Week 7 Discussion: Reimbursement Issues

Week 7 Discussion: Reimbursement Issues

Week 7 Discussion: Reimbursement Issues


The purpose of this discussion is to explore the DNP-prepared nurse’s role as a member of the interprofessional team to design systems that optimize reimbursement with a goal to improve the quality of patient care. You will examine the influence of healthcare reimbursement on nursing practice, clinical outcomes, and cost issues.

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Reflect upon your readings and professional experience regarding reimbursement issues and address the following:

Analyze if value-based insurance reimbursement influences clinical outcomes and healthcare equity.

Determine the role of the DNP-prepared nurse in influencing nursing practice with regard to reimbursement.

Week 7 Lesson 1


History of Reimbursement Issues for the DNP-Prepared Nurse

Watch the following video on reimbursement.

Reimbursement (3:40)

Reimbursement history and mechanisms are an important topic for the DNP-prepared nurse to comprehend. Major medical technologies and diagnostic equipment were developed in the 1930s. Vaccines, insulin, and x-rays are among the developments. The New Deal, a social reform program created by President Roosevelt, was the first government address of national health reimbursement. Congress debated national health insurance, and it failed. Voluntary health insurance companies became widespread during this time. The American Hospital Association created the Blue Cross company in 1933 and Blue Shield in 1939 to cover medical costs. Americans were on board with government help for healthcare, but doctors were not. Employer-sponsored health plans begin to grow after World War II. The Social Security Amendments of 1965 established and financed Medicare to provide care to the elderly and Medicaid to provide care to the poor and codified the healthcare payment system in place. Another important part of the economics of health care relates to spending. Between 1960 in 2010, healthcare spending and expenditure increased significantly. The United States gauges the economy’s health based on the gross domestic product. The GDP represents the total dollar value of all goods and services produced during this specific time period. GDP is usually expressed annually and interpreted as a comparison with the GDP of the previous quarter or year. National healthcare expenditures as a percentage of the GDP rose from 5.2% in 1960 to 17.9% in 2010. The Centers for Medicare and Medicaid reported that US health care spending grew 4.6% in 2019, reaching $3.8 trillion or $11,582 per person. As a share of the nation’s Gross Domestic Product, health spending accounted for 17.7 percent (CMS.gov, 2020). In 2001, 13.5% of the American population was reported to be uninsured. In 2010, the number increased to approximately 16%. Less than 1 million were elderly, with approximately 41.1 million people under 65 years of age. The number of uninsured nonelderly Americans fell from 48 million in 2010 to 28 million in 2016, before rising to 30 million in the first half of 2020. The lack of health insurance for such a large segment of the population has had a significant impact on reimbursement, especially given legislative requirements that treatment is provided in many cases even when there is no likelihood of compensation. The Affordable Care Act (ACA) was enacted by Congress 2010 as one of President Obama’s principal legislative actions. The ACA expanded Medicaid and provided federal subsidies to help many Americans. However, ACA did not benefit all Americans in need of medical reimbursement. Starting in 2014, the Affordable Care Act required all Americans to obtain health insurance or pay a tax penalty. The ACA lead to the highest expansion of health insurance in the U.S. in fifty years. Tax legislation later enacted in 2017 eliminated the tax penalty mandate starting in 2019. The Affordable Care Act reduced the percentage of uninsured Americans to historically low levels, but its future remains uncertain.

Reimbursement Mechanisms

Click on the images to review reimbursement mechanisms.

Reumbursement Mechanisms Interactive Transcript

Healthcare Finance:


Most of reimbursement focuses on hospitals as this is often the largest cost to payers when compared with physician or outpatient care. Charges refer to the “list price” before any discounts are applied.



These represent the provider (individual or institution) expenses to provide the service.


This represents the payment the provider (individual or institution) receives for providing the service.

View the following video for an example.

Reimbursement Example (0:45)

Week 7Lesson 2

Payment Processes

Payor Types

Most healthcare reimbursement comes from a third-party payor source. Private, commercial, and managed care health plans are examples of such entities. Government third-party payors are Medicare and Medicaid programs. Self-pay reimbursement also exists for those who do not have insurance or are underinsured. Individuals in these categories are often unable to pay the provider and may be referred to collection services or involved in litigation to collect the funds, often with adverse impacts to the patient’s credit rating. Bankruptcy due to unexpected or uninsured healthcare expenses is also not an unusual outcome. Because of the need to protect uninsured individuals and concerns regarding provider pricing fairness, some states have enacted fair pricing laws to protect self-pay patients. There are many different types of reimbursement programs. Retrospective payment financing, fee-for-service financing, and prospective payment are examples.

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Retrospective Payment

The oldest method, retrospective payment, is reimbursement paid after services are rendered. This type of reimbursement significantly increased healthcare costs because providers billed payors with no review or negotiation of charges. The provider’s risk and expense were also significant since the costs of providing services were incurred in advance of the collection of charges.

Fee-for-Service (FFS)

Reimbursement generally uses a retrospective payment system for allowable costs. Providers present an itemized list of charges to the payor (usually an insurance company or government agency) and are typically reimbursed based on the volume of patients or services. These charges are negotiated or discounted. Hospitals typically charge a per diem, which is a set amount per patient day or per case. This healthcare financing has existed in the United States for many years.

There are significant problems with the FFS system. Both providers and consumers often are insensitive to the costs of healthcare. FFS generates more reimbursement for providers based on the volume of services provided, thereby promoting disincentives to efficiency. Unnecessary or duplicative procedures are compensated, regardless of outcomes. Conventional fee-for-service payment systems may create an incentive to add unneeded treatments and, therefore, expend valuable resources unnecessarily. Charges are increased (cost-shifting) for insured patients to offset the loss of revenue from providing services that are either not compensated or are provided to individuals who cannot pay for them. In 2020, only 19 percent of hospitals and health systems reported their revenue was fee-for-service reimbursement. while 70 percent of physician practices reported over 75 percent of their revenue was fee-for-service reimbursement (i.e., appointments, treatments, tests ordered, prescriptions given) (Sokol, 2020).

Prospective Payment Systems

Prospective payment uses fixed reimbursement rates established prior to services being rendered, based on a standard scale focusing on the length of stay and diagnostic related groups (DRGs). This method of reimbursement encouraged efficiency and the cost-effective provision of services and was developed to help reduce the growth in healthcare spending. Medicare enacted this system in 1983 for inpatient reimbursement, which extends to home health, skilled nursing care, and physicians.

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In 2008, Medicare initiated a modified DRG system called Medicare severity diagnosis-related groups (MS-DRGs). Under this program, a weighted value was assigned to the relative cost for diagnostic cases. At that time, payment was eliminated for many hospital-acquired conditions (HACs). Further changes in 2009 and 2010 included financial penalties for preventable 30-day hospital readmissions. Over the last ten years, Medicare Advantage enrollment has been growing because payer, provider, and patient incentives are aligned per the rules of the Medicare prospective payment system.

Aligning Incentives

Insurers often use rewards or reinforcements to influence provider and consumer decisions and behaviors. These incentives are frequently focused on access and quality to control cost and utilization. Financial incentives may be provided to consumers, such as reductions in premiums for those who stop smoking or individuals who exercise regularly, hopefully improving their overall health status and, thus, reducing service utilization to healthcare providers. By aligning incentives, both providers and consumers are rewarded for prudent use of healthcare services. In addition, incentives encourage providers to improve quality while controlling costs.

Cost-sharing incentives make consumers and providers more aware of costs by sharing healthcare expenses via deductibles and co-payments. Sharing healthcare expenses is generally recognized to reduce utilization and reinforce the fact that there is a cost associated with healthcare, requiring the consumer to bear some of that burden. A deductible is the minimum payment consumers make before a plan begins to cover services rendered. Coinsurance (expressed as a percentage of charges for services provided) or co-payments (usually a fixed dollar amount associated with a particular service) required by the insurance plan are also strategies used by insurance to limit utilization. Finally, annual caps or maximum benefits provided are sometimes included in plan provisions as a strategy to limit coverage, although it should be noted that the ACA significantly impacted attempts to impose coverage limits on many plans.

Insurance companies introduced managed care in the 1990s to control increasing healthcare costs. Managed care is a system of healthcare that attempts to manage the quality and cost of medical services that individuals receive. Managed care contracts restructured how reimbursement occurs between payors and providers. Under a managed-care contract, reimbursement is tied to health outcomes and the quality of care provided using value-based contracting to help drive down costs and improve healthcare quality.

With the Affordable Care Act, the reimbursement model is shifting to provide incentives for innovating value-based programs, such as the Medicare Value-Based Insurance Design (V-BID) and bundled payment programs. The V-BID is an approach that drives patients and providers to high-value services while discouraging low-value services when the benefits do not justify the cost. The goal of V-BID is to decrease the cost of healthcare while increasing the effectiveness of health services. The V-BID approach structures health insurance in a way that incentivizes and drives patients and providers toward the most valuable services—those most beneficial relative to costs. V-BID has the potential to improve service utilization, quality, and outcomes.

Many different value-based care models are being implemented. Some of these are accountable care organizations (ACOs), bundled payments or episode payment models (EPMs), and patient-centered medical homes (PCMHs).

Click on the following tabs to learn more about each:


ACOs are among the most popular and successful strategies to date. ACOs are groups of hospitals, physicians, and other providers that agree to coordinate care to provide the best possible care to patients, avoiding unnecessary utilization of services and medical errors. In accountable relationships, participants take on responsibility for the total costs of care for their patients. They share in the medical savings and incentives earned from positive outcomes and the risk of being penalized for negative outcomes.


Bundled payment programs, or EPMs, are showing significant promise in improving the quality of care while bringing costs down. An episode of care involves the entire care continuum for a single condition or medical event during a fixed period. Bundled payment programs generally provide a single, comprehensive payment that covers all of the services (e.g., physician, hospital, and other healthcare provider services) involved in a patient’s episode of care.


The PCMH model of care puts patients at the forefront of care. Patient care is centralized through the services of a primary care physician. The goal of the PCMH is to improve quality and the patient experience while reducing healthcare costs. Providers and healthcare organizations work as a team to serve patients involved in the PCMH.

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