Provider payment
Dr Wai Hnin Aye
Lecturer
Community Medicine Field Training Center (Hlegu)
Health Systems Goals
• Better health outcomes
• More responsive health system
• Equitable health care
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Objectives of health care financing
• Provide resources for health services
• Ensure access to health care services
• Ensure equity in health care coverage
• Provide quality care
• Provide efficient care
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Healthcare Financing comprise :
1.collecting revenue
2. Pooling of risk
3. Purchasing
4.Financial Protection
Financial Issues in Healthcare System of
Developing Countries
• limited amount of financial resources in
health care
• distribution of resources is inequitable
• gross inefficiency in management of
resources
• poverty is a major obstacle to access
health care
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Reforms in the health care systems of
developing countries focus on “getting the
incentives right”
Aim
To use provider payments to optimize the
utilization of scarce health care resources,
transform clinical practice, and improve the
quality of care
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Purchasing
• Passive purchasing
– No selectivity of providers
– No quality control and monitoring
– Use of norms to set fees and related concerns
• Strategic purchasing
– Performance-based model
– Contestable contracts
– Ongoing quality control and monitoring
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Who Purchases: Organizational Forms
Government
Private Sector
Ministry of Health
 Insurer
 Regions
 Employer
 Social Insurance
 Managed Care
 Public Enterprises
Organization
(Insurance or Budget) Individual (Medical
Savings Account)
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4 Performance Tools of Purchasing
 For Whom to Buy? ”Coverage decisions”
 What to Buy, in which form, and what to
exclude “Benefits Package”
 From Whom, at what price and how much,
“Contracting”
 How to Pay, and what incentives to meet,
which policy objectives. “Payment method”
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provider payment method
define as the mechanism used to transfer
funds from the purchaser of health care
services to the providers
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Why Payment Method is Important?
Cost Containment Measures
Efficiency
Influence Provision of Services
Incentives or disincentives
Preventive vs Curative Services
Basic Health Services
Influence Quality of Care
Technical Quality
Client Satisfaction
Viability of Health Financing Scheme
Disbursement of funds
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Provider payment
• focuses on providers’ incentives and
behaviour also affect payers’ behaviour
and consumers’ behaviour (pts’ )
• way they practice with regard to:
– staff mix (technical efficiency)
– choice of technology (technical efficiency)
– choice of services (allocative efficiency)
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Provider Payment & Financial Risk
• financial risk is the potential to lose money, earn less
money, or spend more time or effort without
additional payment on a reimbursement transaction
• whenever providers or patients are bearing little risk,
the system encourages higher levels of use of
resources
– e.g : OOP – Patient carries all the risk
– Health insurance- Insurer carries the risk
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Payment Methods
1.Retrospective Payment
2.Prospective Payment
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Retrospective Payment
- payment rate is selected during or after
the service has been rendered
- cost-based reimbursement
- well known for being cost enhancing rather
than cost reducing.
• Fee-for-service
• Payment per itemized bill
• Payment per diem
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• fee-for-service (a typical form )
• but prices for each service set in advance,
providers are not limited by
predetermined agreement on the types
and number of services rendered
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Prospective Payment
payment rate for a package of health care
services is negotiated and agreed upon
before the treatment takes place
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• increase the incentive for efficiency
• health provider faces higher financial risk
These are• Capitation payment
• Global budget
• Case-mix payment
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Methods of Payments
Physician
Hospitals
1. Payment per procedure:
Fee for Service
2. Payment per episode of
illness
3. Payment per patient:
Capitation
4. Payment per time:
Salary
1. Payment per procedure:
Fee for Service
2. Payment per day: Per
Diem
3. Payment per episode of
hospitalization: DRG
4. Payment per patient:
Capitation
5. Payment per institution:
Global Budget
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Current trends in Provider Payment System
• Strategic Purchasing
• Performance based system
(payment linked to quality and out come)
• Shift financial risks to providers
• Bundling to avoid fragmentation
• Reduce Admin cost
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Payment Models for PHC in Malaysia
Health Centre / PHC Clinic
Doctors / Providers
Line Item Budget
Fee-For-Service
Global Budget
Salary
Patient Visit
Salary plus Bonus
Fee-for- Service
Capitation
Case-Payment
Capitation plus Bonus
Capitation
Case payment
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Global Budget
• is a payment fixed in advance to cover the
aggregate expenditures of that hospital over
a given period to provide a set of services
that have been broadly agreed upon (at the
hospital level)
• based on either inputs or outputs, or a
combination of the two
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• determine on the basis of historical costs
(in Canada and Denmark)
• incorporated measures of output, such as
bed-days or cases, into global budgets for
hospitals (France and Germany)
• Ireland introduced a case-mix adjustment
to global budgets for acute hospital
services in 1993
• nearly all EU countries use case-mix
adjustment
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Payment per Procedure: Fee-for-Service
• traditional method of reimbursing physicians,
hospitals and other providers for their services
• provider is paid for each procedure or service
rendered
• each provided service associated with a
corresponding fee to be paid to the provider
• fees increase when more services are provided
or as more expensive services are substituted
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- may be either input-based or output-based
• input-based if services are not bundled,
and fee schedules are not set in advance
• providers are permitted to bill payers for all
costs incurred to provide each service(US)
• called “retrospective cost-based” payment
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• output-based if fees are set in advance
( Canada, Japan, and Germany)
• services are bundled to some degree
• provider is paid the fixed fee for the predefined service regardless of the costs
incurred to deliver the service
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- economic incentive to perform more services
- overconsumption of care
- not encourage physicians to consider the
cost of the treatments they provide to their
patients
- their remuneration is not tied to patient health
outcomes
- in US, rapid rise in health care costs due to it
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• overwhelming reliance on FFS lead to source of
inefficiency in the health system
• physician expenditure is 2nd to hospital
expenditure
• to reduce health expenditures ,use alternative
payment mechanisms capitation, fund holding
(a more complete form of capitation), mixed
payments, pay-for-performance and profit
sharing
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Payment per Episode of Illness
- payment by episode of illness or case
- physicians have the economic incentive to
reduce the volume of services provided per
illness episode or case
– transfers portion of the risk to the provider
– eg : Appendicitis episode
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Payment per Patient: Capitation
• insurer pays physicians a pre-determined
fixed amount and paid in advance for each
covered person regardless of the type and
number of services used
• physician is responsible for delivering or
arranging the delivery of services of a
contracted persons
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- shifts the financial risk from the insurer to the
physician
(If he incurs costs > per capita budget, he is liable
for these costs)
(if the provider achieves efficiency gains and incurs
costs < per capita budget, the provider can retain
and reinvest this surplus)
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• output-based
• unit of output is coverage of all pre-defined
services for an individual for a fixed period
of time (one month or one year)
• is not linked to the inputs the provider uses
or the volume of services provided
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- physicians have incentives to limit the use of
services and the use of expensive resources
and services
– rewards go to physicians who limit referrals,
stay within formularies, lessen laboratory use
and reduce average hospitalization
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Payment per Time: Salary
• fixed annual payment unrelated to workload
(one lump sum per month or yearly)
• as theory ,salary
d/on performance
• in practice d/on yrs of service
• no risk carried by the physician
• Incentive undermine to work hard
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low income country, low salary leads to
less work hard
need more hours of work
find additional ways of generating income
(informal ways)
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Per Diem
• incentive no: of hospital days, bed
occupancy, and bed capacity
• shifting outpatient and community-based
rehabilitation services to the hospital
• incentive to intensity of service provided
during each bed-day
• high occupancy rates are achieved by
increasing hospital admissions and ALOS
• incentive to ALOS > admissions( b/of
---incentive to inputs/day
--- hospital days early in a hospital stay is more
expensive than later in stay)
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• average per diem rate is easy and quick to
calculate
• =
total historical annual hospital costs
total number of bed-days
• adjusted with characteristics of patients,
clinical specialty and variations in casemix across hospitals
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• appropriate intermediate step for transition
to a case-based system
• administratively simple to implement
• used to begin collecting the data that are
necessary to design a case-based system
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Case-Based
• incentives to no: of cases
• to minimize the inputs used on each case
(because providers have more control over
resource use per case than the total no: of
treated cases)
• to control costs and reduce capacity in the
hospital sector
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provider treats a patient with a broken arm
-- for fee for service the provider is paid for
each treatment ($40 for consultation, $25
per x-ray, and $35 for cast)
-- in the case-based model the provider is
paid a flat fee for the illness ($100 to fix a
broken arm)
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Case-Mix (DRG)
classification of patient treatment episodes
designed to create classes which are
relatively homogenous in respect of the
resources used and which contain patients
with similar clinical characteristics
(George Palmer, Beth Reid,2000)
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Line Item Budget
• allocation of a fixed amount to a health
care provider to cover specific line items,
or input costs for a certain period of time
(e.g., personnel, utilities, medicines and
supplies)
• offer strong administrative controls, often
valued by government-run systems
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• technical and allocative efficiency of health
interventions by manipulating the
government budget lines over time to
increase delivery of cost-effective health
interventions and decrease delivery of less
cost-effective interventions
• governments can track and understand
the right combination to achieve these
outputs
• in reality, lack of good monitoring
information
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• according to heterogeneity among health
care providers, diversity of institutions,
practices, and preferences ,health care
systems in developing countries divides into
3 patterns
• in Nepal, Tanzania, many of the smallest and
poorest nations in sub-Saharan Africa
• large public hospitals are in the capitals and a
few in largest cities
• smaller public hospitals, clinics, and health
posts are scattered in rural areas
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• physicians and nurses are salaried
• supplement their incomes by selling goods
and services under the table
• pt with varying severity crowd emergency
rooms
• little medical information is passed from one
facility to another
• shortages of supplies
• in rural ,use traditional healers, drug sellers,
and semi- trained health providers (they work
isolated from the public facilities)
• pay out-of-pocket or thin insurance market
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• 2nd pattern is as Pakistan and Kenya
(poor countries with larger and more
concentrated populations)
• resembles the first with one exception:
• semi-trained private providers dominate
the supply of health care in most rural and
marginal urban areas
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•
private providers utilize a mix of Western
and indigenous medical concepts
•
make money purchasing and reselling
drugs from local chemists
•
engage in agricultural or other activities
part time
• limited contact with the formal, public
health care system
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• pt are usually uninsured
• out-of-pocket
• about three-quarters of HE in India come
directly from households
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• 3rd pattern is middle- income countries
(Chile, Mexico, Thailand, South Africa)
• risk-pooling (finance with formal sector
payroll taxes)
• government- managed social security
organization collects taxes
• pays physicians and hospitals(either public or
contracted private providers)
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• general revenue financed hospitals and
clinics for informal sector workers
• growing or already substantial private
insurance markets for the relatively well-off
• many countries’ systems are hybrids, with
different patterns
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payment methods may be used in
combination to enhance or mitigate the
incentives that are created by each
method individually
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Reference
Daniel Maceira, M.S:1998 . “ Provider Payment Mechanisms in Health care
:Incentives, Outcomes, and Organizational Impact in Developing Countries
“,major applied research 2, working paper 2 from www.phrproject.com
(Accessed 2nd October 2011)
JOHN C. LANGENBRUNNER, CHERYL CASHIN, AND SHEILA
O’DOUGHERTY ,2009 ,“Designing and Implementing Health Care Provider
Payment Systems How-To Manuals “ from www.rbfhealth.org (Accessed 2nd
October 2011)
Pierre-Thomas Léger ,2011, “Physician Payment Mechanisms: Overview and
options for Canada” Canadian health service research foundation from
www.chsrf (Accessed 2nd October 2011)
Varun Gauri “Are Incentives Everything? Payment Mechanisms for Health Care
Providers in Developing Countries” Development Research Group ,The World Bank
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h
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