Christina Jud

HPA 14

Chapter 3 Questions

3.1 Briefly describe the major third-party payers.

Third party payers are insurances that will compensate health service organizations. They
include private insurers, as well as public government. An example of private insurers is Blue
Cross Blue Shield. An example of public government is Medicare or Medicaid.

3.2 a. What are the primary characteristics of managed care organizations (MCOs)?
Managed care organizations have a goal of trying to create a single unit between healthcare
services provided and insurance. They are usually generated by insurers and it is an attempt to
manage the care that is given to patients. There are however different types of MCOs with
different levels of control.

b. Describe two different types of MCOs.

One type of MCO is health maintenance organization. This type of MCO has the most control
over the care that is provided. In addition, there are preferred provider organizations. These
MCOSs are less controlling than HMOs. Even though the control level between the two differs,
they share the common goal of trying to keep costs low for medical care.

3.3 What is the difference between fee-for-service reimbursement and capitation?

With fee-for-service is when compensation is higher the more services are provided. Capitation
is when there is a fixed price that is paid regardless of the amount of services that is provided to
the patient. This type of care is primarily used by managed care organizations.

3.5 Describe provider incentives and risks under each of the following reimbursement
methods:

a. Cost based
This is the least risky reimbursement method. A profit is earned because payers agree to cover
the costs to providers. Costs are able to exceed revenues which is the risk of cost-based
reimbursement. Providers have the freedom to set the rates which could in turn result in higher
profits. Providers are given a blank check to get facilities as well as equipment. More services
lead to higher costs which results in greater revenue.

b. Charge based, including discounted charges

This is also a very low risk reimbursement method. Providers ensure that costs are very high in
order to get profits. Providers want to set higher prices and give more services because the more
services they provide to patients, the more money they will generate. It is easier for providers to
raise costs rather than to lower them.
c. Prospective payment
There is risk for the providers. There is a reimbursement rate that is set based on what is
presumed to be adequate. If these payments are too low, no money will be made. Some
procedures are more profitable than others which is an incentive because more money can be
made. Providers usually want to perform the more expensive surgeries because they will make
more money. There is incentive to decrease costs because there is fixed reimbursement. This
also carries over into the length of a patient’s stay. Providers are looking to make the stay as
short as possible because they are not getting more money.

d. Capitation
There is a risk on both the cost and the utilization of the provider. The goal here is to decrease
utilization while working more thoughtfully. There is also incentive to lower costs, however,
with that comes offering less services to patients. Only procedures that are absolutely
necessary will be performed. Health is promoted so that fewer services are needed. It’s better
to promote prevention rather than need treatment.