Health Care Costs and Payment Models

Case: Out-of-Pocket Costs

Diagnosis-related groups (DRGs)

Diagnosis-related groups (DRGs)

• Physician or hospital is paid one sum for all services delivered during one illness; there is a different set case-price for each of approximately 750 distinct DRGs (Medicare).

Per Diem

• The hospital is paid for all services delivered to a patient during one day (private insurance, PPOs/HMOs).

Fee-For-Service

• The physician or hospital is paid a fee for each service (e.g., medication, IV fluids, ECG, surgical procedure) provided (uninsured, some private insurance).

Capitation

• One payment is made for each patient’s treatment during a month or year (has now virtually disappeared; previously, largely HMOs).

Health Care Reimbursement

Accountable Care Organizations (ACOs)9

Accountable Care Organizations (ACOs)9

• ACA authorized creation by CMS in 2010
• Definition: Doctors, hospitals, and other health care providers who come together to coordinate high quality care for Medicare and Medicaid patients
• Goals:
• Ensure that patients get the right care at the right time without duplication of services or errors
• Realign value with payment incentives (“pay-for-performance”)
• Benefit: ACOs that provide high-quality care with lower costs will share the savings with Medicare

Health Care Reimbursement
1

• Understand the benefits, harms, and relative costs of the interventions

2

• Decrease or eliminate interventions that provide no benefits and/or may be harmful

3

• Choose interventions and care settings to maximize benefits, minimize harms, and reduce costs

4

• Customize a care plan that incorporates patient values and concerns

5

• Identify system level opportunities to improve outcomes, minimize harms, and reduce waste