Health Care Reimbursement Analysis

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To understand the complex system of reimbursement for health care services, it is helpful to have a working knowledge of the historic context of diagnosis-related groups (DRGs), as well as their utility and increasing relevance (Rimler, Gale, & Reede, 2015). Congress implemented the DRG system in 1983 in response to rapidly increasing health care costs. The DRG system was designed to control hospital reimbursements by replacing retrospective payments with prospective payments for hospital charges. This article explains how these payments are calculated. Every inpatient admission is classified into one of several hundred DRGs that are based on the diagnosis, complications, and comorbidities. The Centers for Medicare & Medicaid Services (CMS) …show more content…
Fee for service is fairly easy to understand as a payment method, as each specific service (or procedure or intervention or piece of equipment) provided is billed and paid for. In its most common form, fee-for-service payment in health care differs from payment for goods or services in other sectors of the economy in the way it is priced. In most consumer markets, the list price is determined by what the consumer is willing to pay for an item or service. In health care, the amount paid for services is usually negotiated between insurers and other payers and providers. In the case of government payers, it is based on defined or administered rates often determined by a formula or funding levels. In addition, fee-for-service payments are somewhat constrained by coding guidelines and rules (CPT, and ICD-9) that define what can be billed and paid for. The fee-for-service mechanism of paying physicians is the major driver of higher health care costs in the United States (Schroeder, & Frist, 2013). It contains incentives for increasing the volume and cost of services (whether appropriate or not), encourages duplication, discourages care coordination, and promotes inefficiency in the delivery of medical

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