There are two competing schools of thought regarding payment plans for health care: prospective and retrospective. Many health providers, including state-provided health care providers, have converted from retrospective to prospective payment plans. While this move has been advantageous in some ways, there have also been unintended detrimental consequences.
Prospective Payment Plan
Prospective payment plans assign a fixed payment rate to specific treatments based on predetermined factors. These payment rates may be adjusted periodically to account for inflation, cost of living in certain regions or other large scale economic factors – but not to accommodate individual patients.
Under a prospective payment plan, each health-care provider receives the same payment for each treatment of the same type. Multiple treatments of the same type receive multiple payments, however, each payment amount remains the same. Cases that require multiple treatments are segmented so that each treatment is assigned the corresponding payment rate.
Retrospective Payment Plan
Retrospective payment plans provide payment to health-care providers based on their actual charges. Under a retrospective payment plan, a health-care provider treats a patient and submits an itemized bill to the insurance provider describing the services provided.
With this type of payment plan, the insurance provider has the discretion to approve or deny payment for specific services or for the entire bill. However, the customary procedure is that the health care provider receives payment for the full amount specified on the submitted bill without dispute from the insurance company.
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Prospective Payment Pros and Cons
Along with the rise of managed care in the health-care field for private health-care providers, Medicaid programs in many states have converted from a retrospective payment plan to a prospective one. This has a number of benefits, mainly that the fixed rates associated with a prospective payment plan have made calculating expenditures more predictable.
The move has also resulted in significant savings for many insurance companies. Some of these companies pass the benefits to consumers in the form of lower premiums and co-pays.
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On the downside, prospective payment plans provide an incentive for health-care providers to treat a higher volume of patients to realize the greatest possible revenue and profit margin.
Prospective payment plans may also encourage health-care providers to cut corners or employ other means to cut costs. These cost-cutting measures do not account for quality of care for patients. Additionally, physicians have reduced latitude to determine the type and amount of care their patients receive.
Retrospective Reimbursement Pros and Cons
The main advantage of retrospective payment plans is that they may allow patients to receive more individualized care. Since healthcare providers are not limited to pre-approved treatment rates, they can deliver the exact services their patient needs.
The drawback for insurance companies is that some providers might try to game the system by recommending services that are more costly in order to enhance their profits. This is not good for patients who may be subjected to treatment they do not actually need, and it is not good for the healthcare system as it drives up costs across the board.
Chris Blank is an independent writer and research consultant with more than 20 years' experience. Blank specializes in social policy analysis, current events, popular culture and travel. His work has appeared both online and in print publications. He holds a Master of Arts in sociology and a Juris Doctor.