Nov 16, 2020 in Health

Paying for Physician Services

Paying for Physician Services

The Difference in Medicare Payment Methods for Outpatient Services and Physician Services


The Medicare system for outpatient services includes a number of elements. The first one is the ambulatory payment classification (APC) system. It is primarily used for providing payments during group procedures. A corresponding methodology is usually implemented for evaluating the levels of costs for various APCs. On this basis, the necessary adjustments to ultimate prices can be made. The APC payments structure allows examining all services that are included in the final price (Wynn, 2005). In order to decline the prices to a reasonable level, numerous innovative technologies are used, especially in relation to high-cost drugs. However, there are a number of problems associated with the use of different payment methodologies. Moreover, it is problematic to control the level of Medicare costs and ultimate prices.

The Hospital Outpatient Prospective Payment System pays for hospital outpatient services, Hepatitis B vaccines, some Medicare Part B services, etc. (CMS, 2014). At the same time, not all types of outpatient services are included in the OPPS. For example, diagnostic mammography, screening and some therapy services should be covered from other sources. The general system of determining payment rates under the OPPS is as follows. The first element is payment determined on the basis of complexities and costs of medical services. The second element is geographic adjustment. It also consists of a number of sub-elements. The main one is the wage index. Other non-wage elements play a minor role. The ultimate payment is the sum of abovementioned elements.

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Medicare payment methods for physician services are different. They are closely related to the costs of providing these services as well as their historical level. The Medicare Economic Index shows the changes of costs affecting the ultimate fees for physicians services. However, this practice leads to a number of problems associated with different remunerations for physicians and other providers. It is generally recognized that the Sustainable Growth Formula does not allow determining the equilibrium and fair fee for these services. As a result, the quality of services tends to decline, and their prices tend to increase. At the present moment, the level of fees depends on the total amount of spending in the economy. Fees are changed if this amount is different in comparison to the target level. However, physicians do not have any incentives to reduce their spending at an individual level as their fees depend only on the general amount of spending in the economy. Thus, Medicare methods for outpatient and physician services are very different although some of their problems are common.

The Difference Between Bundled Payments and Global Payments

Bundled payments refer to specific episodes of care. They are delivered by several providers, but they are integrated into the single payment. Therefore, the general budget can be determined in advance. Then, it can be revised in accordance with the difference between the expected and actual levels of spending (Burton, 2012). This system is comparatively new in the US. It has become widespread during the recent health care reform of the Obama administration. It is also often described as the middle option between capitation and fee-for-service alternative. This system combines retrospective and prospective payments.

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Bundled payments encourage coordination among different providers. Consequently, they may reach the economy of scale and reduce average fees. Patients can make more reasonable solutions comparing real data and fees of different providers (Wilensky, 2009). The ultimate level of uncertainty tends to decline. However, hospitals may try to maximize their profits through limiting the supply of their services. Due to the spreading of outsourcing in health care, it may be problematic to control the ultimate levels of payments. Therefore, some incentives for artificial increase of costs from the side of some providers may emerge. At the same time, providers may also experience additional risks in the case of substantial injuries or catastrophic events with their patients. They may suffer considerable losses in this case. Moreover, the amount of resources devoted to research projects may diminish.

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Global payments are very different as they are provided to one particular health care organization. The scope of services is also very large; for example, they may include all needs during a year (Burton, 2012). This system is widespread among private health care providers. Profits may be obtained if the actual costs are less than the amount paid to a given provider. The most relevant aspect in this context is the quality of services. These organizations have to prove the necessary standards of quality through regular reporting. The level of the global payments may be determined differently. The normative method may be used when the risk-adjusted amount of payments is determined for a given population. The existing historical trends can also be used. They are usually extrapolated into the future to reflect the dominant tendency.

Thus, bundled payments and global payments are very different as they are based on different approaches for determining fees for services. Both systems have their corresponding advantages and disadvantages. The first system is promoted under the Obama administration and encourages higher coordination between health care providers. However, the second system is more efficient in creating incentives for reducing costs. The impact on quality is disputable; it largely depends on specific providers involved. As the effectiveness of bundled payments is largely criticized by the public, it may be expected that the applicability of global payments may increase.


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