How Providers are Paid is Different from How Health Plans (Issuers) are Funded

March 25, 2022

Providers are most often paid in Fee-For-Service (FFS) models for visits AFTER they occur. The patient sees a provider, a service or procedure is performed, and a bill (claim) goes to the health insurance plan (payor/issuer) for reimbursement for those services that the provider performed. Providers are not prohibited for adding comorbidities to the current claim; however, they cannot choose a higher reimbursement unless those diagnoses were Monitored, Evaluated, Assessed, or Treated (MEAT), therefore they often practice only using diagnoses specifically addressed.

  • Procedure codes, modifiers, place of service, and ICD codes pertaining to the RVU (relative value unit) work are billed out for a specific service or encounter that has already occurred in the past.
  • Fee-For-Service payments are made in correlation to the RVU from that visit or encounter. MEAT is used to show support of the RVU work provided on that encounter.

This is a RETROSPECTIVE payment.
Retrospective payment is made on the Relative Value Unit of past work done for each encounter.

Health Plans: Under risk adjustment models using prospective analysis, CMS and HHS appropriate funding toward the expected future expenses of each patient through recognizing expected costs on average as estimated through various algorithms based on known diagnoses and their costs. Building a Risk Adjustment Factor (RAF) for each member to fully express all the diagnoses that each member has allows for a more exact future funding based on how ill each patient is as demonstrated by Hierarchical Condition Categories (HCC) values. Patients with more chronic conditions have established higher RAF future funding, while those healthier have established lower RAF future funding. This is not about collecting diagnoses from past claims with MEAT, but all current diagnoses to plan for future costs of manifestations & complications. Many still confuse these two very different diagnosis coding activities and perspectives.

  • ICD codes from above claims, in addition to supplemental diagnosis codes of all current diagnoses the patient carries, are collected each year to establish a RAF (risk adjustment factor) score from their associated HCC’s.
  • Risk adjustment funding is established for expected costs for the next year to be ready for possible complications or manifestations due to those diagnoses, or the combination of them.

This is a PROSPECTIVE funding that supports the above incoming claims. Prospective funding is based on Hierarchical Condition Categories from diagnoses for future needs.

Health plans use the funding supplied for these expected costs (by HCC’s) to pay the providers bills or claims. Plans are then empowered to partner with providers more fully in care oversight by enrolling patients in wellness or disease management programs. These efforts help minimize or mitigate emergency room and hospital inpatient stays thereby saving healthcare dollars while also improving health outcomes. If all diagnoses are not collected, proactive measures and the proactive funding for them are lost. We all must use caution here because when we try to apply MEAT to justify current diagnoses, then we are conflating Fee-For-Service coding and billing practices with Risk Adjustment population health modeling using HCC’s.

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