School of Health and Environmental Studies

Course: Healthcare Finance and Insurance HADM401

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Table of Contents
Health Administration......................................................................................................................3
Question 1........................................................................................................................................3
Salary:..........................................................................................................................................3
Key Features:...........................................................................................................................3
Advantages for Healthcare Providers:.....................................................................................3
Disadvantages for Healthcare Providers:.................................................................................3
Fee-for-Service:...........................................................................................................................4
Key Features:...........................................................................................................................4
Advantages for Healthcare Providers:.....................................................................................4
Disadvantages for Healthcare Providers:.................................................................................4
Capitation:....................................................................................................................................4
Key Features:...........................................................................................................................4
Advantages for Healthcare Providers:.....................................................................................5
Disadvantages for Healthcare Providers:.................................................................................5
Question 2........................................................................................................................................5
For Patients:.................................................................................................................................5
Cost-Sharing and Out-of-Pocket Expenses:............................................................................5
Health Insurance Coverage:.....................................................................................................6
Preventive Care:.......................................................................................................................6
For Healthcare Providers:............................................................................................................6
Fee-for-Service:.......................................................................................................................6
Capitation:................................................................................................................................6
Pay-for-Performance:...............................................................................................................7
Salary or Salaried Group Practice:..........................................................................................7
References........................................................................................................................................8

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Health Administration

Question 1
How healthcare professionals are paid is heavily influenced by the techniques used to
pay for their services. Salary, fee-for-service, and capitation are the three most common types
of reimbursement. There are benefits and drawbacks to each of these approaches that healthcare
practitioners should consider:

Salary:

Key Features:
Regular (monthly or yearly) payments are made to the provider at a set rate.
The remuneration is not proportional to the extent or difficulty of the work performed.
Typical users include those working in hospitals, clinics, and universities as well as
those hired by the government and some paid doctors in private practices (Toby Gosden et al,
2000).

Advantages for Healthcare Providers:

Stability: Healthcare practitioners' revenue is not affected by the number of patients

they see or the difficulty of their cases.
Providers' financial stability is protected against the ups and downs of patient demand
and insurance reimbursements.
Providers may have more time to concentrate on the health of their patients and the
enhancement of their services rather than on administrative tasks like as invoicing (Toby
Gosden et al, 2000).

Disadvantages for Healthcare Providers:

Overuse or inefficiency may result from the lack of an incentive to be productive or

cost-effective.

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 Provider burnout is a real risk when pay are set in stone and workers feel underpaid or
overworked.
Earnings are often limited, which may be disappointing for providers who consistently provide
above and above (Diane E. Hazlett et al, 2013).

Fee-for-Service:

Key Features:
Each treatment or operation performed on a patient is compensated separately to the
provider.
A pricing list detailing the costs of various offerings is used to calculate payments.
Used extensively in the American medical system for procedures such as diagnostic testing and
office visits (Diane E. Hazlett et al, 2013).

Advantages for Healthcare Providers:

Profit Potential: Increasing Service Provision Increases Provider Compensation.

Motivates doctors to visit more patients while also streamlining their practices.
Independence: Medical professionals now have more say over their work and financial success.

Disadvantages for Healthcare Providers:

Overutilization: Could result in extra costs incurred for no good reason.

Billing and coding regulations are a significant administrative burden because of the time and
effort they demand.
Preventive treatments may take a back seat to treating acute conditions because of this.

Capitation:

Key Features:
Payers, such insurance companies or healthcare organizations, pay providers a certain
amount per member per month (PMPM).
A patient's enrollment fee is inclusive of all treatment and care required within a certain
time frame.

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Health Maintenance groups (HMOs) and similar managed care groups often use this term (Toby
Gosden et al, 2000).

Advantages for Healthcare Providers:

Income Stability: Doctors may count on a regular paycheck from their patient panel.
Providers are incentivized to prioritize preventative care and care that minimizes expenses.
Less paperwork is required since clinicians are paid a flat rate per customer, which
simplifies billing.

Disadvantages for Healthcare Providers:

Providers may be on the hook financially for covering any unexpectedly high patient
demand or particularly difficult instances.
Payers' ability to manage costs is limited by the constraints they may place on referrals and
treatment alternatives.
Difficulties in Keeping Costs in Check: Finding a happy medium between treatment
quality and costs incurred might be difficult (Toby Gosden et al, 2000).
Various payment strategies have various advantages and disadvantages for medical
facilities. with contrast to the financial risk involved with capitation, the stability provided by
salaries promotes preventative care, while the rewards for productivity might lead to
overutilization. Considerations such as the structure and aims of the healthcare system and the
trade-off between cost containment and quality of service should inform the selection of a
payment mechanism.

Question 2
Patient and provider financial incentives are profoundly affected by healthcare finance
models. Healthcare delivery, resource allocation, and final results are all significantly
influenced by these incentives. The financial motivations of both patients and healthcare
professionals undergo shifts as a result of healthcare finance.

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For Patients:

Cost-Sharing and Out-of-Pocket Expenses:

Financial incentives to be thrifty exist when patients are asked to contribute financially
toward their healthcare (via co-pays or deductibles) (Pauly, 1990).
Incentives for Seeking Care High deductibles and co-pays might discourage individuals
from seeking care, even when it is medically essential, which can lead to postponed or foregone
treatments.

Health Insurance Coverage:

Patients who have access to comprehensive health insurance policies may be more
likely to make use of these therapies since they may not have to personally shoulder the whole
expense of these interventions.
Benefits of Using Network Suppliers Patients' out-of-pocket costs may be reduced by
using only doctors and hospitals that are part of a certain health insurance plan's network
(Jessica C, 2017).

Preventive Care:
Healthcare finance schemes that place a premium on prevention may encourage people
to go in for regular checkups and screenings, which can save them money in the long run.

For Healthcare Providers:

Fee-for-Service:
Providers who are paid on a fee-for-service basis are incentivized financially to increase
their patient load and the number of treatments they do.
Overuse of services is possible under this payment arrangement if doctors put profits ahead of
patients' needs.

Capitation:
Providers that accept capitated payments are incentivized to be frugal with their care by
limiting patient visits and other treatments that aren't medically essential.

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Providers may be incentivized to prioritize patient wellness and early intervention in order to
lower their patients' total cost of treatment under capitation (Benjamin D, 2014).

Pay-for-Performance:
Better patient outcomes may result from providers receiving financial incentives for
providing high-quality treatment via pay-for-performance systems.
Providers may be motivated to prioritize certain performance indicators above
providing quality treatment to patients as a whole, which poses the risk of "gaming" the system
or "cherry-picking" the healthiest patients (Jessica C, 2017).

Salary or Salaried Group Practice:

Consistency in care delivery and patient outcomes may be prioritized by providers who
are paid a set wage rather than by the number of services they provide.
Earning Potential May Be Restricted Since These Providers May Not Be Motivated to See More
Patients or Conduct More Procedures, Their Income May Be Limited (Diane E. Hazlett et al,
2013).
In conclusion, both patients and healthcare practitioners may be influenced by how
healthcare is paid for. These structures have the ability to promote economical, efficient care
delivery and preventative measures, or they may lead to excessive service consumption,
lowering standards of care. The healthcare ecosystem as whole and patient outcomes are
affected by the legislative decision of which healthcare finance model is chosen. Healthcare
policy and management has a constant challenge in striking a balance between financial
incentives and the needs of patients for high-quality, affordable medical treatment.

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References
Benjamin D. (2014). Health Insurance Coverage and Health — . The new england journal o f
medicine, 2-5.
Diane E. Hazlett et al. (2013). A New Dimension of Health Care: Systematic Review of the Uses,
Benefits, and Limitations of Social Media for Health Communication. Journal of
Medical and Research , 15-25.
Jessica C. (2017). Health Insurance Coverage in the United States: 2016. Current Population
Reports, 260.
Pauly, M. V. (1990, Feb 1). The Rational Nonpurchase of Long-Term-Care Insurance. Retrieved
from www.journals.uchicago.edu:
https://www.journals.uchicago.edu/doi/abs/10.1086/261673
Toby Gosden et al. (2000, July 24). Capitation, salary, fee‐for‐service and mixed systems of
payment: effects on the behaviour of primary care physicians. Retrieved from
www.cochranelibrary.com:
https://www.cochranelibrary.com/cdsr/doi/10.1002/14651858.CD002215/full