The Misconception About Healthcare Reimbursement

There are few things as convoluted as healthcare reimbursement policies. A recent article published by the Miami Herald attempts to elucidate some of the misunderstandings.

One crucial distinction is the difference between the “charge” and the “price” of healthcare. Charge refers to the monetary values hospitals and medical providers assign to their services. It takes into account factors such as the intensity of the procedure and factors unique to the hospital, like whether it is a teaching hospital or has a unique mission.

The price, on the other hand, is the amount insurance companies actually reimburse for a service. Insurance companies negotiate the price down from the cost by leveraging their “market reach and patient volumes for discounts on hospitals’ rates. Hospitals are leveraging their range of services, quality ratings — and size.”

Insurance organizations like Medicare or Medicaid usually pay a price much lower than the cost established by the hospital—hospitals must make up the difference by negotiating higher prices with private insurance companies.

In order to keep costs down, most insurance companies are pushing for a system that will reimburse healthcare providers based on the quality of care they provide instead of the number of procedures performed. In this type of system physicians could lose money if a patient’s condition worsened, but they could also keep a portion of the savings if they are able to manage the patient effectively.

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