Understanding the different methods of payment is essential for the financial management of the medical office. Financial management includes all components of the revenue cycle including accounts receivable.
Accounts receivables, also known as patient accounts, refers to revenues generated but not yet collected. To ensure cash flow is sufficient for effective management, the medical office has the responsibility to maximize it's revenue potential.
There are four payment methods that should be considered when developing a financial management strategy.
- Per Diem/Visit
- Per Episode
1. Per Diem/Visit
Payments made to the medical office for each day or visit is a per diem or per visit payment. Per diem payments are made base on a predetermined amount regardless of the amount of time spent by the physician providing treatment or the array of services that the patient may receive during the visit.
Hospital inpatient visits and nursing facilities are some examples of events that may be eligible to receive per diem payments according to the contract an insurance payer has with the facility.
Per visit payments are normally paid in a clinic, home health, physical therapy or an outpatient setting.
2. Per Episode
Per episode payments are made for all services rendered during one episode of care. Also referred to as case rates, episode payments are usually made for emergency room visits, ambulatory surgical procedures or hospital inpatient visits. When used in hospital inpatient visits, the payment is usually made based on DRGs (Diagnosis Related Groups).
DRGs are assigned a classification based on a combination of ICD-9 diagnosis codes, CPT and HCPCS procedure codes, complications or conditions present on admission, discharge status, age and sex. DRGs payments are also based on a certain time period which is an average number of days necessary for adequate treatment.
3. Per Patient
Per patient payments, or capitation payments, are fixed, monthly payments received by the medical office for the patient. This amount stays the same regardless of how many visits the patient has or the cost of incurred expenses and even when they don't receive care at all.
State Medicaid programs are an example of a payer that makes per patient payments. Physicians are paid a set amount for each Medicaid patient they offer services to. This is the most effective way to cut health care costs while promoting preventative care.
The most common method of payment is the fee-for-service model. In a fee-for-service, the medical office is paid a set amount for each type or unit of service rendered. An office visit, lab tests, xray, or other service are individually paid according to the fee schedule.
This payment method allows the medical office to receive the maximum reimbursement for each episode of care.