment methods (Rudmik, Wranik, & Rudisill-Michaelsen, 2014). The payment method should endeavor to improve quality, avoid wastage and losses, and accessibility, give a chance of permit of choice of physician by the patient and it should be simple and easy to implement. Managed care is a system of medical care providence that aims at providing a generalized structure and focuses on managing the access, use, cost and quality of medical care services. The three primary payment mechanisms used by managed care are capitation, discounted fee-for-service, and salaries.
Capitation is a means of payment to physicians or healthcare providers in a fixed fee per period per patient registered regardless of the amount of service provided or received. This means of payment is a fixed amount per person which is paid in advance of the coverage period in a healthcare organization considering its provided services to a patient for a specific period (Rudmik, Wranik & Rudisill-Michaelsen, 2014). Through this, the one who receives payment agrees to provide the healthcare services to the patients who are insured in the health plan regardless of the total cost of the service provided. The total cost may be higher or less than per capital rate collected, and therefore it enforces the mini-insurance responsibility on the provider as a guarantee to provide services whose final cost is not known. The incentive is to increase the number of patients in clinical with no direct incentives to improve the quality of healthcare activities. Capitation provides significant control of payment, but it may also contribute poor quality of care if the rates are too low. Capitation may be full or partial depending on the service.
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Partial capitation highlights that the services are prospectively determined per capita rates. Therefore, the budget applies to some services provided by the healthcare facility and the other services paid outside capitation whereas full capitation covers the whole service discussed by the provider and receiver (Rudmik, Wranik & Rudisill-Michaelsen, 2014). There are different types of capitation applied in a healthcare facility. They include area capitation and direct capitation. Area capitation involves paying a fixed per capital rate to provide care services for those enrolled in a specified geographical area, and the insurer then pays health care providers for services delivered to enrollees based on the payment arrangement.
According to direct capitation, the healthcare providers are paid directly. It combines the provider roles in a healthcare organization and the per capita amount is constant concerning disease diagnosis as agreed upon. In managed care plans equipment are provided with prospective flat payment per patient every month, and the provider then becomes responsible both for the patient direct dialysis expenses and for a pre-specified set of dialysis complications. Change-based reimbursement is the least risk. This is because the only risk facing the providers is the risk that volume will be really low to cover the fixed cost with the assumption that the change is set high to cover variable costs. Besides the payment method, the providers have to bear the cost of services with the risk in that cost may exceed revenues. In general, capitation shift risks from MCO to the provider. A risk-adjusted payment mechanism is essential to maintain access neutrality when considering capitation payment method.
Discounted fee-for-service payment mechanism involves payment of physicians for the services and tests they offer considering a fee arrangement or pre-determined discount of the unusual and price charge by physicians in the local area (Rudmik, Wranik & Rudisill-Michaelsen, 2014). The provider agrees to offer services on a fee-for-service but also with the finance discount by a certain percentage from the physician`s usual or customary charges. It involves agreement upon rate for service between the provider and the purchaser that is normally less than the providers’ full fee. It may be a fixed amount of payment per service or a percentage discount. In a healthcare institution, it provides incentives to physicians so that they can provide medical care because payment is determined by the quality of care provided. Providers, in general, accept such conditions because they represent a way to increase their volumes or reduce their opportunities of losing capacity.
Under this payment mechanism, physicians are only at risk if the cost of their care is greater than the payment of the health plan will provide. The risk, therefore, is directed to the managed care organization but can lower the cost with discounts (Quinn, 2015). There is a small chance that the physicians will receive the payments that are consistently lower than the cost however the physicians may be more conservative in providing their treatment services. Discounted fee-for-service provides a small incentive for physicians to balance the importance of treatment with the cost instead of treating the patient without consideration for price. They have no incentive to change their referral pattern to a specialist unless their payments have withholds, bonuses or retrospective utilization targets. When the achievement of health care is to increase the quality of care provided or patient satisfaction and the possibility of selecting a low-risk patient method, discounted fee-for-service is appropriate to use.
Finally, salary is another payment mechanism in managed care. It is a fixed payment per period. So, payment does not depend on the number of healthcare services nor the number of patients treated (Rudmik, Wranik & Rudisill-Michaelsen, 2014). This payment mechanism creates a predictable income source for physicians, a stable and also the incentive to reduce the quality of care. It is a good way to retain and recruit providers of health care to under-populated to under-supplied areas. It has negotiated services and work-hour schedule built into contracts to achieve productivity and the care goals. Salary based physician numeration state that it improves care quality by improving health promotion, disease prevention and also professional collaboration. Salaried physicians have no financial incentives to change their treatment procedures, either in terms of the services provided during each visit or many visits (Quinn, 2015). The providers who are paid by salary have no financial risk unlike the providers under capitation unless their agreements include bonuses, withholds or retrospective utilization targets or the performance goals connected to a future salary increase. This payment mechanism helps in controlling cost by minimizing SID and implementing increased appropriate care. Also, fixed payment tends to reduce the administrative cost of the health care system. The risk is that the salary has a possibility of coming with societal opportunity costs by lowering productivity and under-providing appropriate care. The risk may be shifted from a managed care organization to the providers or physicians in a healthcare organization.
In conclusion, capitation, fee-for-service, and salary are the three main physician payment mechanisms, and each has its incentives and disincentives. Payment of physicians contributes to the motivational quality of care. Purchases, therefore, should consider these methods of payment to the providers in a healthcare institution to mitigate their incentives to choose healthier patients and provide quality care.
References
Rudmik, L., Wranik, D., & Rudisill-Michaelsen, C. (2014). Physician payment methods: a focus on quality and cost control. Journal of Otolaryngology-Head & Neck Surgery , 43(1), 34.
Quinn, K. (2015). The 8 basic payment methods in health care. Annals of Internal Medicine , 163(4), 300-306.
