OVERVIEW

Healthcare payers have been trying to find the Goldilocks zone in a provider reimbursement model that helps improve access and lower cost while delivering high-quality care. The trick is paying providers fairly for their services without creating an incentive to over- or under-treat based on a payer’s reimbursement methodology.

This article is a broad, high-level overview that explores some of the payment methodologies and their potential advantages and disadvantages in the cost and delivery of care. This article is not meant to be an exhaustive study. It is a basic primer that can apply to dental and medical reimbursement methodologies.

FEE-FOR-SERVICE REIMBURSEMENT

Fee-for-Service is the traditional method of payment for healthcare providers. Basically, the provider receives a separate payment for each service or procedure performed. This means that the payer would receive a separate bill for every visit, test, and/or procedure the patient receives.

The payment for each service can vary from payer-to-payer, creating variations in the reimbursement amounts based on a number of factors. The final dollar amount paid to the provider for each service could be based on:

• Contractual arrangement;
• Discount schedule;
• Maximum allowable charge (MAC).

Each of these arrangements can create large variations in the actual reimbursement amounts each provider receives, theoretically, for the same service or procedure.

FEE-FOR-SERVICE — PROS AND CONS

On the pro side, fee-for-service can ideally give patients access to high quality services and give the provider more latitude in treatment modalities.

On the con side, fee-for-service does not create an incentive for delivering the most cost-effective, holistic approach to care. It can lead to over-treatment and higher costs because there is no fiscal accountability placed on the patient or provider.

Fee-for-service models that use discount schedules or MAC reimbursement models that compensate providers well below market rates can also discourage the provider from participating in a payer’s network and lead to patient balance billing.

CAPITATION

Capitation is a payment methodology where the provider is paid a fixed amount per patient for a given period of time. The amount of the capitated payment is calculated based on the average utilization expected by the population at typical market rates. Capitation is typically used in medical Health Maintenance Organizations (HMOs) and Dental Health Maintenance Organizations (DHMOs).

CAPITATION — PROS AND CONS

On the pro side, capitation can create an incentive for providers to reduce unnecessary services and deliver the most cost-effective care. It can also reduce patient out-of-pocket costs and encourage patients to get routine, preventive care.  

On the con side, capitation shifts the cost risk of treatment to the provider, which can have adverse effects. For example, providers may:

• Hesitate recommending expensive treatments;
• Allocate fewer appointments to HMO patients and/or shorten visits;
• Find it difficult to deliver the proper standard of care for the reimbursement rate.

Dental HMOs also don’t require providers to submit any claims information. Without knowing what procedures have been performed, it’s virtually impossible to draw any conclusions about a patient’s oral health status. 

REFERENCE-BASED PRICING

Reference-based pricing is a methodology that uses a benchmark to calculate the payment amount for a service or procedure. Traditionally, “usual, customary, and reasonable charge” (UCR) has been used as the pricing benchmark. However, a factor of Medicare and Medicaid schedules are sometimes used today for pricing medical claims.

Typically, reference-based pricing is used when the provider who performs the service or procedure does not participate in the patient’s provider network. For dental plans, it’s common for payers to use UCR as the out-of-network reimbursement method for Preferred Provider Organizations (PPOs).

REFERENCED-BASED PRICING — PROS AND CONS

On the pro side, reference-based pricing sets a benchmark for compensating providers based on a fee structure that is generally accepted in the industry. It can also provide patients more flexibility on where they decide to go for care.   

On the con side, the benchmark used to calculate the provider’s payment may not align with what the provider agrees to accept as full payment. This can expose the patient to balance billing. In the case of UCR, the data source used to calculate the payment may be different from payer to payer. In fact, UCR can also provide an incentive for a provider NOT to participate in a patient’s network, if the benchmark rate is higher than the payer’s standard reimbursement.

VALUE-BASED REIMBURSEMENTS

Value-based reimbursements are designed to reward providers for delivering “high-quality” over “high quantity” of care. In other words, the provider is compensated based on positive outcomes or the “value” of the services delivered versus the “volume” of services delivered.

Types of value-based reimbursements include:

• Shared risk – the provider helps reduce costs by eliminating unnecessary services and staying within a defined budget. Budget overruns may result in partial pay backs or future withholds of payments to the provider.  
• Shared savings – the provider shares in the savings when patients achieve good health outcomes at a cost lower than the budget target.
• Bundled payments – a shared savings model that compensates providers with a flat fee for an episode of care, rather than individual services within a treatment plan. When patients achieve the desired outcome that’s lower than the bundled payment, the provider shares in the savings.

VALUE-BASED REIMBURSEMENTS — PROS AND CONS

The biggest advantage of value-based reimbursements is its emphasis on “quality” of care rather than “quantity” of care. It provides an incentive to improve efficiency; reduce unnecessary costs; and take a more holistic approach to care. This can lead to better outcomes and higher patient satisfaction.

On the con side, value-based reimbursements add a layer of complexity to an already complex process. Standards need to be set to define what constitutes “good outcomes,” and data needs to be collected and analyzed to determine if the standard is reached successfully.

BENECARE’S OUTCOMES-BASED REIMBURSEMENT MODEL

Since its creation in 1979 by a group of dental professionals, BeneCare’s has used an outcomes-based reimbursement model with a shared-risk arrangement. Our reimbursement model is designed to incentivize dentists to move patients from urgent/episodic care into oral health maintenance. The net effect is “cost containment” as an outcome of improving the membership’s oral health.    

BENECARE’S METHODOLOGY EXPLAINED

Since dentistry does not use diagnosis codes that indicate a patient’s health status, BeneCare leverages the statistical analysis of the following data points along with a peer review of procedures:

• Practice utilization patterns adjusted for patient demographics;
• Cost-per-patient comparisons of providers serving discreet and similar populations;
• Extensive pre-treatment and prepayment review to ensure treatment modality meets the community standard of care.

When our analysis detects treatment patterns that fall outside the statistical norm, BeneCare will alert the dental practice(s) of the anomalies and take appropriate action, including payment withholds, until the behavior desists. BeneCare also rewards dental providers with retrospective incentive payments when the measurable outcomes indicate a positive change in the membership’s oral health status. 

OTHER RESOURCES

For additional information about the cost-containment aspects of BeneCare’s outcomes-based reimbursement model, refer to the “Three Keys to Bending the Cost Curve” and the New Castle County Chamber of Commerce case study, “How Utilization Can Stabilize Cost.”