Reimbursement+-&nbsp;How+do+different+reimbursement+schemes+affect+physicians++and+hospital+incentive+to+provide+care?+What+is+the+difference+in+incentives++between+Fee+For+Service+vs+DRGs?

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Prospective or Fixed Reimbursement
The fixed payment reimbursement scheme give hospitals and health care physicians a known predetermined amount for each type of service they provide for the patient. Since there is a constant amount for each type of service, hospitals’ and health care providers’ main incentive is to cut costs and try to maximize their profit for each service they provide.

The fixed payment method offers little or no incentive for the health care providers to provide quality health care since their motives are primarily to cut costs and to try and maximize their profitability.

Retrospective Reimbursement
The retrospective reimbursement system is also called a cost-plus system under which reimbursement is paid to hospitals for an amount equal to their costs for treating the patient, plus a certain percentage above cost for profit and overhead. This system has been often criticized for its intricacy, volatility, and lack of incentives for providers to try and maximize efficiency and contain costs.

As for incentives to provide quality care, this system has certain qualities that allow health care providers provide more than enough services for the patients as they are not concerned with cutting costs. Extra services may include longer stays and medically unnecessary medical services.

Diagnosis Related Group (DRG) System
This systems lumps a patient in one of over 500 different payment catergories based on thier original diagnosis, secondary diagnoses, surgical procedures, other treatments, age, gender, and if they were treated, transfered, or died. Those who are in charge of the system assign a prospective payment for each group, which the hospitals receive.


 * Below Shows the DRG number for the top five diagnosed groups:**
 * || __DRG #__ || __DRG Description__ ||
 * 1 || 127 || Heart Failure & Shock ||
 * 2 || 89 || Simple Pneumonia & Pleurisy Age>17 w/CC1 ||
 * 3 || 14 || Specific Cerebrovascular Disorders except TIA ||
 * 4 || 430 || Psychoses ||
 * 5 || 88 || Chronic Obstructive Pulmonary Disease ||

The DRG system [|Diagnosis Related Group] is essentially a prospective or fixed reimbursement scheme and has the same incentives involving healthcare, in that they are concerned with cutting costs and are not really interesting in providing the highest possible care. They still provide decent care because of a fear of malpractice, but it is not always the best care possible.

No matter what costs are incurred during the treatment of the patient, the hospitals will only receive a fixed amount for each DRG group. This means that hospitals must be effiecent in their diagnosis of the patient at the very begininng and also must be able to manage their resources well, cause if they don't they might lose money on that patient for that service. The hospital can also provide extra benefits to the patient, but under the DRG system if these services are not part of the recommended treatment the hospital will have to cover the costs themselves. The main goal under this system is to get patients in and out as soon as possible while treating them in the least costly way. Some doctors have found ways around this system to perserve their profitability. This is accomplished by "upcoding" a patient upon their arrival to the hospital. Upcoding refers to diagnosing a paitient to a more extreme DRG group, in which they will recieve more money for that patient.

Part A services (hospital and long term care) under Medicare are reimbursed using the DRG and prospective payment system.

Fee for Service (FFS) Reimbursement
Under this system doctors and physicians are reimbursed for each unit of service they provide for the patient. They can be reimbursed for each visit, each test they give, or other procedures they provide for the patient.

Since this method of reimbursement is variable in nature, it is the hospitals’ preferred choice over any type of fixed or prospective type of reimbursement. This is because it shelters them from having to control their costs. There are no profitability incentive to provide care in a least costly manner. Like the retrospective reimbursement incentive there is this extra incentive to provide more services under this system as the more services they provide the more revenue they will generate.

An example to show the difference between the reimbursement methods of Fee-For-Service and DRG, we can hypothetically assume someone is being diagnosed with pneumonia. Under the DRG system if the original diagnosis is pneumonia then the hospital will only receive one fixed predetermined amount for that patient, and it is ultimately up to the doctor as to which way to treat them. At the beginning the doctors must accurately diagnose and treat this patient in the least costly way in order to maintain their profitability on that patient. Under the FFS reimbursement scheme the hospital will receive the patient and recommend the preferred treatment, but unlike the DRG; FFS doctors are not concerned with costs and will not worry if they are treating the patient in a more costly way. They can perform all the necessary test and treatment procedure and will be reimbursed based on the amount of services they provide to the patient. [|Fee for Service]

Medicare
Originally the reimbursment type for medicare was a retrospective or, basically, cost plus. Under this system the costs of the program soared, and in 1983 Congress was forced to change the reimbursement type to a DRG. This forced the reimbursement rate to a fixed system, and made hospitals become more efficient to survive. It was feared that this change would affect the quality of health care provided because of incentive to cut costs.[|Medicare]

=Q&A= Question: If a hospital has its choice of either being reimbursed by a fixed (lump sum) or variable (per unit) method of payment – which would it choose and why. Answer: A hospital would prefer to be reimbursed by the variable method as they will be able to effectively cover their cost per unit more efficiently.

Question: A cost plus reimbursement system: a. is Fixed in nature b. Reimburses hospitals for its cost incurred with extra added for profit and contingencies c. Reimburses hospitals for its cost incurred minus an amount for profit and contingencies d. Associated strongly with Diagnosis Related Group (DRG) Answer: B. Cost plus systems cover all the costs plus an additional amount as an incentive.

Question: Which reimbursement type causes high costs, but also high quality service a. Prospective b. Retrospective c. Introspecitve d. Full benefit Answer: B. This is a cost plus system which gives incentives to do all possible tests and treatments.

Question: Before 1983 Medicare had what type of reimbursement system a. Retrospective b. Prospective c. Diagnosis Related Group d. Fee for Service Answer: A. This was before they realized it was to costly and had to switch.

Question: What is one benefit and one disadvantage of the DRG system Answer: One benefit is the incentive to cut costs, and one disadvantage is the fact that quality care may not always be given to keep costs down.

Question: If doctors are reimbursed under a fee for service system and the hospital is reimbused under a DRG system which of the following is true: a. The doctors and the hospital are trying to cut costs. b. The doctors do not care about costs and the hospitals are trying to cut costs. c. The doctors and the hospital do not care about costs. d. The doctors are trying to cut costs and the hospital does not care about costs. Answer: B. There is conflict between the interests of the doctors and hospitals due to types of reimbursement.

Question: Under a DRG system if a hospital initially diagnoses a patient wrong then the DRG number will be changed to the true diagnosis. Answer: False. The initial diagnosis is how they will be reimbursed. Doctors realize this and sometimes take advantage of the situation, but if diagnosed for a lower DRG the hospital has to eat the cost.

Question: Which DRG number will result in a higher reimbursement rate a.1 b.100 c.250 d.500 Answer: D. The higher the number the higher the reimbursement.

Question: A change in Medicare from a retrospective to a prospective reimbursement shifts a. the supply of medical care for Medicare patients to the right. b. the supply of medical care for Medicare patients to the left. c. the demand of medical care for Medicare patients to the right. d. the demand of medical care for Medicare patients to the left. Answer: B. There is less incentive to provide medical care, so only the bare minimum is done causing consumption of medical care to fall.

__SOurces - http://www.ahd.com/pps.html http://content.healthaffairs.org/cgi/reprint/5/2/32.pdf Santerre, R., & Neun, S. (2007). Health economics//.Mason: Thomson South-Western. http://waysandmeans.house.gov/hearings.asp?formmode=view&id=4119 http://en.wikipedia.org/wiki/Medicare_%28United_States%29#Payment_for_services
 * http://www.ngcsu.edu/bdf/bfried/LCarc/POLEC.htm__//**