There is no set definition for an ACO and it is likely that the various ACO models will continually evolve. The federal Centers for Medicare & Medicaid Services (CMS) defines an ACO as a group of doctors, hospitals, and other health care providers who come together voluntarily to deliver coordinated high-quality care to Medicare patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors, CMS said. Commercial health plans, hospitals, and physicians also are developing ACOs to serve patients outside of the Medicare and Medicaid programs and the goals are similar: delivery high quality, appropriate care while controlling the costs of care. An ACO is supposed to emphasize primary care and be accountable for the cost of care and the quality of care.
Actual acquisition cost (AAC)
When a drug manufacturer sells a medication to a pharmacy, the AAC is the net cost the pharmacy pays. The AAC includes discounts, rebates, chargebacks and other price adjustments, but it excludes the pharmacy’s dispensing fees.
Administrative services only (ASO)
Administrative services only (ASO) is an arrangement an employer makes with a third party to administer the employer’s health insurance benefits to its workers, family members, and retirees. Employers often use ASO arrangements because they are self-insured, meaning they assume the financial risk of providing health insurance benefits to workers. When they are self-insured, they do not need to contract with a health insurer to provide health insurance to their workers. Many self-insured employers use third-party administrators (TPAs) in ASO arrangements and they also contract with health insurers as ASOs. As ASOs, health insurers process claims and make payments and let the employers’ workers, families, and retirees use the insurers’ physician and hospital networks. TPAs usually don’t have networks of providers and so they just process claims and make payments.
Affordable Care Act (ACA)
Officially known as Patient Protection and Affordable Care Act, the ACA was signed into law on March 23, 2010. The main provisions of the law include a mandate for employers with 50 or more employees to provide health insurance for all full-time employees and family members or pay a penalty and a mandate for individuals to buy health insurance coverage or pay a penalty. The law also calls for subsidies for low- and moderate-income Americans to help them buy insurance and for state-based health insurance exchanges. These provisions go into effect on Jan. 1, 2014 (except for the employer mandate, the implementation of which is delayed until Jan. 1, 2015). The law is designed to help an estimated 32 million Americans gain insurance coverage by 2019.
Alternative payment model
Under the Medicare Access and CHIP Reauthorization Act of 2015, physicians participating in a system that pays them under an alternative payment model (APM) will get a 5 percent bonus on what Medicare pays from 2019 through 2024. The act defines an APM as a patient-centered medical home, any care delivery system under the Center for Medicaid and Medicare Innovation (except for a health care innovation award), an accountable care organization operating under the Medicare shared savings program, some selected Medicare demonstration projects and other demonstration projects required by federal law, and the resource based relative value scale. The bonuses disappear in 2025 but in 2026, physicians participating in an APM will qualify for a 0.75 percent increase in Medicare pay.
Some health insurers set yearly limits on what they will pay for individuals and families, either in total costs or for services such as prescriptions, dental care, or hospitalizations. After an insured person reaches the limit, he or she must pay all such costs for the rest of the year.
Average manufacturer price (AMP)
When a drug retailer or wholesaler buys a medication directly from a manufacturer, the AMP is the average price paid. Congress created the AMP to calculate rebates for the Medicaid program in 1990 and is available to the public.
Average sales price (ASP)
The average sales price is what all purchasers pay to drug manufacturers. ASP includes practically all discounts but is available only for medications covered under Medicare Part B.
Average wholesale price (AWP)
The AWP is what pharmacies pay to buy drugs from wholesalers.
This occurs when a hospital, physician or other health care provider sends a bill to a managed care patient after the patient’s health insurer has paid its share. The patient owes the balance. By law, providers cannot balance-bill Medicare patients. Thirteen states have passed laws to protect managed care patients from exorbitant balance billing, which occurs when an out-of-network provider charges a patient an out-of-network rate, usually higher than the rate in-network providers charge, according to the Kaiser Family Foundation. Some out-of-network charges are extremely high even though the patient believed he or she was getting care in network. In-network doctors sometimes will ask out-of-network doctors to assist in a procedure and the patient gets billed for whatever the out-of-network provider charges. The health insurer may pay the out-of-network doctor an in-network rate or nothing at all, leaving the out-of-network doctor to charge the patient the remaining amount.
When used in reference to health insurance, the concept of behavioral hazard defines the behavior that some insured individuals may exhibit when forced to pay copayments of deductibles when seeking physician or hospital care. Economists fear that when insured persons need care and yet must pay for such care they may forego certain recommended treatments. A patients on cholesterol-lowering medication may not have any symptoms, for example, but does not want to incur the expense of making a copayment for the medication and thus skips this prescribed treatment. Economists believe that higher levels of cost sharing worsen the problem.
Most health insurers pay providers under fee-for-service arrangements. If a physician sees a patient in the office, the physician bills the patient’s insurer for that time. If a patient needs heart surgery in a hospital, the hospital bills the insurer for the operation, hospital stay, supplies and other costs. The cardiologist, anesthesiologist, and other providers all bill the insurer as well. The patient also may be billed.
Bundled payment, however, is a fundamentally different form of payment. Under bundled payment, physicians, hospitals, and other providers assume the financial risk for delivering an episode of care. For heart surgery, the episode would be some period before the surgery, usually 30 days, and sometime after the surgery, usually 90 days. For a chronic condition such as asthma, diabetes, or congestive heart failure, a physician would bill the insurer for one year’s worth of care for each patient under a bundled payment arrangement. Most bundled payment programs are for acute care episodes, such as hip or knee replacement surgery, but many are for patients with chronic conditions. Insurers pay physicians and hospitals working under bundled payment arrangements a set fee. The providers usually are fully responsible for any costs above that fee and can share any savings if costs are below the fee. Physicians and hospitals also are responsible for any potentially avoidable complications, such as if a surgery patient gets an infection. Bundled payment thus aligns the insurers’ incentives to control costs and shifts financial risk to providers and providers who can share in any savings. See also Warranteed payment, Episode payment for a procedure, and Condition-based payment.
When a health care provider receives a fixed payment for each patient under his or her care, regardless of whether the provider’s patient receives many or few health care services, this payment is called capitation or a capitated fee. An annual capitated payment covers all services for a year. The word “capitation” has a negative connotation among insurers and so they sometimes refer to annual or capitated payments as global payments or a global budget.
Centers for Medicare & Medicaid Services (CMS)
Part of the Department of Health and Human Services, this federal agency runs Medicare, Medicaid and the Children’s Health Insurance programs. It now includes centers, or offices, responsible for key elements of health reform, such as the federal Center for Medicare & Medicaid Innovation.
Children’s Health Insurance Program (CHIP)
The federal CHIP program provides health coverage to nearly 8 million children in families with incomes too high to qualify for Medicaid, but can’t afford private coverage. Signed into law in 1997, CHIP provides federal matching funds to states to provide this coverage.
Any information recorded on the forms physicians, hospitals and other providers use to submit claims for payment health insurers. Claims data differ from clinical data (see separate entry). Two types of information are recorded in claims data. First are procedure codes that describe the specific services a patient gets. These codes are recorded using the American Medical Association’s Current Procedural Terminology (CPT) codes to report medical procedures and services to public and private health insurers. Second are diagnosis codes that describe the patient’s health issue being treated. Providers in the United States use the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). By Oct. 1, 2015, providers will change to ICD-10-CM, which providers use in most other countries.
This describes a patient’s condition and the services provided and are recorded in the patient’s medical chart, an electronic health record or a clinical data registry. The two types clinical data are the services a patient receives and the health problems of the patient. Generally, clinical data have information about services and health problems than are contained in claims data and may include services ineligible for payment and health problems, such as a comorbid condition, that the provider did not treat explicitly.
Concierge medicine is a method of care in which an individual physician or group practice of physicians give patients longer office visits and more time and attention than patients get in a typical doctor-patient arrangement. The doctors also respond quickly to requests for care. Usually, a patient would pay a monthly, quarterly, or annual fee for concierge care and other fees for individual services.
A copay is a fixed fee that an individual would pay for each health care service, such as $15 for primary care and $50 for specialist care. Copays or copayments vary from plan to plan. Co-insurance is a percentage that the patient pays for health care services and would be paid in addition to a copay. Both a copay and co-insurance count toward a patient’s annual out-of-pocket limit. Copays sometimes are paid to in-network providers while co-insurance is paid to out of network providers, but these arrangements vary from plan to plan.
Under the Affordable Care Act, Congress called for the Consumer Operated and Oriented Plan Program (Co-ops), that would serve as qualified nonprofit health insurers that would competitive health plans in the individual and small group markets. These nonprofit organizations can be formed at national, state or local levels and can include doctors, hospitals, and businesses as member-owners to offer insurance through the ACA marketplaces.
Under this form of bundled payment an insurer would pay a single amount for all services and procedures needed to treat a particular patient condition or combination of conditions for a certain period of time (usually one year). The insurer may make the payment in monthly installments, as it would under capitated payment. In fact, condition-based payment is similar to capitated payment for one patient with one or several conditions. The physician gets one payment to cover all costs for that patient’s condition for one year. A patient with diabetes, for example, would need certain services over a year, such as exams and blood tests, and these services would be included in the payment. If the patient’s actual costs after one year are higher than what the physician receives in payment, the physician would need to pay that higher amount.
Critical Access Hospital
A Critical Access Hospital is a hospital with fewer than 25 acute inpatient beds in a rural area and distant from other hospitals. The federal Centers for Medicare & Medicaid Services designates facilities as critical access hospitals and pays them under a system in which they are reimbursed for services plus a small margin for profit. Most larger hospitals are paid through the Medicare Inpatient Prospective Payment System.
An insurance deductible is an amount an insured individual or family would owe for health care services before a health insurance plan would begin to pay. An annual deductible of $500, for example, would mean that an individual would need to pay $500 out of pocket for all health care services before an insurance company would start covering health care costs. Deductibles are paid before an individual pays his or her co-insurance amount, which is almost always higher than the deductible. The deductible and co-insurance both count toward an individual’s out of pocket maximum per year.
Defined benefit vs. defined contribution
When a health plan, whether through a private employer or a government program such as Medicare or Medicaid, promises specified benefits (even if the costs can fluctuate, benefits are guaranteed), it's called a defined benefit. Under Medicare and Medicaid, the government must spend what’s necessary to provide benefits for everyone enrolled in these programs. Beneficiaries may need to share in paying for some costs, but the benefit is not capped. Most private health insurance plans still have defined benefit plans in which the employer pays a certain percentage of the premium, and the employee pays the rest.
But more employers today are adopting defined contribution plans in which they a pay limited, set, or fixed amount toward health coverage, whether through a voucher or another form of payment. Beneficiaries may have their choice of health plans, but the contribution is fixed. That means the government or employer has a fixed financial liability. The development of the state-based insurance exchanges has accelerated the growth in defined contribution plans because they allow employers to pay a set amount for each employee’s care and employees then shop for the best insurance coverage on the exchanges.
Direct contracting is an arrangement between a purchaser and a provider to deliver health care services for a select group of patients, usually health plan members or employees, family members and retirees of one or more employers. The health plan or the employer pays the providers directly for each service the provider delivers to the patients. Often, purchasers make direct contracts with the best providers for certain treatments such as joint replacement or cardiac care.
Direct primary care
Direct primary care (DPC) is a form of a bundled capitation payment model in which a primary care doctor or group practice of primary care doctors charges a monthly, quarterly, or annual fee to a patient to cover all or most of the services the primary care practice would normally provide, such as office visits, laboratory testing or other care management services. The patient would not necessarily need to enroll in a health plan or group health insurance. Instead, the patient might have coverage for catastrophic care. The patient would not be charged a separate fee for individual services the doctor or group practice provides.
Hospitals, physicians, or other health care professionals have downside risk if they could incur costs that are greater than the payments they receive. See also: Upside risk.
Health insurers offer embedded deductibles when providing family coverage. When a family has an embedded deductible, the family has a deductible and each family member has an individual deductible that is much lower than the total family deductible. After an individual meets his or her deductible, the health plan pays for that person's covered medical services, even if the family had not met its deductible. An embedded deductible can be advantageous for family if one family member has unusually high covered medical expenses. When that family meets his or her deductible, the insurer begins to pay for that person’s expenses even if the family has not yet met its deductible.
Many Americans who are employed full time get health insurance for themselves and their family members through their employers. The employers generally pay for most of the cost of the insurance while workers pay a share of the total expense through premiums, copayments and deductibles. That share has been rising as employers have shifted more costs to workers as health insurance costs have risen. A report, The Kaiser Family Foundation and Health Research & Educational Trust 2012 Employer Health Benefits Annual Survey, shows what employers have paid since 1988 and how those costs have risen.
The employer mandate is a key part of the Affordable Care Act. It requires companies with more than 50 employees to provide health insurance to workers and their family members or face a penalty. Disagreements over whether the mandate was constitutional were the basis for many lawsuits challenging the Affordable Care Act. In a significant ruling in June 2012, the U.S. Supreme Court upheld the mandate in the ACA. The employer mandate was originally scheduled to take effect on Jan. 1, 2014, but the Obama administration decided in June 2013 to delay implementation of the employer mandate until Jan. 1, 2015.
Episode payment for a procedure
Under this form of bundled payment, an insurer makes a single payment for all services associated with delivering a procedure including those services needed before the procedure (usually 30 days) and a specific period after the procedure (usually 90 days). The payment includes services to correct preventable complications after the procedure, such as the need to care for an infection. In the case of any surgery requiring rehabilitation services, such as physical therapy, those services would be covered in full and the patient would not need to pay an additional fee.
The Employee Retirement Income Security Act of 1974 (ERISA), pre-empts state law, thwarting state efforts to regulate health insurance that self-insured employers offer to their workers. Self-insured employers cover 57 percent of all Americans who have health insurance. Courts have long upheld the concept of ERISA pre-emption, saying that ERISA allows self-insured employers to be exempt from state regulations that apply to traditional health insurers.
Essential health benefits
Essential health benefits are a set of benefits created under the Affordable Care Act that will ensure that a plan covers comprehensive services. All plans, inside and outside of the state-based exchanges, will need to meet these minimum requirements in order to offer coverage on the exchanges. Some insurers will decide not to participate on the exchanges rather than offer essential health benefits for all exchange participants.
Exchanges or health insurance exchanges
The exchanges are new marketplaces in which individuals and small businesses can purchase health insurance under the Affordable Care Act. Some states are developing their own exchanges (such as Covered California) and others have refused to develop exchanges, which means the federal government will establish the exchanges in these states. States can have one exchange for small business and another for individuals, or they can merge them.
Global payment is a form of capitated payment in which health insurers pay physicians, hospitals and other providers a set fee for each person under care. The fee is usually paid on a per-member-per-month basis as a fixed monthly payment. The physicians, hospitals, and other providers would form a network to share the funds and provide all care to the health plan members the insurer would assign. If all care after one year is lower than what the providers are paid, they can share in the savings. If all care is higher than what they are paid, the providers would need to cover those costs from their own funds or from a stop-loss insurance policy. Critics have charged that global payment, like capitation, encourages providers to stint on care delivery. While providers may gain in the short term from delivering less care than members need, they may lose out over time if patients need more expensive care later. To ensure that members get the best, most appropriate care, some health insurers pay providers extra if they achieve certain quality goals, such as ensuring that all patients get appropriate health screenings, for example.
Group model HMO
A group model health maintenance organization (HMO) is one that contracts with a single multispecialty medical group to provide care to the HMO’s members, or one that owns a multispecialty group of physicians. The group practice may work exclusively with the HMO, or it may provide services to non-HMO patients as well. The HMO may pay the medical group a negotiated, per capita rate and then the group would distribute these funds among physicians, usually as salary. Examples of group-model HMOs include Group Health Cooperative in Washington State and Kaiser Permanente in California and other states.
The International Classification of Diseases, Ninth Revision, Clinical Modification, will replace the ICD-9-CM codes in the United States on Oct. 1, 2015. There are 68,000 ICD-10 codes and they provide more specific information on the patient’s diagnosis than ICD-9 codes provides. , which are seven-position alphanumeric codes that et has been expanded from five positions (first one alphanumeric, others numeric) to seven positions. The codes use alphanumeric characters in all positions, not just the first position as in ICD-9 in part because the ICD-10 cods are a combination of diagnoses and symptoms, meaning fewer codes are needed to describe a condition fully.
Part of the Affordable Care Act, this mandate requires individuals to have health insurance, or face a penalty. Dispute over whether the mandate was constitutional was the basis for lawsuits challenging the ACA. In a significant ruling in June 2012, the U.S. Supreme Court upheld the mandate in the ACA.
Inpatient Prospective Payment System.
The federal Centers for Medicare & Medicaid Services uses the Inpatient Prospective Payment System (IPPS) to pay for health care services delivered in most large acute care hospitals for inpatient stays. Under the IPPS, a hospital is paid a case rate for each patient, meaning the hospital receives a single payment for the patient’s entire stay. The payment is based on the patient’s diagnosis.
Health maintenance organizations (HMOs)
An entity that offers prepaid, comprehensive health coverage for both hospital and physician services with. HMOs typically have a closed network of hospitals, physicians, and other providers, meaning members must choose one of these providers and cannot get care from another provider without a referral. A member who gets care outside of the network without a referral may be asked to pay the full cost of that care.
Health savings accounts (HSAs)
HSAs are usually linked to HDHPs and are savings accounts that have tax advantages because an employer or individual account owner can put pre-tax funds into these accounts without incurring a tax penalty. The account funds can be used to pay for qualified medical expenses only. Contributions to an HSA can be made by both a member and his or her employer, but the money belongs to the member. The money invested in an HSA is tax-deductible, and any earnings are tax-deferred. HSAs are portable from one job to another.
High-deductible health plans (HDHPs)
HDHPs generally are defined as insurance policies with lower premiums and hefty deductibles. HDHPs are sometimes called consumer-directed health plans or CDHPs. Federal rules require these plans to have deductibles of at least $1,200 for an individual and $2,400 for family coverage for 2012. Among employed workers, 19 percent were enrolled in HDHPs in 2012, according to a report, The Kaiser Family Foundation and Health Research & Educational Trust 2012 Employer Health Benefits Annual Survey.
High out-of-pocket costs
In 2014, four in 10 working-age adults skipped some kind of care because of the cost, according to surveys by the Commonwealth Fund and other organizations. The reason they skipped or postponed care was that out of pocket costs have risen steadily over the years, making physician visits, medications and certain services too costly for many Americans. Years ago, only about half of all workers had annual deductibles, meaning the amount a consumer must pay before insurance starts paying. By 2014, 80 percent of Americans who have health insurance through their work have annual deductibles, according to one study. And those consumers enrolled in high-deductible health plans represent almost 25 percent of all Americans. In less than 10 years, the amount individual consumers pay for their annual deductible has more than doubled, from just under $600 to more than $1,200.
Lab-developed tests (LDTs)
The FDA defines a laboratory developed test as “an in vitro diagnostic test (meaning it can detect diseases, conditions or infections) intended for clinical use and designed, manufactured and used within a single laboratory.”
This is a term the federal Centers for Medicare & Medicaid Services (CMS) uses to describe the ideal use of electronic health record (EHR) systems. Certified EHRs should be used to reduce health disparities and improve quality, safety, and efficiency; to engage patients and family; to improve population, public health, and care coordination; and to maintain privacy and security of patient health information, CMS said. Under meaningful use, CMS has been paying physicians and hospitals to adopt, implement, upgrade, or demonstrate meaningful use of certified EHRs. Physicians can get as much as $44,000 from Medicare and $63,750 from Medicaid for installing and using certified EHR systems. Hospitals can qualify for EHR incentive payments of $2 million or more, CMS said. The goals of CMS’ meaningful use program include improving clinical outcomes, population health, transparency and efficiency, the agency said. The meaningful use program is designed to support physicians and hospitals in installing certified EHR systems in three stages. Stage 1 was in 2011-12 and involved data capture and sharing, stage 2 is in 2014 and is designed to improve clinical processes, and stage 3 will be in 2016 when meaningful use will help providers improve patient and population health outcomes.
Merit-based incentive payment system (MIPS)
The Medicare Access and CHIP Reauthorization Act of 2015 calls for a new merit-based incentive payment system (MIPS), which is designed to foster the move from volume-based to value-based payment. Under MIPS, physicians would get bonuses and penalties based on whether they score above or below a certain target for hitting quality measures. It will start in 2019 when physicians will get performance improvement incentive payments of 4 percent to 9 percent. In 2026, physicians participating in the MIPS will get a 0.25-percent annual increase in payments. MIPS combines thee financial incentive programs for physicians into one system. The three incentive programs being eliminated are the electronic health record (EHR) incentive program, the Physician Quality Reporting System and the value-based payment modifier established under the Affordable Care Act.
When used in reference to health insurance, the term moral hazard is used to describe how a person’s behavior changes once that person is insured against losses. When fully covered for all physician and hospital care, for example, a person may be inclined to overuse the health care system, thus driving up costs. This concept is what drives some employers and health plans to require insured individuals to pay copayments and deductibles on the theory that such payments will make consumers consider whether they truly need the care they are seeking. Health care economists believe the counterpart to moral hazard is behavioral hazard.
In the individual and small group insurance marketplaces under the Affordable Care Act, many health plans are expected to offer several so-called “narrow networks” of physicians, hospitals, and other providers. These narrow networks may not include the premier hospitals, physicians, or other providers in a region but these providers may provider care at lower costs. Note that although health plans may offer narrow networks, the plans must still satisfy ACA requirements about coverage and access.
Health plans make a distinction between in-network coverage and out-of network coverage. When health plans contract with doctors, hospitals, clinical laboratories, and other health care providers, they designate these providers as being “in network.” These providers then charge patients lower rates than they would charge if they were out of network. Out-of-network providers almost always charge patients more and health plans often require patients to pay higher deductibles or coinsurance or both to see out-of-network providers.
Insurers, consumer advocates and insurance regulators evaluate the adequacy of a physician or hospital network based on the ability of the network’s providers to achieve certain standards in the way they deliver services to the patients who are required or encouraged to use the network. The most basic standard of adequacy is to have at least one provider in the network who can deliver each service that a patient could potentially need under the insurance plan or payment arrangement. Adequacy requirements often include a maximum distance a patient must travel to receive care from a network provider who can deliver the services patients need and the quality of care the network physicians and hospitals deliver. The National Association of Insurance Commissioners has proposed revisions to the Network Adequacy Model Act that states would follow when considering network adequacy laws. The federal Centers for Medicare & Medicaid Services also has proposed to expand the federal network adequacy standards that health and dental plans must meet to be certified as qualified health plans (QHPs). Under the CMS proposal, the federal rules would largely subsume the NAIC’s efforts because states would be need to strengthen their standards or meet the federal rules. CMS is expected to issue a final rule in the spring of 2015.
The federal Center for Medicare and Medicaid Innovation announced a demonstration program for next-generation ACOs that will have multiple payment options, including capitation, and that requires hospitals, physicians, and other providers to accept virtually full performance risk and some insurance risk for a population of Medicare beneficiaries. Performance risk is the risk that providers assume for factors under their control, such as causing an infection in a patient during treatment. Insurance risk results from factors related to a patient’s health status or other factors that are beyond a provider’s control of a provider, such as the risk that patients will have more serious health problems than an average group of patients.
Non-claims costs are what health insurers pay for cost containment strategies, claims adjustment, sales department salaries and benefits, fees and commissions for agents and brokers, taxes and general administrative expenses.
Health insurers offer non-embedded deductibles when providing family coverage. A non-embedded deducible means the total family deductible must be paid before the insurer will paying for covered medical expenses for any individual member. Health plans sold on the government exchanges set a limit on family deductibles at $13,700 in 2016. The problem with a non-embedded deductible is that families without children (meaning when a two members of a family share a family plan) may be better served with individual plans and individual deductibles. Non-embedded deductible plans can cause one member of the two-member family to spend thousands of dollars that would have been covered under an embedded deductible or under an individual plan. In 2016, the federal government moved to require all plans to eliminate non-embedded deductibles.
Non-preferred drugs are usually brand-name medications (although in rare instances, there are non-preferred generic drugs). As a result of not being preferred, these drugs carry the highest copayment, and may require a patient to pay more in the form of coinsurance. Usually non-preferred drugs are higher-cost medications that have recently come on the market and an alternative and lower-cost medication is available.
This occurs when a patient goes out of network for care. Sometimes bills from out-of-network providers can be much higher than what in-network providers charge. Often, the patient is fully responsible for the high charges even though the patient did not specifically choose the out of network provider. When a patient has a medical emergency and calls 911, for example, an ambulance will take the patient to the nearest hospital or facility equipped to handle such cases. That hospital or facility may not be in the patient’s network. In 2011, America’s Health Insurance Plans (AHIP), a trade group, reported that 88 percent of claims were paid on an in-network basis and 12 percent were paid out-of-network. AHIP also reported that out-of-network charges can be much higher than other charges, some running as much as 95 times higher.
Out-of-pocket limit (or out-of-pocket cap or maximum)
This limit is the most a consumer would pay during a policy period (usually a year) before health insurance would begin to pay 100 percent of the allowed amount of a bill. Some states require health plans to set out-of-pocket limits on copayments for certain high cost medications. California, Delaware, Louisiana and Maryland, for example, limit the amount an insured person would pay for a month’s supply of drugs. California’s cap applies to all covered drugs, some states apply caps only to specialty drugs.
Physician Quality Reporting System (PQRS)
This is a reporting program from the federal Centers for Medicare & Medicaid Services (CMS) for physicians and other providers. Previously, it was known as the Physician Quality Reporting Initiative (PQRI). It uses a combination of financial incentive payments and payment adjustments to promote reporting of quality information by what CMS calls eligible professionals (EPs). While the program is designed to reward physicians for meeting certain quality goals, physicians and other providers complain that filing the necessary documentation is sometimes not worth the time and expense because some high-paid specialists consider the payments to be modest compared with their annual income. In 2012, for instance, the rewards totaled about 0.5% of Medicare’s annual payment to physicians. Beginning in 2015, however, the program will result in lower payment for those EPs who do not report data on quality measures for their professional services.
A Pioneer ACO is a provider organization participating in a demonstration program that the federal Center for Medicare and Medicaid Innovation established that uses a shared savings payment model with different rules than those for provider organizations participating as ACOs in Medicare’s Shared Savings Program. The federal Department of Health and Human Services says the Pioneer ACO Model is designed for health care organizations and providers that already were experienced in coordinating care for patients across care settings and thus allows those providers to move more rapidly from a shared savings payment model to a population-based payment model.
Pre-authorization or prior approval
Health insurers sometimes require physicians or patients to get pre-authorization for expensive diagnostic tests or procedures. Failing to get pre-authorization (or prior approval) can mean the patient would need to pay the entire bill rather than only the patient’s cost-sharing portion.
A preferred drug is usually a brand-name medication that a health insurer has clinically reviewed and approved for use based on its proven clinical value and cost effectiveness. Usually, for brand-name preferred drugs there is no generic equivalent. Preferred drugs cost less than non-preferred drugs.
Premium rate review
Premium rate review is the process state insurance departments use to review and accept (and in some cases, revise and reject) health insurers’ rate requests. What insurers propose in the spring is what they want to charge consumers for premiums for policies to be sold on the exchanges starting in the fall. The rates are preliminary because they are subject to state and sometimes federal review and approval. Insurance premium rates are only a part of what goes into what health insurance costs for individual consumers. Additional costs include deductibles and copayments (which together are called coinsurance). When states have ineffective review processes, officials from the federal Department of Health and Human Services review the filings but only state officials can tell insurers to revise rates.
Premium surplus is the amount of money that insurers report as profit or reserved capital and calculated by subtracting costs for paying medical claims, quality improvement and non-claim costs from premiums collected. It’s one of the numbers the federal Department of Health and Human Resources uses to calculate each insurer’s medical loss ratio.
Price transparency refers to a trend to provide consumers with the cost of the individual services of health care, such as a physician visit, a diagnostic test, or a hospital procedure. With such price information, consumers can make informed health care choices. Programs designed to promote health care price transparency usually involve publishing prices from different providers to allow consumers to compare prices from one provider against that of another. The price should include the total cost to the consumer and include any discounts providers offer. The best price transparency efforts provide the actual price that a consumer would pay and ideally should provide information on what the consumer would pay in the form of an insurance deductible, copayment, co-insurance. Some states require providers to offer this information.
Early versions of bills to reform health care in 2009 and 2010, included a public option, which would be like a government-run health insurer that would serve to increase competition, particularly in those states where competition was limited. In the final version of the bill that became the Affordable Care Act, there was no public option in part because some conservative Democrats objected to the idea. At the time, supporters of the public option said it would have countered the adverse effect of limited competition and helped to contain costs.
Quality-adjusted life year (QALY)
A measure used to quantify the value of treatment. QALYs measure the time a patient lives and the quality of that patient’s life after receiving a treatment. One year in perfect health equals one QALY. Health economists and researchers used QALYs to quantify the health benefits of particular treatments, such as a medication. Some of Europe’s health systems use QALYs to decide which drugs to cover.
Employers and health plans sometimes set a certain price limit when reimbursing employees or plan members for health care services. This limit is known as the reference price. Any employee or plan can shop for a health care service and pay whatever rate the provider or hospital charges, but the employer or health plan will not reimburse the employee or plan member any amount above the reference price. In this way, reference pricing may affect what the employee will pay and will sometimes help to drive down costs. The employee can pay more than the reference price but will not be reimbursed above the limit.
During the first three years under the Affordable Care Act (2014 through 2016), the law calls for a temporary reinsurance program for those health insurers that have enrolled higher-cost individuals (meaning those who have pre-existing conditions or poor health status). Designed to stabilize premiums, the reinsurance program will transfer funds to individual insurance plans that have higher-cost enrollees. To pay for the program, the federal Department of Health and Human Services (HHS) will collect a reinsurance fee from health insurers and third-party administrators of self-insured group health plans. The administrators are expected to pass along these fees to employers that hire administrators to manage their health insurance plans. In the first year of the program, HHS expects to collect and distribute $12 billion based on need. In 2015, HHS will collect and distribute $8 billion, and in 2016, it will collect and distribute $5 billion in reinsurance fees.
Relative value units (RVUs)
The federal Medicare program makes payments to physicians based on their relative value units (RVUs), which reflect a relative level of time, skill, training and intensity for each particular service when treating patients. A visit with a well patient would be assigned a lower RVU than an invasive surgical procedure. Commercial health insurers typically follow Medicare’s example and so may base payments on RVUs as well. Physicians used the Current Procedural Terminology (CPT) coding system for each patient encounter. Each CPT code has three components (work RVU, practice expense RVU, and professional liability insurance RVU), and the sum of the three components is the total RVU for each CPT code. (See RBRVS.)
Resource based relative value scale (RBRVS)
In 1992, the federal Medicare program introduced the Resource-based Relative Value Scale (RBRVS) system to describe and quantify physicians’ work and to pay for each physician service. The RBRVS incorporates three components of physician services: the actual work the physician performs, the physician’s practice expense, and the physician’s professional liability insurance expense. A relative value unit (RVU) is assigned to each component. (See RVU.)
The risk adjustment program under the ACA is permanent and designed to reinforce rules that prohibit risk selection. As a permanent program, it is unlike the reinsurance and risk corridor provisions under the Affordable Care Act, which are temporary and run only from 2014 through 2016. Under the risk adjustment program, the federal Department of Health and Human Services will pay health insurance companies that disproportionately enroll higher-risk populations (such as those individuals who have chronic conditions and poor health status). Payment will be made after the plan year and before June 30 of the following year. Only those plans that are non-grandfathered individual and small group market plans will be affected. Grandfathered plans are those that existed in March 2010 and thus do not need to meet the requirements of the ACA. Insurers canceled many of these plans in 2013.
The ACA’s temporary risk corridor program runs from 2014 through 2016 and applies to qualified health plans in the individual and small group markets. Designed to stabilize health insurance premiums by protecting against inaccurate rate-setting, the risk corridor program works in conjunction with the medical loss ratio (MLR) rules, which specify that qualified health plans must spend 80 percent of premium income on delivering health care to enrollees and on improving quality. If insurers do not spend 80 percent of premium income on care delivery and quality improvements, they must issue a refund to enrollees. The risk corridor program works by allowing the federal Department of Health and Human Resources to collect fees from insurers that have costs that are less than 3 percent of the target amount under the MLR rules and use those funds to reimburse plans that have costs that exceed 3 percent of the MLR rules.
Risk for payers
In insurance, payers (meaning health plans or health insurers) take on financial risk when they accept a fixed premium payment from an employer, labor union, or other group of members in exchange for a promise to pay for all health care services for the members of the group even if those cost exceed the total revenue received in premium income.
Risk for providers
Providers (meaning hospitals, physicians or other health care professionals) take on financial risk when they agree to provide all health care services for a group of employees or a union for a fixed fee even if costs exceed the total fee. Usually, the providers are paid monthly and costs are totaled at year end. If costs exceed the payment, the providers need to pay the difference. If costs are below the payment, they keep the difference.
Health insurers assign a numeric value to patients when adjusting payment based on the level of illness in a population. The risk score indicates the relative level of illness and thus a level of spending required for that patient. In such risk-adjustment systems, physicians and other providers get paid more when caring for patients who are sicker than other patients.
Health insurers use risk stratification to adjust payments based on differences in patient characteristics. Health plans assign patients to two or more categories based on their level of illness characteristics that influence the costs of care and then adjusting the payment for patients based on the category to which the patients are assigned. The diagnosis-related group (DRG) system that the federal Centers for Medicare & Medicaid Services uses to pay hospitals is an example of a risk-stratification system based on clinical risk.
A self-insured employer or purchaser (also called a self-funded employer or purchaser) sets funds aside in order to assume the financial responsibility of paying claims for health care services for its employees, employees’ family members and retirees. Self-funding is different from purchasing health insurance policies from a health insurance company for each employee in that the employer is at risk for all claims and so could suffer a loss or make a profit depending on the level of health care spending for employees each year. If losses are too high, employers have coverage (called stop-loss insurance) beyond a set amount that they buy from insurance companies. An estimated 149 million Americans have employer-sponsored coverage and most of those individuals are covered under self-insured plans.
Shared decision making (SDM)
A provision in the Affordable Care Act encourages greater use of shared decision making. SDM is a process some health plans and provider groups use to help patients and physicians make health care decisions together. Designed to take into account the best scientific evidence and patients’ preferences, SDM is most useful important when a patient is considering preference-sensitive options, such as surgery or watchful waiting care. If more than one option is appropriate, patients should be allowed to consider the advantages and disadvantages of each one. Too often, however, patients make decisions without having all the information they need or fully understanding their options. Also, physicians often make decisions for patients without explaining all the disadvantages of certain procedures or treatments.
Shared savings is a form of pay-for-performance that health plans and the federal Centers for Medicare & Medicaid Services use as an incentive for physicians, hospitals and other providers under contract to improve health care quality and efficiency. In a shared savings program, an insurer will share the savings with a provider or a group of providers if the providers keep costs below a certain benchmark spending level. Shared savings programs are a precursor to shared-risk programs.
Shared risk programs are a form of pay for performance that health plans and the federal Centers for Medicare & Medicaid Services use when contracting with physicians, hospitals and other providers. Recognizing that physicians, hospitals and other providers may feel a potential financial loss more powerfully than they feel a potential gain, some health policy experts believe shared-risk programs could present stronger incentives to providers to manage care appropriately than shared savings programs do. Under a shared-risk program, the providers would have some loss of funds when spending exceeds an established target. Capitated payment, in which a provider receives a set amount to deliver care to each patient each month, is a form of shared risk. If the provider’s costs exceed what the health plan pays, the provider would suffer a financial loss. Other forms of shared risk include the loss of a bonus payment if the provider fails to achieve certain levels of quality or efficiency.
The Small Business Health Options Program (SHOP) will provide insurance coverage for businesses in every state beginning in November 2014. Originally, the SHOP exchanges were scheduled to open in November 2013, but the opening was postponed when the federal Department of Health and Human Services needed to fix the individual health exchange system. Before the SHOP exchanges open, small employers can purchase health care for workers through brokers, HHS said. When the SHOP exchanges open, they will serve employers with as many as 100 employees. This number may be increased in the years ahead, HHS said. By design, the SHOP exchanges will offer a variety of plans, although the choices will be limited in the first year in some states.
Specialty pharmaceuticals are a fast-growing category of costly medications developed for specific chronic and genetic conditions. These drugs may include bioengineered proteins, complex molecules, or be derived from blood. These pharmaceuticals often are injected or infused, require additional patient education and close monitoring of the patient’s clinical response by a physician or other provider. They also may require member-specific dosing, medical devices to administer the medicine or special handling and delivery.
Staff model HMO
A staff model health maintenance organization (HMO) is a type of closed-panel HMO, meaning patients can receive services only through certain physicians, such as those who are employees of the HMO. The physicians see patients in the HMO’s own facilities and get paid a salary from the HMO. Sometimes, a staff-model HMO will contract with physicians to supplement its employed staff, but the employed physicians deliver most of the care to the HMO’s members.
Surprise medical bills
Surprise medical bills are those that arise when a patient who has health insurance receives care from an out-of-network provider without previous notice. Such inadvertent care delivery arises in emergencies when a patient has no chance to select an emergency room, treating physicians, or ambulance providers who are in-network. Or, a surprise medical bill can result when a patient gets care from an in-network provider (at a hospital or ambulatory care facility) but a non-network provider is asked to participate in the patient’s care and the patient is not informed. Such non-network providers often are anesthesiologists, radiologists, pathologists and surgical assistants, among others. In some cases, out-of-network subcontractors may operate entire departments, such as the emergency room or the anesthesiology service within an in-network hospital. When services are out-of-network, the patient usually owes more in the form of a deductible and copayment than he or she would owe if services were in-network. Sometimes, a surprise medical bill comes in the mail following a health care service after the patient’s insurer has paid the physicians, hospital or other providers. When the patient is asked to pay the amount remaining after the insurer has paid, such notices are called balance billing.
A third-party administrator (TPA) is an organization that pays claims for a self-insured (or self-funded) employer or other purchaser, but does not assume any direct financial risk related to the cost of those claims. The TPA pays the claims and then the self-insured employer pays the TPA for the actual cost of the claims plus an administrative fee. See also Administrative Services Only (ASO). One difference between a TAP and an ASO is that the TPA usually does not have a network of providers as ASOs do.
With tiered cost-sharing, insurers rank physicians, hospitals and other provides based on measures of cost and quality and list the lowest-cost and highest quality providers on the lowest tiers. What patients would pay in terms of cost-sharing would depend on which providers they choose. For providers whose costs are high-cost or whose quality scores are low, patients would pay more in cost sharing. Tiered cost sharing is most common in pharmacy benefits where the lowest-priced medications are usually generics and have the lowest or no copayment amount. The most expensive drugs are on the highest tiers and require the highest copayments.
In a tiered network, health insurers offer financial incentives to encourage health plan members to choose providers in the lowest-cost tiers. In a tiered network, all providers are generally considered to be in-network but with different cost-sharing requirements. The cost-sharing incentives are designed to get consumers to choose low-cost, high-quality physicians and hospitals. Ideally, insurers say, the lower-cost providers would offer the best quality and would be listed in the lowest-cost tiers.
Usual, customary and reasonable (UCR)
This rate is the amount paid for a certain medical service, and it often varies geographically. It is based on what providers usually charge, and health plans use it to determine their “allowable” payments. Sometimes, health plans will pay a hospital, physician, or other provider what it determines to be the UCR rate and then let the provider bill the patient for the balance or remaining amount. Such balance billing often is allowed for out-of-network care but may not be allowed when a member visits an in-network provider.
Hospitals, physicians, or other health care providers have upside risk if they will be paid more for services they deliver than the costs they will incur. In other words, there is no downside risk because the provider will almost certainly achieve a positive profit margin and thus the risk is due to the uncertainty about whether there will be a margin and how large it will be.
Value-based insurance or value-based insurance design (V-BID)
A methodology for identifying clinically beneficial screenings, lifestyle interventions, medications, immunizations, diagnostic tests and procedures, and treatments for which copayments or coinsurance should be adjusted or eliminated because of their high value and effectiveness when prescribed for particular clinical conditions. (Source: Center for Value-Based Insurance Design at the University of Michigan.)
Value-based purchasing (VBP) is distinct from value-based insurance design (V-BID) in the VBP is designed to reward health care providers for delivering value instead of volume. In fact, VBP is a strategy used to shift away from fee-for-service payment (often referred to as payment for volume) to payment for value - hence the idea of shifting from volume to value. VBP also is a form of pay for performance. The critical element in any VBP or P4P program is how value is defined. Health plans use a variety of methods to define value, usually quality metrics such as patient satisfaction or a physician’s ability to meet or exceed certain patient care guidelines. The federal Centers for Medicare & Medicaid Services has a VBP program called the Physician Quality Reporting System (PQRS), which uses a combination of incentive payments and adjustments to promote the reporting of quality information. CMS also has the Hospital Value-based Purchasing initiative and the Readmissions Reduction Program. For more information on these programs, see this report by Kaiser Health News.
This form of bundled payment offers a higher rate of payment to physicians and other providers who deliver high-quality care for a procedure or service, and no additional payment if more services are needed to correct errors and avoidable complications resulting from the original procedure. If a patient has knee replacement surgery, for example, and gets a surgical-site infection following the procedure, the patient would not be charged for the additional care required to eliminate the infection. A warranteed payment gives a provider the resources he or she would need to deliver the best care and also to generate more income than he or she would get under bundled payment without a warranty, according to a definition in a report from the Center for Healthcare Quality & Payment Reform. The provider then can distribute the additional funds to other participating providers.