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Payers Module. History, Rules, and Regulations. Purpose. To provide didactic training necessary for the Case Manager to understand the various payment methodologies and their history. Program Objectives. Upon completion of this program, participants will be able to:

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payers module

Payers Module

History, Rules, and Regulations


To provide didactic training necessary for the Case Manager to understand the various payment methodologies and their history.

program objectives
Program Objectives

Upon completion of this program, participants will be able to:

  • Understand the types of managed care organizations.
  • Understand different payment methodologies.
  • Discuss the history of Medicare and Medicaid.
what is managed care
What is Managed Care?

A type of health care delivery system that attempts to manage and control access, delivery, quality, and cost of care.

history of managed care
History of Managed Care
  • 1910 – First managed care plan – Western Clinic in Tacoma, Washington.
  • 1920- Blue Cross formed to cover hospitalization.
  • 1930- Blue Shield formed to cover physician costs.
history of managed care1
History of Managed Care
  • 1950’s: Pre-paid group plans developed by Kaiser Permanente.
  • 1960’s: Medicare and Medicaid introduced.
  • 1970’s: Inception of HMOs.
  • 1980-present: Increase in managed care plans, cost savings for consumers, and attempt to control cost.
types of managed care plans
Types of Managed Care Plans

Health Maintenance Organization (HMO)

  • Most restrictive.
  • Primary Care Physician is the gatekeeper.
  • Utilization Review (UR) became a huge focus.
  • Preventative care a priority.
  • Decreased out of pocket expense to beneficiary.
types of managed care plans1
Types of Managed Care Plans

Preferred Provider Organization (PPO)

  • Physicians, hospitals, and other health care providers contract with the managed care companies to provide discounted services.
  • Beneficiaries can receive services outside of the PPO network for an additional cost.
types of managed care plans2
Types of Managed Care Plans

Point of Service (POS)

  • Provision allowing those enrolled in managed care plans to seek and receive services outside the plan.
  • Utilizes some features of the HMO and PPO.
  • Members do not choose which system to use until the point at which the service is being provided.
types of managed care plans3
Types of Managed Care Plans

Exclusive Provider Organization (EPO)

  • The plan will reimburse ONLY for care received from particular providers.
  • No out-of-network benefits.
types of managed care plans4
Types of Managed Care Plans

Physician Hospital Organization (PHO)

  • A legal entity joining hospitals, physicians, and other ancillary providers who share resources and contracting efforts.
types of managed care plans5
Types of Managed Care Plans

Management Services Organization (MSO)

  • Contract with health plans, other payers, hospitals, and physicians, to provide management services such as billing and collections.
  • MSOs monitor utilization of resources and services.
types of managed care plans6
Types of Managed Care Plans

Third Party Administrator (TPA)

  • Organization contracted by payer to manage administrative functions such as UR and processing claims.
  • Used by organizations that fund healthcare benefits but do not find it cost effective to administer the plan.
  • TPA holds no risk.
indemnity insurance
Indemnity Insurance

Private or “fee for service” insurance that can be obtained by individuals on their own, or through employers or associations; allows some level of choice of healthcare provider by the insured.

medicare title xviii of the social security act
Medicare Title XVIII of the Social Security Act
  • Enacted in 1965 to provide inpatient health insurance to those ages 65 and over, and voluntary medical insurance to cover physician fees.
  • Part A: Hospital reimbursed for services
  • Part B: Physician reimbursement
  • Pays by DRG
medicare as secondary payer msp
Medicare as Secondary Payer (MSP)

Provisions prohibit Medicare from making payment if payment has been made or is expected to be made by the following primary plans:

  • Group Health Plans
  • Workers Compensation Plans
  • Liability Insurance
  • No-fault Insurance

Section 1862(b) of the Social Security Act

medicare as secondary payer msp cont d
Medicare as Secondary Payer (MSP) (Cont’d)

Medicare may make conditional payment if primary plan has not made or is not expected to make payment.

Bottom Line: Other plan pays first, Medicare pays second.

medicare transfer drgs
Medicare Transfer DRGs
  • Includes 186 DRGs
  • Discharge or transfer to home health care or sub-acute care setting post hospitalization, prior to meeting geometric mean LOS can reduce hospital reimbursement – mainly total joint replacements.
  • Rather than a DRG, the hospital will be paid a per diem based on the day of discharge.
  • Enacted in 1965.
  • Mandatory federal and state program with shared funding.
  • Based on states’ per capita income.
  • Basic medical and dental services for low income children and families.
  • Medicaid managed care grew rapidly in the 1990s.
  • As of June 30, 2006 every state with the exception of Alaska and Wyoming have all or a portion of their Medicaid population enrolled in a MCO.
  • As the nation’s largest purchaser of health services for low-income families, Medicaid has increasingly relied on managed care to deliver services.
  • In 2004, 27 million Medicaid beneficiaries were enrolled in a MCO.
  • The Balanced Budget Act (BBA) of 1997 gave states authority to mandate enrollment in MCOs for Medicaid beneficiaries.
veteran s administration benefits
Veteran’s Administration Benefits

When a patient arrives in the Emergency Department, you need to assess their benefits.

payment methodologies
Payment Methodologies


  • A specific amount of money received or paid based on a per member, per month basis, rather than on specific services provided.
  • The provider is responsible to control utilization of services and costs.
  • Incentive to limit costly services.
payment methodologies cont d
Payment Methodologies (Cont’d)


  • Medical services contracted separately from the basic arrangement or plan design.
  • Typically, higher cost or unusual services not adequately covered in a standard contract.
  • Examples: orthopedic implants, high cost pharmacy.
payment methodologies cont d1
Payment Methodologies (Cont’d)

Case Rate Pricing

  • A reimbursement method in which the provider is paid a single amount for care of the patient during a specific illness.
  • Example: Diagnosis Related Groups (DRGs).
  • Hospital incentive is to reduce LOS.
payment methodologies cont d2
Payment Methodologies (Cont’d)

Diagnostic Related Groups

  • Statistical system in which inpatient stays are classified into groups for payment purposes.
  • Payment methodology used by Medicare.
  • Incentive to reduce LOS.
  • As of October 1, 2007 there will be 745 severity based MS-DRGs.
payment methodologies cont d3
Payment Methodologies (Cont’d)

Fee for Service (FFS)

  • A method of financial reimbursement in which providers either bill the patient or the health plan for services rendered.
  • Insurance company pays full charges.
  • Physicians are often on the FFS rather than the hospital.
  • Rare today.
  • Examples today: cosmetic surgery.

Payment Methodologies (Cont’d)

Per Diem

  • A system of reimbursement whereby managed care organizations pay specific charges for each service or inpatient day.
  • Hospitals are at risk for denial – if timely care is not provided or does not meet medical necessity.
  • We need to manage these patients!
payment methodologies cont d4
Payment Methodologies (Cont’d)

Percent of Charges

  • Payment is made based on a percentage of the total reasonable and customary charges.
  • These contracts are increasing.
  • Our management role: make sure patients meet continued stay criteria and tests and procedures are performed in the appropriate setting.
  • There is a risk that days can be denied!
payment methodologies cont d5
Payment Methodologies (Cont’d)

Stop Loss

  • Targeted level is negotiated by the hospital and managed care organization, and is typically a set dollar amount or targeted days.
  • When issued by the managed care organization, a stop loss can limit the risk to the hospital by reimbursing them when claims exceed a certain level.
payment methodologies cont d6
Payment Methodologies (Cont’d)

Out of Network (Non-Par)

  • The managed care organization and provider have not negotiated a contract.
  • Our goal is to stabilize the patient and transfer to a par facility.
  • Case Management needs to expedite that transfer.
payment methodologies cont d7
Payment Methodologies (Cont’d)

Various Military Plans

  • Examples- Veterans Administration (VA), Mill Bill, CHAMPUS and TRI CARE.
  • Qualification for benefits varies for each plan.
role of the payer review nurse
Role of the Payer Review Nurse

Remember!! They work for the payer!

……and may use different criteria

role of the payer review nurse1
Role of the Payer Review Nurse


  • The payer review nurse can come to the facility to review a patient’s record or request a review via telephone or fax.
  • The payer review nurse will notify the appropriate individual/department (different at each hospital) of authorization or denial.
role of the payer review nurse2
Role of the Payer Review Nurse

May assist with discharge planning, i.e., provides authorization for SNF, DME, HHC, transportation – they may have specific contracted providers.

Hoffman, Klees, & Curtis. (2005). Brief Summaries of Medicare & Medicaid Title XVIII and Title XIX of the Social Security Act. Centers for Medicare and Medicaid Services; Department of Health and Human Services.

Whetsell, G. W. (1999). The History and Evolution of Hospital Payment Systems: How Did We Get Here? Nursing Administration Quarterly, 23, 1-15.

Kulwsher, R.R. (2006). Medicare’s Operational History and Impact on Health Care. The Health Care Manager, 25, 53-63.

  • Brannen, T.J. (1999). DRG-based per diem payment system matches costs more accurately. Healthcare Financial Management, 53,42-47.
  • Levin, A. (1999). Insurers see tighter provider stop market. National Underwriter, 103, 10-13.
  • Chyna,J.T. (2000). Raising Reimbursement: Improving Your Managed Care Revenue Cycle. Healthcare Executive, 20, 16-22.
  •, Managed Care
  • Steyer, T.E. Health Care Financing in the United states; Past, Present and Future. Slide Presentation, Medical University of South Carolina.
  • Tufts Managed Care Institute. (1998). A Brief History of Managed Care.
  • 2006 Medicaid Managed Care Enrollment Report Summary Statistics as of June 30,2006
review questions
Review Questions

Managed Care is defined as a type of health delivery system that:

  • Attempts to manage and control access, delivery, quality, and cost of care.
  • Allows access to all services no matter the quality or cost.
  • Limits access to services to achieve a bottom line.
review questions cont d
Review Questions (Cont’d)

True or False: Capitation is when the provider receives a specific amount of money based on a per member, per month basis, rather than on specific services provided.

answer key
Answer Key
  • A
  • True