) Focus on Payment Methodologies and discuss the various payment systems. Demonstrate understanding of fee for service, cost based, and prospective payment systems. Just like coding systems are different, payment methodologies for inpatient hospital, outpatient hospital, and professional claims are also different. Many commercial payers follow the lead of Medicare once it has implemented a specific payment system(Aalseth, P. 2015).
Fee For Service- This is the most traditional, simple payment system. For this payment system, a service is billed using a CPT or ICD procedure code. The payer has a fee schedule with a set reimbursement amount for each service it covers. The provider gets the fee schedule amount less any deductible or coinsurance owed by the patient. Most physician services are paid according to a fee schedule. Clinical laboratory services are paid based on a laboratory fee schedule, and ambulance services are paid on an ambulance fee schedule.
Cost Based or Reasonable Cost- Under this payment system, providers or facilities submit an annual cost report that details the expenses of running their businesses. There are extensive rules for completing this cost report. Examples are: data on bed utilization, salaries by cost center, expenses by cost center, indirect costs related to items such as medical education, cost-to-charge ratios, capital expenditures, and other items. In most cases the facility has been receiving periodic interim payments from the payer throughout the year, and the cost report is then used to “settle” or reconcile the costs to the payments already received. For Medicare, the cost reports are submitted to the Fiscal Intermediary (FI), which reviews and/or audits the cost report and then submits it to the CMS for reporting.