Week Three Exercises
- Effect of Bases for Hospital Reimbursement on the Number of Admissions, Average Length of Stay, Volume of Daily Services and the Unit Cost of Services
- Fee-for-Service Reimbursement
Fee-for-service reimbursement refers to the payment model that involves payment for services using cost-sharing mechanisms, such as insurance coverage. The fee-for-service reimbursement increases the number of admissions to the hospital. The fee-for-service mechanism encourages physicians to provide more health care services, because the payments for the services depend on the amount of healthcare services offered rather than on the quality of healthcare. Cost sharing mechanisms of payment for services usually encourage patients to seek medical attention, since it is cheaper than the fee-for-service payment approach. The fee-for-service approach raises the costs of treatment for patients and also discourages the efficiency that should accompany public healthcare. A reimbursement for the fee-for-service reduces the cost of service for the patients and, therefore, helps more patients seeking medical attention.
On the contrary, the length of stay for patients in hospitals is likely to increase, as they do not pay the hospital bills themselves. Since the cost of treatment is lower in the fee-for-service reimbursement payment method, physicians are less willing to treat patients as this yields lower returns. The volume of provided services is expected to decrease, as health practitioners are not able to maximize their returns. This payment approach assigns great emphasis on the quality of healthcare, since it focuses less on the financial benefits that accrue to it. The unit cost of services however is set to increase due to the growing demand for healthcare services among patients (Scandlen, 2012).
- Per Diem Reimbursement
Per Diem reimbursement refers to the hospitals’ practice that involves charging different treatment rates daily and in which the daily expenses incurred are averaged over time (“The Home Infusion EDI Coalition (HIEC) Resource Centre,” 2008). Days with high rates of this type of reimbursement tend to register higher admission of patients into hospitals. Days with lower rates of reimbursements, on the contrary, tend to register a lower number of patients. The same case applies to the average length of stay, as patients are more likely to spend more time seeking for treatment on the days with higher rates of reimbursements than on the ones with lower rates. Hospitals are likely to register more patients on the days with higher rates of reimbursement and fewer patients on days with relatively lower rates. The unit cost of services is dependent on the daily rates. Days with high Per Diem reimbursement rates have a higher unit cost while days with lower rates have a lower cost. This is however based on the assumption that customers are aware of the daily rates, and the response to prices may not be as mentioned in case of tragedies or emergencies when patients require emergency treatment.
- Fixed Fee per Admission
In cases where the price per admission is fixed, there is likely to be little effect on the number of patients being admitted or treated daily. The number of patients being treated or admitted in the hospital will be dependent on factors other than the price of services offered. Factors, such as tragedies, tend to increase the number of patients being admitted into hospital.
- Quantity Demanded and Supplied After Price Increase
The initial equilibrium price, quantity demanded and quantity supplied is given as $30 and 150 visits. The state seeks to increase the price to $40 in order to create incentive for the physiotherapists to provide more services to the members of the public. Raising the price that customers pay to the suppliers will result in the reduction in the level of demand (Jacobs, and Rapoport, 2004).
According to the graph, the $40 price corresponds to 100 visits. This indicates a reduction in the quantity demanded by 50 visits. The increase in price, however, will result in a subsequent increase in the revenue earned by the physiotherapists. Since the revenue increase is directed towards the improvement of services offered, the consumers may not respond to the prices through avoidance of the services. Instead, they will be willing to pay bigger amount if the suppliers continue to provide better services. However, the graph above depicts the trend observed in a normal demand curve. Therefore the consumer demand is likely to decrease with an increase in the price of the provided services.
- Supply and Demand Patterns of Physicians in the Medicare Agency
The initial rate of visit for all Medicaid enrolees is given as $5.50 per visit. Assuming that each physiotherapist is a profit-maximizing provider, the equilibrium price level is given by the point at which the quantity demanded is equal to the quantity supplied. In this case, the point of profit maximisation will be given by the point where the physiotherapist provides the number of services that is equal to the quantity demanded by the enrolees. From the demand and supply schedules, the physiotherapist will need to provide one service as long as they operate at the fixed $5.50 level. According to the demand and supply schedules, at the $3 price level, the quantity of demand is given by 5 visits. On this level in the supply schedule, the total cost is $35. The quantity of services provided will be 5 visits at the same level of demand.
References
Jacobs, P. & Rapoport, J. (2004). The Economics of Health and Medical Care (5th ed.). Sudbury, MA: Jones & Bartlett Publishers.
Scandlen, G. (2012 March 28). Is Fee-For-Service the Problem? John Goodman’s Health Policy Blog. Retrieved from http://healthblog.ncpa.org/is-fee-for-service-the-problem/
The Home Infusion EDI Coalition (HIEC) Resource Centre. (2008 January). Definition of Per Diem. National Home Infusion Association. Retrieved from http://www.nhia.org/resource/hiec/per_diem.cfm
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