WMBA 6602 Week 1 Who Pays Whom Post Example

Week 1 Discussion: Who Pays Whom in the Delivery System

Five Actors, Five Payments and What Each Payment Rewards: Following the Money Around a Two-Hospital System in East Tennessee

I work in revenue cycle at Laurel Valley Health, a made-up nonprofit that runs two hospitals in the hills of east Tennessee. To see who pays whom, I traced five actors and the money between them.

Our system collects revenue under several payment methods simultaneously. A commercial insurer pays its hospitals a negotiated amount per admission, adjusted for diagnosis, and a percentage of charges for many outpatient services. Admission-based payment rewards shorter stays and lower cost per stay; percentage-of-charge payment rewards more outpatient services and higher charges.

A self-insured employer, a regional manufacturer with about 2,400 covered employees and dependents, pays its own workers' claims and hires the commercial insurer only to administer them and lend its network discounts. Every dollar of care is the employer's dollar, so the employer rewards anything that lowers claims, and it now steers workers toward lower-priced imaging and surgery centers. About six in ten workers with employer coverage nationally are in such self-funded plans (KFF, 2024).

An independent medical group of 45 physicians is paid fee-for-service by most payers, which rewards visits and procedures, and also holds a shared savings contract with the insurer, which pays a bonus when total spending on the group's attributed patients beats an agreed target, provided quality measures are met. The two payments pull in opposite directions.

The state Medicaid agency, TennCare, does not pay the hospital directly for most enrollees. It pays managed care organizations a monthly sum for each enrollee, and those organizations pay Laurel Valley under negotiated contracts. Capitation rewards the managed care organizations for keeping total spending below the monthly payment, and they pass some of that pressure to providers through prior authorization and rates.

For a manager, the money relationships matter more than the actors' labels. Laurel Valley earns more from a commercial outpatient procedure than from the same procedure for a TennCare enrollee, and loses money on long inpatient stays under admission-based payment. Rice et al. (2020) describe how the U.S. system's many payers and payment methods create different incentives inside the same organization, which is exactly what this map shows.

Which payment in your organization rewards something its leaders would rather not encourage?

Reply to Chloe

Chloe, your map of a home health agency shows Medicare paying per 30-day period, which you said rewards fewer visits. I wonder whether the period payment's adjustments for clinical grouping change that incentive. If patients classified as more complex bring higher payments, the agency may also be rewarded for documentation as much as for visits.

Reply to Dev

Dev, you listed the self-insured employer as a minor actor. In my map it is one of the most active, because it bears the full cost of claims. Have you seen your employer clients steer employees toward lower-priced sites? Cooper et al. (2019) showed that what private insurers pay hospitals differs sharply from one hospital to the next, even in the same city, so an employer paying its own claims gains a lot by steering.

References

Cooper, Z., Craig, S. V., Gaynor, M., & Van Reenen, J. (2019). The price ain't right? Hospital prices and health spending on the privately insured. The Quarterly Journal of Economics, 134(1), 51-107. https://doi.org/10.1093/qje/qjy020

KFF. (2024). 2024 employer health benefits survey. https://www.kff.org/health-costs/report/2024-employer-health-benefits-survey/

Rice, T., Rosenau, P., Unruh, L. Y., & Barnes, A. J. (2020). United States: Health system review (Health Systems in Transition, Vol. 22, No. 4). European Observatory on Health Systems and Policies.