Health Care Informatics

LESSON 12 Paying for Care and Health Information LECTURE NOTES ______________________________________________________________________________________

The Health Record for Payment This lesson reviews issues regarding how health care organizations need health information

systems to assure that payments for services accurately reflect treatments that were provided.

The health record provides the basis for determining which services were rendered, in what time

period, and who provided the service. The health record also provides documentation to

auditors, third-party payers, government entities, and the patient to assure that these services

were provided. Without such documentation and the ability to audit and verify that accurate

coding was used in the billing system, health care providers have limited means of supporting

their claims and demands.

Reimbursement, DRGs, and Other Payment Systems – How Does It Work? In order to have a sustainable health care enterprise, health care providers need to be able to bill

or invoice for services and products that were provided in the care and treatment of the patient.

As we have noted in other lessons, the health record is used to document and then extract

information that is used for billing the payer for services. Without a complete and accurate

health record, the ability to bill for services would be difficult, if not impossible. Providers

might have to rely on memory to determine what was provided and would have no system for

supporting their demand for payment. Provider entities are paid by governmental programs,

insurance carriers, health maintenance organizations, and private pay. Each has its own set of

rules and requirements for how payments are determined and made to a provider.

Acute Care Providers

The payment system for institutional health care providers has an interesting history and path

that was followed. In 1965, when the Medicare program was first passed into law, the payment

system for institutional providers (hospitals and nursing homes) was created using a “cost-based”

reimbursement methodology. The payment concept was to compile all costs incurred during a

specific period, add the costs up, divide the total costs by the number of units served (i.e., days of

care, square footage, number of meals, pounds of laundry, etc.), and then determine what the cost

of care was per unit for that period. There were rules for what was allowable, and cost limits

were typically applied.

For the health care information department, it required keeping track of the units provided and

sending the information to the accounting department for them to submit the cost report and

invoice for services provided. This might include the number of patient days, the number of

medications dispensed, etc. This could be very cumbersome to the provider since systems

needed to be created to record and track this information.

The rationale for this system was that the Medicare program would only pay for “reasonable”

costs of care. It was assumed that if the Medicare program only paid the “costs of care,” that

they would pay only the minimal amount of what it “costs.” Providers quickly learned that more

units provided more money, and utilization of services quickly rose. It was soon apparent to

providers and public policy makers that this system would cause costs to increase at a very high

rate and would not be sustainable.

By 1983, with medical cost increases in the double digits, Congress created a new payment

system for acute care called “DRGs,” or diagnostic-related groups. The concept was to pay a

fixed rate for a procedure based on a determination of the relative value of one procedure versus

another. For example, a simple leg fracture that was handled in the emergency room and that

required no follow-up would be less than a complex leg fracture (i.e., the bone pierces the skin

from the inside) that would require surgery and perhaps a stay in the hospital.

Intricate software systems have been developed to record and extract critical information from

health care records to assure that the care provided is reimbursed at the correct rate and level of

care. This is typically a function of the Health Information Department and has become a highly

specialized job function.

The individuals who can operate these complex systems of coding, provide a high degree of

accuracy, and are timely in their duties can be highly regarded in the health care organization. It

requires the ability to learn an intricate system and be detail-oriented. Frequent and ongoing

training is critical to assure competency since determinations and interpretations of codes and

diagnoses are changed on a regular basis. The failure of an organization to perfect these skills

puts the organization at financial risk. Auditing and oversight systems need to be created and

maintained to assure compliance with the rules and requirements.

There are variations to the payment system from the governmental programs for acute care

providers that complicate payment system processing for the health care information specialist.

Certain small hospitals (under 25 beds) are called “critical access hospitals” (CAH) and are still

paid for Medicare services under a cost-plus basis. Other acute care providers may have other

designations or payment systems, such as a teaching hospital, or a sole community provider, or

may have payments from a risk-based structure (see below).

Regardless of the system or rules for payment, the health information system must be capable of

documenting care that is provided and of transferring that information to other departments to

assure that payment requirements are met. The same key principles of accuracy, timeliness, and

completeness of the health information record are required.

Skilled Nursing Facility Providers

Other institutional providers, including skilled nursing facilities (SNF), face similar challenges in

documenting their health records to assure that accurate payments are made. Under the

Medicare payment system prior to 1997, SNFs were also using a cost-based reimbursement

system for most patients. Rather than a specialized “DRG” like system, under the SNF cost-

based reimbursement, providers were paid based on the costs and the number of days of service

provided.

The SNFs experienced similar cost increases like the hospitals did under their pre-DRG program.

The Medicare program was constantly looking for a solution to the increasing costs for the post-

acute care benefit but could not find an acceptable system for providers and patient advocacy

groups.

In 1997, legislation was passed to create a “DRG” like payment system for SNFs, called

“prospective payment system” (PPS). With the PPS, Medicare grouped patient conditions into

categories and determined costs using a system that compared the costs for one condition against

another. This is referred to as a “case mix” or “resource utilization groups (RUGS)” system of

payment.

This payment system uses the “activities of daily living” (ADL’s – such as dependency in

feeding, mobility, transfers, etc.) to determine the potential care needs of the patient. The system

further refines this assessment by reviewing the condition of the patient for any complex medical

needs or any therapeutic conditions that are present, such as the need for therapy, medications,

and other nursing treatments.

Similar to the DRG system for hospitals, SNF providers need to document the care provided to

patients and then extract those key areas of care delivery for submission for payment. Similar to

the hospital structure, SNFs have created staff positions that are highly specialized in

documenting and extracting information from the health record to meet the requirements of

Medicare. Specialized systems and software have been developed to assist and support this

process of documentation. The health information specialist has a critical and significant role in

assuring that the information is complete, accurate, and timely.

Medicaid, the other major governmental program that pays for health care, is a joint cost-shared

program between the state and the federal government. The payment methodology for this

program varies from state to state and could follow either a cost-based payment system or a fixed

(prospective) payment methodology.

Other Health Care Providers

Other providers, such as physicians and others who provide health care services, are typically

paid on a fee-for-service basis (except for managed care or risk-based payments systems – see

below). These payment systems also require the ability to document information related to the

care, treatment, and services provided to a patient on the health record. This information is

reviewed and extracted by the health information specialist and provides the basis for submitting

a request for payment to the payer. Without access to the health record and the ability to provide

supporting documentation, securing a payment for services rendered would be a challenge for the

health care professional.

Other Payment Schemes

We have reviewed “cost-based” reimbursement and “fee-for-service” (or a fixed, prospective-

based payment system), both of which are used extensively in health care reimbursement

systems. There is still another model that is used by payers to compensate providers: risk-based

payment systems, or capitated payment systems.

This type of payment system, created by health maintenance organizations (HMO’s), was a

means to move away from both costs and utilization issues that are a problem with fee for

service and cost-based systems. A risk-based payment system directs providers to accept a fixed

payment for a group of patients for a fixed time period, and then takes the responsibility and risk

of providing services to the patients, regardless of how much cost is incurred or how much

utilization of services is provided.

The risk-based payment systems typically have specific conditions in a contract that detail all of

the requirements for the provider, including payment amounts, services to be rendered, expected

outcomes, quality measures, and documentation requirements. Again, systems have been

developed for the health information department to manage a risk-based payment system.

Future of Payment

The passage of health care reform legislation mandated significant changes to the health care

delivery and payment system. While the debate is ongoing as to whether health care reform is

good or an unfunded mandate, the United States still has the highest cost per capita for health

care and is in the low teen’s for quality outcomes when compared to other developed countries.

This is not a sustainable pathway for health care or for the economy. Costs need to be reduced,

and quality needs to improve.

Providers are being asked to accept more risk for a lesser amount of money but with few

requirements. Along with payment changes, providers are being held accountable for the quality

of care and patient outcomes. Failure to meet certain conditions of care or outcomes may subject

the provider to sanctions, including a reduction in payment.

The reform legislation also mandated certain requirements for moving the health care system to a

full electronic health information system, which includes timelines, grants for adoption,

incentives in payment, and deadlines for compliance. Many providers are actively pursuing

health information technology strategies and will continue to do so for many years to come.

Health care systems do have a need to create and maintain comprehensive, accurate, timely, and

accessible health care records. This need will continue well into the coming decade. Having the

data provides researchers the opportunity to review and assess costs and outcomes and determine

evidence-based practices that will achieve the goals of health care reform – reducing costs and

improving quality.