Most services and goods are easy to pay for. Once you see the price, you pay and get the item. It takes only a few seconds. 

Reimbursement for healthcare services is much more complicated. As opposed to other industries, often though not always, the cost of healthcare is reimbursed after services have been rendered. 

Healthcare reimbursement is often a lengthy, multi-step process that can go wrong at any time, causing payment to the provider to be delayed and potentially burdening patients with bills they don’t understand and therefore, don’t pay in countries where no direct billing is in force.

WHAT IS REIMBURSEMENT IN HEALTHCARE?

Healthcare reimbursement is the process of paying to a hospital, a doctor, or another healthcare service provider, such as a lab, for providing you with a healthcare service. Not only service though, product producers, e.g., pharma companies, biotech, prosthesis makers shall be mentioned here as well. A reimbursement occurs after you receive a medical service and product, hence the name. 

Another point to mention is that not only persons trigger a reimbursement. It takes place whenever a product or service is delivered to anyone in return for money along the value chain.
Most often, the cost of this healthcare is often covered by your health insurer or a government payer. Your personal health plan or the national health insurance may require you to pay a portion of the cost, or if you are not covered at all, you will be required to pay out of pocket the total cost of the health-related service or product.

WHAT IS SPECIAL ABOUT REIMBURSEMENT IN HEALTHCARE?

Health systems in many ways defy general market principles. There are significant information asymmetries in healthcare markets because it involves the transmission of extremely complex knowledge and information and communication between people and institutions who are not always equally capable of processing and applying the knowledge – or accessing the same information at all.

Payment after delivery of the service is not the only unique feature of basic health economics. Health care primarily relies on the participation of a number of different actors in order to deliver high-quality services. An area will often have just a select number of providers of a particular healthcare service. Trying to judge the quality of competing services is also challenging, if possible at all. 

Consumers are often not the ones that choose what services they need to receive but actually it is a doctor or other clinician that makes the decision. The actual payment to the provider of the services is normally not made by the person using the services, but by the health insurers.

WHY IS REIMBURSEMENT IMPORTANT FOR INNOVATION

Generally, experts agree that reimbursement is one of the indirect factors that determine which products in development are ultimately put on the market, the ease of access to those products, and the degree to which physicians and patients are able to use them. Consequently, product development and innovation are affected.

Reimbursement is not necessarily a determining factor in all circumstances and likely plays different roles for medicines and devices. The definitions for innovative medicines vary from country to country within the European Union.

There is an approach adopted in Italy that involves an algorithm which is the basis of the assessment and reimbursement process for innovative medicines at the national level. In Spain, innovation is taken into account alongside clinical and economic factors in determining the effectiveness of a drug, no special consideration is given to reimbursement.

The standard appraisal process has found that both France and Germany value innovation as a core criterion in the process. In France, market access might be facilitated by a unique innovation, while Germany’s approach may facilitate negotiation of prices. 

Innovations are included as modifying factors in the UK, the Early Access to Medicines Scheme, which was recently introduced, enables the UK to present a landscape that promotes the development of innovative medicines. Defining the clinical need and matching scientific discoveries may be more important to innovations.

TRADITIONAL REIMBURSEMENT MODELS

Worldwide, health systems employ different reimbursement models, multiple models are used within the same system. 

Different models are employed for different kinds of service delivery. The way that healthcare providers are reimbursed is significant because it incentivises what care they provide and how, that is, how providers are paid can affect the quality of care. Below the five main models of health reimbursement are explained:

Fee-for-service

In this reimbursement model, payment is after the fact, based on the services provided to the patient. This is a primary form of an unbundled payment system, in which each service is paid for separately.

In this model, healthcare providers charge based on individual services rendered (i.e., appointments, treatments, tests ordered, prescriptions given). Unbundled payment systems can inhibit collaboration, as services are financed in silos, and providers are paid separately.

This type of reimbursement is prevalent among outpatient services and general practitioners, however some governments are moving away from fee-for-service because it rewards quantity (not quality) by promoting service inflation and unnecessary testing and procedures, leading to high costs.

Diagnosis Related Groups

Within this model, providers receive payment per each medical case they treat, where these cases are based on diagnosis-related groups (DRGs).

Using this payment system, private insurance companies or public health insurance funds pay for the hospitalisation of their beneficiaries based on a diagnosis-related group (DRG) payment system. Inpatients are assigned a DRG when they are discharged from an inpatient hospital, based on the care they received while inpatients. The hospital gets paid a fixed amount for that DRG, regardless of how much money it actually spends treating you. 

Patients are classified into groups based on diagnoses, potentially among other criteria such as age, and these groups determine the level of payment. This model is common for reimbursing inpatient costs.

The significant advantages of using the DRG payment system are reflected in the increased efficiency and transparency, as well as the reduced average length of stay. On the other hand, DRG was assessed to bear a potential disadvantage of creating financial incentives toward early hospital discharges. There is a chance that such policies may not entirely conform to the clinical benefit priorities.

Capitation

Capitation reimburses providers by providing a lump sum – a fixed amount – per each enrolled patient which covers a range of services and it is an alternative to fee-for-service for general practitioners. 

In some cases, is paid in advance, for a defined time, whether the patient was seeking care or not. Providers are paid based on how many patients are enrolled in their clinic, regardless of whether those patients seek care and the services they provide. The lump sum is calculated based on the average expected healthcare utilisation of a patient and can factor in aspects such as patient age, demographics, and health status.

Advantages of the capitation system is the ability to identify cost and utilisation patterns, potentially to connect patient data with other providers. Further advantages include the ability to explore cost-effective care processes, a more predictable cash flow, less need for large internal billing staff, and a reduced wait time for reimbursement.

Potential disadvantages point to further complications when visiting a doctor, as more authorisations may be required. Some research indicates to a potential increase in wait times and shorter visit times. It may also restrict patient choice, while increasing workload of doctors.

Bundled payment

A bundled payment system lies between fee-for-service and capitation: providers are paid a lump sum for a range of services per episode of care. Many countries with public hospitals use this reimbursement model.

A bundled payment system means providers share reimbursement, rather than being paid separately, and this it encourages collaboration and coordination of services to reduce cost.

The bundled payments were expanded in the USA under the Obama administration, to include inpatient, outpatient and rehabilitation care. There is a number of potential advantages to this payment approach. Bundled payments give providers strong incentives to keep their costs down. Bundled payments encourage collaboration across healthcare stakeholders. Bundles target specialists to encourage them to participate in value-based payment arrangements.

Bundled payments do, however, present some drawbacks. The process of defining and tracking the types of care that should be included in the bundled payment for which a given provider is at risk can be challenging. Care bundles can hinder some types of care coordination, while encouraging others. Patients who receive lucrative bundles could be forced to compete. Population-based payment methods may have a harder time succeeding with bundled payments.

P4P

Pay for performance (P4P), also called “value-based purchasing”, is a payment model used by the healthcare industry to reward physicians, hospitals, medical groups, and other healthcare providers for meeting specific performance goals.

As clinical outcomes, such as longer survival, are difficult to measure, pay for performance systems evaluate process quality and efficiency instead, such as measuring and lowering blood pressure or counselling patients to quit smoking. Health care providers are also penalised for poor outcomes, medical errors, and higher costs.

When properly designed, P4P programs may influence providers and healthcare systems to improve the quality of care, reduce costs, and improve health outcomes.

They may, however, discourage healthcare providers from providing the best care to a patient. They will not be motivated to do better if they know their efforts will not make a difference. Healthcare providers may choose the easiest patients.

THE PROMISING PRESENT

By placing both patients at the center of the care process along with focusing on a better health outcome, outcome-based healthcare is moving forward, and reimbursement models follow suit. When combined with behavioural data gathered from a variety of sources, patient reported outcome measures (PROMs) can provide a more complete picture of a patient’s experience of care and treatment outcomes. The use of real-world data both helps individuals as well as health care providers determine what interventions are effective. 

In recent years, reimbursement models have evolved and are now focusing more on value-based outcomes and prevention as key parameters for improving quality of life. Multidisciplinary teams are a fundamental component of the healthcare system and are reimbursed according to several models with an emphasis on providing value to patients.

Primary physicians are now reimbursed through capitation based on diagnosis groups, budget allocations to include add-ons based on performance. In this setup, patients experience coherent and portable care across the country, which encourages fewer duplications, quicker recovery from illness, and better health outcomes. Payers and manufacturers collaborate to determine reimbursement for innovative drugs.

Manufacturers can adopt a risk-sharing model in which they compensate payers if a patient failed to respond to treatment, or a payment-by-results model in which manufacturers reimburse payers completely if a patient does not respond. Due to the faster negotiations between manufacturers and payers, this reimbursement framework may make innovative drugs more accessible.

A collaborative environment is to be created between payers and manufacturers, focusing on the end-goal of individual health. As a result, physicians will have more tools at their disposal to treat individuals, and the costs and benefits of specific drugs will be more transparent.

CONSIDERATIONS FOR THE FUTURE

Traditional reimbursement forms often aren’t sufficient to achieve the desired goal of improved quality of care in the future. Additionally, new models of care that are geared toward prevention and improving services coordination are difficult to reimburse.

Currently, reimbursement models cover health providers’ expenses and work, but they don’t necessarily encourage them to provide better care or improved health. Health care reimbursement should be rethought in a way that focuses on value and health outcomes. 

Value in healthcare differs greatly based on subjective perceptions of what good care is and what a good outcome is. In the future, the value of care may be defined more by the individual receiving the care than by what the system measures. Health systems will likely continue to heavily rely on performance measures to know how to improve efficiency and quality in the future; this isn’t to say they’ll be obsolete.

There is an opportunity to use patient-reported outcome measures and patient-reported experience measures in care settings, as they have been incorporated into clinical research. Usually, these measures involve completing questionnaires to find out how patients are feeling.

As these measures are applied in conjunction with behavioural data from multiple sources, a more comprehensive picture of how individuals experience their care and the outcome of their treatment will be created. Individuals as well as healthcare workers can use this real-world information to better measure the effectiveness of interventions.

While some aspects of value-based healthcare (VBHC) are being implemented, it has not yet matured enough to be adopted globally. The integrated units of care, the measurement of outcomes and costs, and the use of bundled payments are some of the critical components of this concept that will certainly change how healthcare is delivered in the future.

It is important to consider what outcome and value means to a citizen as well as to the healthcare system and society in general when discussing VBHC as a starting point for reforming how health is delivered. The right questions must be asked and models should be developed based on them.

Research by Patrick Henry Gallen, Aron Szpisjak and Leo Petersen-Khmelnitski