Healthcare Fraud: Auditing and Detection Guide, 2nd Edition

Types of Reimbursement Models

Another key to understanding healthcare reimbursement is to understand the dynamics of different reimbursement models, which tend to fall into several categories.

Fee-for-Service Model

The fee-for-service reimbursement model is the one traditionally used in healthcare. Volume drives the profit in this model: The greater the number of services provided, the greater the revenue. Many reimbursement models negotiate a percentage of charges as part of the contractual arrangement. The abuse concern results from providing services that are not medically required.

Prospective Model

The prospective model uses predetermined fees. The incentive for profit in this model comes from efficiency. The more efficiently the service is provided, the greater the revenue. An example is Medicare’s DRG (diagnosis-related group) prospective payment system. Each hospital has a series of computations that is determined, in part, by information collected in the annual Medicare cost report. Hospitals receive their lists of DRGs with predetermined amounts for each group. An example includes the heart attack (myocardial infarction) DRG series.

• DRG 280: Myocardial infarction, discharged alive with major complications and comorbidities.
• DRG 281: Acute myocardial infarction, discharged alive with complications and comorbidities.
• DRG 282: Acute myocardial infarction, discharged alive without complications or comorbidities.

A community hospital prospective payment schedule may look ...