In 1983, Congress established the inpaUent prospecUve payment system (IPPS) for hospitals. Under the IPPS, a single payment for each inpaUent stay covers the cost of rouUne inpaUent care, special care, and ancillary services.

Question 2.1 •? Assume that provident health system a for pro?t hospital has $1 million in taxable income for 2012, and its tax rate is 30%. •? What is the ?rm’s net income? •? 1,000,000(.70) = $700,000 •? Suppose the hospital pays out $300,000 in dividends. A stockholder Carl Johnson receives $10,000. Carl’s tax rate on dividends is 15%. What is his aQer-­?tax dividend? •? $10,000(.85) = $8,500 Question 2.2 •? 30% of dividends received are taxed. Assume that a ?rm with a 35 percent tax rate receives $100,000 in dividends from another corporaUon. What taxes must be paid on this dividend and what is the aQer-­?tax amount of the dividend? •? $100,000 (.30) x (.35) = $10,500 paid in taxes •? $100,000 -­? $10,500 = $89,500 Question 2.3 •? Kim Davis is in the 40% personal tax bracket. She is considering invesUng in HCA bonds that carry a 12% interest rate a)? What is her aQer tax yield on the bonds? a)? 12% (.6) = 7.2% b)? HCA Bonds becayse 7.2% > 6% c)? 7.2% -­? 6% = 1.2 Question 2.5 •? 48% tax bracket. $500,000 contribuUon requested. $2,000,000 annual income •? Tax paid w/o contribuUon: $2,000,000 (.48) = $960,000 •? Tax paid w/contribuUon: ($2,000,000 – ($500,000)) x .48 = $720,000 Question 3.1 •? Brie?y Describe the major third party payers. Third party payers-­? are the insurers that reimburse health services organizaUons and hence are the major source of revenues for most providers. •? Private insurers (BCBS) •? Commercial insurers •? Public (Government) insurers: Medicare and Medicaid Question 3.2 •? What are the primary characterisUcs of managed care organizaUons? •? Provider networks – The group of providers (doctors and hospitals) designated as preferred by a managed care plan. Services delivered by providers outside of the panel may be only parUally covered •? Gatekeeper – A primary care physician who controls specialist and ancillary service referrals. Some managed care plans only pay for referral services approved by the gatekeeper. Question 3.3 •? What is the di?erence between fee-­?for-­?service and capitaUon? •? Fee for service – Health services organizaUons are paid on the basis of the amount of services provided. Ex. Procedures, tests done. •? CapitaUon-­? providers are paid a set amount on the basis of the number of members assigned to that provider. Reimbursement amount is ?xed on the basis of the populaUon served, regardless of the amount of services provided to the populaUon. Question 3.4 •? What is pay for performance? •? Pay for performance – A reimbursement system that rewards providers for meeUng speci?c goals. In most P4P reimbursement schemes, insurers pay providers an extra amount if certain standards, usually related to quality of care, are met. Long run focus. Question 3.5 •? Describe provider incenUves and risks under each of the following reimbursement methods Reimbursement Incen.ves Risks Cost based To incur high volume of costs Least risky. Provider costs are covered so pro?ts will be earned. Cost of service risk Charge based (FFS) High prices and o?er highest amount of services. OveruUlizaUon of services, exponenUally increasing costs, QuanUty over quality -­?malpracUce ProspecUve Providers have the incenUve to perform procedures with highest pro?t potenUal. Also to reduce cost of procedure TargeUng most expensive privately insured paUents and shirking government insured paUents CapitaUon Reduce cost and volume of services provided. Only necessary services are provided. Promote health not just diagnose illnesses. UUlizaUon risk-­? the risk that paUents, oQen members of a managed care plan, will use more healthcare services than iniUally assumed Question 3.6 •? Brie?y describe the coding systems for diseases (diagnoses) and procedures. •? Diagnosis Codes •? InternaUonal Classi?caUon of Diseases-­? standard resource for designaUng diseases and a wide variety of signs, symptoms, and external causes of injury. •? Published by the World Health OrganizaUon •? Complicated and technical – proper reimbursement from third party payers depend on accurate coding •? Procedure Codes •? Current Procedural Terminology (CPT) – Are used to specify medical procedures •? Developed and copyrighted by the American Medical AssociaUon with the purpose of creaUng a uniform set of descripUve terms and codes that accurately describe medical, surgical, and diagnosUc procedures. Question 3.7 •? How does Medicare reimburse hospitals for inpaUent stays? •? From 1965 unUl 1983, Medicare hospital payments for inpaUents were based on a retrospecUve system that reimbursed hospitals for all reasonable costs. •? In 1983, Congress established the inpaUent prospecUve payment system (IPPS) for hospitals. Under the IPPS, a single payment for each inpaUent stay covers the cost of rouUne inpaUent care, special care, and ancillary services. Question 3.8 •? How does Medicare reimburse physician services? •? On the basis of the reasonable charge concept. •? Reasonable charge •? The actual charge for the service performed •? The physicians customary charge •? The prevailing charge for that service in the community

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