Posted by Nilza I. Cruz Ruiz
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What I cannot create, I do not understand...
Richard Feynman
Healthcare is not usually demanded, because it is in itself pleasurable. In fact, it may be unpleasant. Instead, it is demanded only to improve health. So even if healthcare is within itself unpleasant, it leads to more pleasurable than would otherwise have been the case.
Healthcare economics generally interprets a healthcare need as the capacity to benefit from it.
The demand for healthcare can be analyzed as if it were a good or service, but it does have peculiarities that may mean that the usual assumptions pertaining to resource allocation effects of markets do not hold. It may well be that people wish resource allocation to be based on the demand for health, or the need for healthcare, neither of which can be provided in a conventional market.
The following model is a representation of the value chain in the healthcare industry:
Before addressing the Revenue Cycle System, it is important we understand the Emergence of the Universal Third Party Payer System and the Evolution of the Healthcare System in PR:
I. Emergence of the Universal Third Party Payer System
The following context and illustration presents the emergence of the Healthcare Economic Model III:
The changes in the health-care
system that led to sustained increases in the levels of health care consumption
and medical prices began during World War II. The ramp up of military
production created a scarcity of labor and materials needed to produce non-war
goods and services, putting pressure on employers to increase wages and prices.
To keep inflation under control, the federal government ordered a wage and
price freeze, making it even more difficult for employers to hire or retain
work and meet the market demand for goods. Under the wage freeze, American
businesses uncovered a legal loophole that allowed them to offer “in kind” wage increases by providing
subsidized health care benefits to their employees. Even though the IRS attempted to tax the insurance benefit as post tax wages, Congress, responding to business and employee protests, codified the pre-tax status of the benefit, further
increasing the value of health-care insurance as pre-tax benefit, and thus,
promoting employers to contract with existing medical insurance companies to
manage the reimbursement of medical expenses on their behalf.
In 1966, the federal government
introduced Medicaid, a state-administered subsidy for qualifying low-income
families, and Medicare, a federal subsidy for senior citizens, both modeled
after the private sector health care insurance system and subsidized by a tax
on working Americans. In 1966, the federal government
introduced Medicaid, a state-administered subsidy for qualifying low-income
families, and Medicare, a federal subsidy for senior citizens, both modeled
after the private sector health care insurance system and subsidized by a tax
on working Americans.
II. The Evolution of the Healthcare System in Puerto Rico
Over
time, the overall model for the provision of health services in Puerto Rico has
evolved. This model includes medical services (primary, secondary, tertiary and
above tertiary), methods of financing, and the development of research and the
training required for health professionals.
In 1954, the Arbona Model was developed and implemented.
It consisted of a stratified and regionalized health system in which primary
services were provided in diagnostic service centers (CDT’s), localized at
every municipality throughout the island. Secondary services in regional and
area hospitals, and finally tertiary and above services in the PR Medical Center.
The financing of these services was provided by the government general fund,
providing 100% of health coverage from 1954 to 1993. By the 1970's, the movement of the
democratization of medicine emerged. This consisted of promoting regional, area
hospital and CDT administrative partnerships between the Government and the
private sector throughout the island.
Hence,
the reform deployment, under a universal Third Party Payer System model, forced government and private healthcare facilities be part of a network of health providers, and accept rates “dictated”
by insurance companies.
III. The Revenue Cycle System - A Complex Sub-System within the Healthcare Economics Landscape
We need to understand that the Revenue Cycle within healthcare facilities is a complex system, and as such, be addressed with the understanding and knowledge complexity science stands for.
This sub-system needs to be aligned and portrayed to represent the economic model for any healthcare facility which is part of the Universal Third Party Payer System. It goes way beyond the traditional linear revenue cycle model focusing on billing, collections and their respective ratios.
The Revenue Cycle environmental landscape should be designed to promote the interrelations between the agent components within this complex system. As such, it should at least incorporate the following mayor drivers as part of the landscape structure:
a. Administration focused on Organizational Complexity (this includes existing model assessments and alternate model simulations and testing)
Driver underlying factors
Driver underlying factors
Driver underlying factors
Driver underlying factors
- Landscape/Environment Architecture
- Patient/Health Facility Ecosystem
- Technology Ecoystem
- Agent Identification and Definition
- Agent Environment
- Agent Properties
- Agent Behaviors
- Agent/Environment Interrelations and Execution
Driver underlying factors
- Macro-Economy Analytics
- Patient Demand - Why?/ Causes?/ Correlate with macro-economic analytics and healthcare industry results
- Health Facility Resources
- State Plan Architecture and Regulations / Financial Model/Changes?/How?
- Health Facility Services and Cost Structure vs Market
- Insured Patient Mix
- Non Insured Patients
- Patient Poverty Level
Driver underlying factors
- Define, code, and allocate costs to health services provided. This, in the same interrelated platform.
- Define and update cost structure
- Contract with insurers accordingly, aligning services defined and provided. Include cost structure and historical experience (at least three (3) years) related to services provided to a defined patient. Distribute services provided by number of patients, claims generated by patient, and encounters produced by patient and by claim. Distribute these variables by healthcare facility (e.g.; Emergency Department, Hospitals, Outpatient Clinics, etc.)
- Pre-define insurance company negotiated rates (based on experience), frequency of payments (example, lump sum payments on a monthly basis payment s based on experience; this, to alleviate liquidity and cash constraints) and payment allocation (outstanding debts and new business) in yearly health facility/insurer revised contracts. Ensure compliance with negotiated terms and conditions.
- Define, deploy and monitor core business measurements on a daily basis using competitive technology and ensuring health facility's system platforms are aligned.
d. Healthcare Technology Lifecycle Topology
Driver underlying factors
Driver underlying factors
- Define Data Collection Analysis, Planning, Budget and Management
- Align data analysis using the following pre-defined variables and/or systems capacity into one platform and revise every 3 months:
- Patient Arrival Type (Referral and why, Ambulance, Helicopter, Walk-in)
- Patient Registration structure
- CDM
- Cost Structure
- Contracted Insurer Rates
- Cost Structure vs Contracted Rates and Automatic Contractual Adjustment calculation
- Contracted Services and exclusions
- Coding Structure
- Clearing House
- Service Billing and Reporting as a function of number of patients, claims and encounters generated. This, by type of insured, age, gender and region (i.e.; government health reform, Medicare Advantage, etc)
- Establish services billed based on contracted rates with associated costs. This, by defined "lines of business" as per facility patient-mix
- Define billing/collections ratios and standards as per rates contracted, number of insured patients, and structure costs. Perform operational/patient flow/technology adjustments accordingly on a defined ongoing basis based on these results. Integrate an employee participation structure as part of this process.
- Deductible and Co-insurance Billing
- Deductible and Co-insurance payment collections
- Focus results on levels of patient care, quality of care by level, process efficiency, structure investment, health service costs, and resulting economic output.
Revenue Cycle System Model Ilustration
In this Model, the management component within the Revenue Cycle System Model is integrated as part of the System's landscape; i.e., it is part of other interacting agents within the environment from which Revenue Cycle System phenomena/output/results emerge. These results need not only be economic, but output focused on treated patient and other agent properties, behavior, operational flow, health service costs, along with other factors/data related to the patient/caregiver/facility ecosystem. Said data is critical in the understanding of the existing model and development alternate simulation models driven towards the improvement of provision of services, efficiency, cost control and above all, patient satisfaction.
The following illustrates a model tested in the PR Medical Center following the above mentioned conceptualization:
Next week, we'll focus on other related topics of Agent Based Modeling applied to the health industry.
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