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5 market changes that will affect healthcare reimbursement

Reimbursement models are used by payers, hospitals, physicians, and ancillary care providers to furnish data to healthcare payment contract negotiations. The many changes taking place across the healthcare landscape are forcing payers and providers dependent upon these models to deal with new challenges.

"It's now being recommended that payers invest in reimbursement models to deal with new payment methodologies or they'll be in a difficult position to use new payment methods to their advantage," said Gary Nissen, president and founder of Health + Technologies, Inc., a company that provides analytic software and consulting services to the health insurance industry. "A survey by InstaMed revealed that 40 percent of payers said their top issue in dealing with provider networks is reimbursement modeling," said Nissen. "In my experience, over 80 percent of payers model contracts using an Excel Spreadsheet, which does not provide the power to deal with these new challenges." When this occurs, he said, the contract negotiation team either presses the contract analysts to do more manual analysis, or they simply do without the data needed to complete the negotiation.

According to Nissen, there are five underlying healthcare market changes that are driving an increased focus on reimbursement modeling.

1. M&A
When two hospital systems consolidate, a payer needs to model the aggregate business for each of the separate contracts, but also as a consolidated contract.

2. ICD-10
Both the MS-DRG and APC groupers Medicare uses for payment currently depend upon ICD-9 diagnosis and procedure codes. Once they're updated to ICD-10, all payers utilizing MS-DRG or APC codes for payment will need a model using a combination of ICD-9 and ICD-10 codes. "Imagine yourself six months after the ICD-10 implementation, part of the information in your history will be coded in ICD-9 and part will be coded in ICD-10. Healthcare organizations will need to figure out how this is going to affect their overall reimbursement," Nissen said.

3. Medicare comparisons
"How a provider contract compares to Medicare rates has become the industry benchmark," said Nissen. According to him, contract negotiators are now demanding to know how their rates compare to Medicare rates. So reimbursement models are being asked to show last year's rates, a series of proposed rates and the Medicare equivalent rates all side-by-side.

4. Significant shift to fixed rates
A significant number of both payer and provider contracts are still based upon a discount from charges. "That's not an effective payment solution, but it's been the case because hospitals have been resistant," Nissen explained. "Since the ACA, providers have been more willing to negotiate fixed rate payment arrangements. As these contracts move from percent of charges to fixed rate systems, reimbursement models need to calculate what the provider would have been paid under a DRG, APC or other fixed payment terms."

5. New payment methodologies
Medicare supports a host of payment systems, including MS-DRG, APC, ASC, Home Health, IP Rehab, Long-Term care, Dialysis, etc. "Every year they're revised," commented Nissen. "And now the ACA is opening the door for ACOs and bundled payments, too. There's a lot happening in the landscape of payment change. Commercial payers need to model each of these methodologies – whether they're going to use them or not – at least for benchmarking, but also for consideration under a contract negotiation and implementation."

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