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APPENDIX B Research Issues Concerning Reimbursement for Childbirth Services William B. Fullerton This paper describes reimbursemen~financing issues related to birth settings and some of the advantages and disadvantages of different reimbursement methods. There is also a discussion of some possible research strategies for gaining information that would be useful in making rational choices among the alternatives. Implicit is the recog- nition that final policy decisions are based as much on value judgments, interpretations of past research, and consensus as they are on new re- search results. The final section of this paper contains information on the costs of different birth settings. REIMBURSEMENT Reimbursement/Financing Issues There is one basic question pertaining to reimbursement for birth servicesa What third-party reimbursement methods would establish appropriate relative support for each of the major birth settings? Third-party payment or reimbursement refers to payment for care by some party other than the individuals receiving the care. Examples include private insurers such as Blue Cross and public insurers such as the Federal Goverment via Medicaid. Institutions and individuals poten- tially eligible for such reimbursement might include general practi- tioners, certified nurse midwives, obstetricians, hospitals, and birth centers. The effectiveness of the methods rests on decisions in four areas a • Which facilities should be reimbursed and which should not because their quality is not acceptable? • Which services should be reimbursed? • What percentage of provider care should be reimbursed? • If 100 percent of costs are not covered by the third party, how should reimbursement be divided between program and patient? The acceptability of a service may depend not only on its inherent quality but also on its suitability for patients. Medical criteria, determined for example by risk assessment, may supersede individual 80

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81 preferences for a particular birth setting. Thus, proper selection of patients eligible to receive the services of a facility may be made a responsibility of the providers. Penalties may then be imposed for faulty provider performance either by suspension from the program or by denial of payment for cases that were improperly selected. Reimbursement policy may stipulate that payments can be made only to providers who are accepted for participation. However, third-party reimbursement policy may be supplemented by provisions worded to ensure that there is no financial incentive to patients to choose more expen- sive types of care, if all other medical criteria, such as safety, are equivalent. These provisions may be designed to make the system neutral with regard to choice and, thus, cost of care. They may also be de- signed, however, to create an incentive for patients to choose lower cost care. This would result in savings for the insurance program and the patients, either through continued low premiums or through a lower proportional charge for the patient choosing the lower cost service. Conditions of Participation When a third-party payer •purchases• health care facilities and ser- vices, it may make stipulations, called conditions of participation, that outline such items as quality standards and cost restraints. Conditions of participation may include decisions about whether a provider is qualified to receive reimbursement from a third party or whether facilities meet certain requirements pertaining to staffing, equipment, etc. Independent practitioners may normally be reimbursed by third parties only if they meet the definition of a covered prac- titioner (e.g., having received specific training and holding certain licenses) and provide services defined as covered. For example, a midwife may be reimbursed by a third party only if the rules of that party provide for including services of a midwife and only when the services involved meet the prescribed coverage·definitions. Rules may stipulate that coverage be provided for services to the mother-- including prenatal, birth, and postnatal care--but not for services provided to the child after delivery. FOr birth facilities, one of the first questions to be addressed is: What types of facilities are acceptable for coverage? What condi- tions related to licensing and other legal requirements, to health and safety, and to administrative processes (e.g., accounting systems and contractual relationships with practitioners) must be met? Insurance contracts may exclude reimbursement for facilities that do not meet their conditions of participation, but they may pay smaller amounts to nonqualifying facilities selected by insured persons. These differen- tials in payment mean that the patient must pay a larger sum from per- s~nal resources for using a nonqualifying facility. Therefore, there is usually a financial incentive for the patient to select qualifying facilities. Questions regarding coverage of independent practitioners are quite similar to those for facilities. For example, should ins~rers cover any practitioner performing legally authorized services in a given

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82 state? Or should insurers adopt quality-assurance standards and per- haps other measures that go beyond specific state laws or regulations? A second issue is the degree to which the insurers can and should depend upon professional credentialling as opposed to establishing their own requirements for practitioners. These insurer requirements may extend beyond professional standards and deal with reimbursement considera- tions. For example, some types of personnel may be reimbursed only as employees or as contractors of a facility, whereas other practitioners may be reimbursed independently on a fee-for-service basis. Reimbursement Considerations If several birth settings meet eligibility criteria and are approved for coverage by the third party, the next step is to establish a rei~ bursement system. The system should provide the required financial support to each type of facility as well as appropriate financial dif- ferentials in payments based on patient need and service characteristics of the birth setting. Providing what may seem to be adequate financing for services in a class of, facilities may not prove unbiased to the set- ting. The bias might develop, for example, if patients incur signifi- cantly greater out-of-pocket costs in choosing one setting as opposed to another. In other words, the financial consequences for both facili- ties (including practitioners) and patients must be taken into account when constructing a reimbursement plan. This becomes further compli- cated by medical criteria determining the characteristics of the population likely to use a particular facility--for example, low-risk women using freestanding birth centers. One important step in forming a plan for payments for birth expenses is to consider what provisions are contained in existing third-party payment programs. These provisions are generally oriented toward con- ventional birth settings. A government-wide benefit plan contains a typical provision that provides for payment for •covered services and supplies in or out of a hospital prescribed or ordered by a physician and when billed for by a physician, hospital or other provider whose services are covered by this plan• (Office of Personnel Management, 1980). Hospital-based birth services performed by a physician are gen- erally clearly covered, but coverage of other birth services is often doubtful if not clearly excluded. For example, the previously cited plan provides for coverage of maternity care as a basic benefit •when provided or ordered, and billed for by a physician.• A subscriber who made arrangements for maternity care directly with a midwife would probably not be entitled to receive benefits covering the midwife's fee. However, such services would be covered if ordered by a physician and then billed by the physician or, perhaps, by the midwife. Nor is there any provision in this plan for reimbursing costs for a nonhospital birth center, either as a basic benefit without coinsurance or as a supplemental benefit subject to coinsurance. If the nonconventional services are covered as supplemental benefits and conventional ser- vices as basic benefits, the patient's out-of-pocket costs would be greater if she chose the lower cost service.

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83 Amount of Facility Reimbursement Alternative methods of reimbursement to a facility may be categorized into three types: • reasonable cost • usual charges • incentives rate Reasonable cost reimbursement is the approach now used by Medicare in paying hospitals, nursing homes, and home health agencies. This reimbursement method lets providers charge what the market will bear. Many Blue Cross plans and Medicaid programs use a similar approach in paying hospitals. Generally, Medicare pays the accounted-for costs of each facility up to a limit. For hospitals, this limit has been applied only to routine costs and is a multiple of the average cost for hospi- tals in group--currently 112 percent of the mean. The hospital limit is applied only to routine in-patient service costs because it is diffi- cult to arrive at a limit on reimbursement for total services that takes into account cost variations arising from different patient populations using the institutions. The differences in the patient •mix• determine the types of ancillary services that are needed. The patient mix issue would not arise in birth settings where the patients are screened for their high risk status. However, different patients with different levels of risk might well be admitted to dif- ferent types of centers. The basic level of cost and the limit of reimbursement would depend heavily on what services were covered. Thus, not all the services of every participating birth center would necessarily be covered. Insurance programs generally cover only those services judged by consensus to have important medical value and to represent accepted obstetrical practice. Cost reimbursement, although often not generous, has generally been adequate (and workable) to assure the continued viability of the institutions whose services are covered. Cost reimbursement might result in varying payments to different settings whose costs differ. This variation might be reduced by limit- ing payment to the level of costs at the more economical sites. If billing to the patient for costs in excess of the reimbursable limit is allowed, most patients would be required to pay the cost differential. As a result, there may be a gradual shift to lower cost birth settings, but the speed or extent of such a shift cannot be predicted. If high cost centers are reimbursed below cost and are prohibited from charging patients the difference, the political acceptability of the plan is dubious. If hospitals choose to close their maternity sections, patients may be seriously inconvenienced. Charge reimbursements are made to all covered providers of health care by commercial health insurance companiesr they are also made on a cost basis to physicians and other independent practitioners and suppliers by most plans that pay hospitals and other institutions. There are a number of safeguards intended to ensure that excessive charge reimbursements are not made. No more than the usual charge of the provider is paid, and there is normally a limit related to the fees

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84 charged by local competitors. The intent is to pay no practitioner an amount exceeding that charged by others in the field. To establish the amount payable for specific charges, there must be a clear understanding of services to be covered by that fee. If the content of the package is not carefully defined and understood, adminis- trative control might be lost. For example, multiple bills could be submitted by a birth center. They could appear reasonable according to the limits established by the carrier, but the sum of the bills might be found unreasonable for the services performed. This could occur if physician consultations were included in the package charge of some centers but were billed fee-for-service by other centers. If the same package fee were paid in either case, there would be an incentive for all centers to remove the consultation services from the package and total costs would quickly rise. A related question is whether the same package fee should be paid for a patient receiving care from the first day of pregnancy as for those beginning in the sixth month. This is also germane to the issue of transferring patients from one birth pro- gram to another. In these instances, transfers must be handled so that payment to all parties is equitable, but not excessive. For example, if an obstetrician's hospital fee is paid for care of a patient who, late in her pregnancy, was transferred from a freestanding birth cen- ter, the payer might be unwilling to pay the original center most of its fee for covered obstetrical services. Paying the average value of a comprehensive package of birth ser- vices rather than an individual fee for each item of service has the advantage that it avoids creating an incentive for overservicing. On the other hand, this payment practice may create an incentive for under- servicing. The profits of a facility may increase if services are reduced or if the facility selects patients who require little service and transfers to another setting patients who are expected to require more specialized care. TO respond to questions about the inherent reasonableness of charges, Medicare some years ago limited increases in reimbursable charges. The limitations are based on an index derived from physician office costs and wages in the general economy. Imposing limits on charges has the same potential effects as imposing limits on cost reimbursement. There has been concern that cost reimbursement and fee-for-service reimbursement might stimulate excessive increases in services and, accordingly, in health expenditures. For this reason, there has been considerable effort to identify reimbursement approaches that provide incentives for cost controls. Prospectively setting a level of reim- b.trsement is a characteristic of such an approach. TO be effective, ·.he prospective rate should limit both price per unit and quantity of services and should be related to the cost incurred in an efficient operation. It has proved difficult to establish a prospective rate- setting system that performs as well as intended. For example, charge reimbursement has not had a cost-inhibiting result. However, a number of prospective rate plans have been exerting a favorable effect on cost increases (Rochester Area Hospitals Corp., 1980).

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85 There is a current trend away from cost containment regulation to a system that relies upon economic market action and competition to con- tain costs. If large third parties continue to function in the open market as expected, they would still have to establish criteria for the services they reimburse. These criteria may take forms much like those used in government regulatory programs. Amount of Practitioner Reimbursement Another potentially important issue is whether practitioners should be reimbursed on a separate fee basis or as part of the birth center pack- age payment. The latter approach would force the centers to weight carefully the amounts paid to such practitioners because higher payments would leave fewer funds for other purposes. The birth center payment to practitioners would not necessarily take the form of wages and salaries. Rather, the centers could make fee-for-service payments or use other forms of compensation. If separate fee payments are adopted for nonphysician professionals, a system would need to be devised for developing data and setting stan- dards for reimbursable fees. The difference in fees contingent upon the type of practitioner is one of the issues that would require con- sideration. If the conclusion is that a patient can receive·equal care from either a physician or from another health professional, the ques- tion is whether different fees should be reimbursed. If the same fee limit is applied, should it be at the higher, physician level or at the lower, nonphysician level? If the limit is set at the lower level, physicians presumably would be permitted to charge their patients any difference between the allowed reimbursement and their total fees. A technical issue that would need to be examined relates to what some critics of birth centers term •creaming.• It is correct that most birth centers and midwives do not treat high-risk patients whose records and symptoms suggest the likelihood of complications requiring hospital- ization and physician intrapartum care. Critics argue that when simpler cases are treated by birth centers and midwives, the average case han- dled by a physician would become more complex and an upward adjustment in physician fees would be justified. Patient Cost Sharing Reimbursement issues concern not only what payment the provider will receive but also how the payment is divided between the patient and the third party. Some patient payment requirements may be spelled out in cost-sharing provisions--deductibles and coinsurance. These provisions must be tailored carefully if the program is to avoid introducing inad- vertent payment preferences among birth settings. Such a situation would occur if cost-sharing amounts established for hospital in-patient facilities and services are small or nonexistent while fees established for nonhospital facilities and services are comparatively higher.

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86 In addition to cost-sharing provisions, the insurance program may set limits on how much (if anything) the provider may charge the patient after having received payment from the third party. 'l'bese limits take a number of different forms. For example, if a service provider bills the Medicaid program for services, the patient may not be charged any- thing above the amount paid by the program. Certain private insurance carriers require that participating pro- viders do not charge patients insured for covered services anything in addition to what the program pays (other than allowed copayments). (When services are fully covered, they are called •service benefits.•) Sometimes, only patients with less than a specified income are protected by the service benefit provisions. In Medicare, the service benefit concept is applied to all Part A services obtained from participating providers. In Part B of Medicare this concept is applied only to providers that accept program payment directly from Medicare. 1 Again a financial preference for one birth setting over another may inadvertently be created if one setting has limits on patient payments but another does not. ror example, hospital services may be subject to service benefit limits whereas nonhospital services may not. Other financial questions should be considered. If a patient selects a less costly type of birth setting, should adjustments be made to compensate for the patient's contribution to program savings, the perceived or actual risk incurred by the patient, or the rejected hos- pital services for which the patient may need to make alternative arrangements? Take the last example of forgoing a hospital setting for a nonhos- pital setting in which the average stay is usually only a few hours. If the birth takes place at home, the care provided continues only briefly. On the other hand, the hospital stay for a normal birth may extend as long as three or four days. The patient at home during those same three or four days may need to make arrangements for her own care and the care of the newborn child. 'l'be family may need to pay for this care or may suffer an added inconvenience. Reimbursement of costs of home care or a lump sum allowance for the patient to use as desired might be considered in order to reduce or avoid some of the out-of- pocket costs for postpartum home care, thereby avoiding an incentive to obtain services through the more expensive hospital route. Transitional Issues If the decision is made to design reimbursement to encourage a shift from conventional hospital to nonconventional birth settings, careful attention should be given to potential problems. The existing capacity to provide nonhospital birth services seems very limited. In 1978, live births totaled 3,333,000 and those in hospitals surveyed by the American Hospital Association (1980) totalled 3,263,000. Apparently, 1Part A of Medicare pays for the cost of hospital carer Part B pays for physician services out of hospital.

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87 only about 70,000 births occurred outside of hospitals. The speed at which nonhospital capacity could grow and would be used, even if strong incentives were provided for the use of nonhospital arrangements, is not known. The prtaary problea is probably ~ one of financial disruption to hospitals caused by a shift in the locus of service (although teaching costs would have to be taken into account if the needs of tertiary care centers are to be met). Hospitals adapted rapidly to outpatient abor- tion services, for example, without apparent serious financial diffi- culties. Purtheraore, birth practices at hospitals could also be modi- fied if the proper incentives are provided. The degree of the shift would depend on the percentage of mothers and newborns that should be served in nonconventional settings. Rather, the more important questions relate to the changes in pro- vider and patient attitudes that would be needed and how such changes should be effected. Also important would be how to avoid creating an excessive financial ha~ship for patients during a period when incen- tives to use less costly services are offered but before those services become widely available. RBSBARCB POSSIBILITIES A wide range of research topics aay be explored to enhance the decision- aaking process in foraulating a policy for financing birth centers. However, aany of the research areas cannot yet be addressed adequately. First, preliainary statements of policy options aust be developed so that hypotheses can be tested against appropriate data. !bese possibilities for future research include1 1. Conditions of participation • What are the characteristics of existing birth centers? Bow do these characteristics relate to the quality of care rendered? What types of clients do their qualifications entitle thea to serve? • What are the types of independent practitioners who render birth services, and what are the types of clients their qualifica- tions entitle thea to serve? What credentials or licenses are sufficient evidence of competence? What supervision or relation- ship with physician, center, or hospital does each require? • What recordkeeping is required? What is now done? What are the capabilities of various types of centers to provide it? What quality-assurance mechanisas or programs should be required? • What probleas would be created if some facilities were not reiabursed for failing to aeet qualifications? 2. Service coverage • What are the specific services to be covered as birth services, and what services are now provided as such? In hospitals? In other centers?

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88 • What packages of services have been or might be established? 3. Reimbursement factors • What are the costa of and charges for packages of ser- vices in different birth settings? • What are the existing third party reimbursement arrange- menta for birth settings? • What would be the effect on out-of-pocket patient pa~nta and on provider participation if limits were set on reiaburaeaent for coats of birth services? • What would be the effects of establishing different types of reimbura...nt systems, e.g., coat versus charge versus various possible incentive reimbursement systems? • What reimbursement methods are now used to pay indepen- dent nonphyaician practitioners, and what are their effects on quality of care, coats, and utilization of facilities and services? • How is facility reimbursement level now established, and what are the effects of alternative prices and price-setting methods? 4. Clien~patient coat sharing • What do patients or clients now pay for birth services under various circumstances? • What is the effect of patient coat sharing (or savings resulting from the selection of lower coat settings) at various coat levels and under various coat-sharing approaches? Costa in Unconventional Birth Settings Data on birth costa do not provide reliable indicators of the coat dif- ferences that would occur if a new policy were developed to encourage a shift of normal deliveries from conventional settings and from primary professional attendance by physicians. The inadequacies of the data include the followinga 1. Present costa are a function of existing policy and practice, a change in policy, even with no change in birth site or services, might change costa considerably. 2. Birth costa vary considerably by geographical area, type of institution, practices, personnel, and characteristics of the patient. Durations of hospital stays for labor and delivery vary substantially among and within areas. Both hospital coats and physician charges for maternity care vary as well. There are differences in costa between the wealthy and the poor, the latter often being served by resident or salaried physicians. There are coat differences, too, depending on whether midwives or physicians provide the services and on whether a salary or fee-for-service reiaburaement plan is used.

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89 The Health Insurance Association of America (BIAA) publication, Surgical Prevailing Health Care Charges System (1976), provided informa- tion on total obstetrical fees in selected metropolitan and nonmetro- politan areas. The lowest median fee shown was $248 in the Minneapolis- St. Paul area and the highest was more than double that figure--$6SO-- in Manhattan. Within a given area, the 90th percentile of charges was approxiaately 30 percent higher than the median. Thus, variations with- in a given area also are considerable. This variability should be con- ·sidered when studying a widely cited BIAA table showing total birth costs of $1,400 in 1977, $3Sl of which was the attending physician's charge. The report of the Select Panel for the Promotion of Child Health (1981) indicated that the physician charge in the private sector of Jacksonville, Florida in 1972 was $3SO, and in the public sector it was $122, approximately one-third the private sector level. A report of a study conducted in Indiana quotes a midwife's professional fee of $200, compared with $400 for a physician (Pragmatics, Inc., 1978). In the study of obstetrical services it conducted for the state of Indiana, Pragmatics, Inc. estimated that birth center charges range from 20 percent to SO percent less than those for similar services in conventional obstetrical units. In Chicago, based on a two-day hospi- tal stay, charges (excluding both physician and midwife charges) were SO percent less in a birth center. However, the data did not reflect costs to the faaily for care or postnatal visits at home. British experience with costs in various settings seems to show considerably fewer differences in costs among the settings. However, this reflects more extensive use of midwives (and other practices dif- ferent from those in United States) whether or not hospital confinement was part of the care. The cost comparisons in Britain took into account costs to the faaily when births occurred in various settings (Ashford, 1978). The Maternity Center Association (1979) reported that 1979 charges in its Childbearing Center were $1,000J it cited a Blue Cross/Blue Shield audit that found the center's costs to be about equal to its charges. The Maternity Center Association report estimated that Medi- caid costs for hospital birthing ranged from $1,6SO to $2,230 for a normal birtn, including a three-day hospital stay. Charges were approx- iaately $600 for pre- and postpartum outpatient visits (apparently assuming no physician fee was reimbursed in Medicaid cases). If a physician fee were paid, it would be offset in part by eliminating outpatient charges assumed in the report. The birth center provides nurse midwife services as part of the care included in its $1,000 fee. The Maryland Health Services Cost Review Commission, through the courtesy of its staff director Harold Cohen, provided data on the vari- ation among hospital delivery charges in Maryland during 1981. The data do not show physician charges if submitted separately to patients, but include those for house staff, which aay be used quite extensively by poor patients for whom no additional physician charge would be made. In Baltimore such patients aay receive prenatal care services without charge. In such cases, physicians are paid on an hourly basis for per- foraing physical examinations and rendering professional advice, but aost patient contacts are with public health nurses.

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90 The state statistics for 1980 provided by the Maryland Commission show that the average length of a hospital stay for normal deliveries was 2.98 days and that the average charge was $933 (State of Maryland, 1981). Fbr deliveries with complications, the comparable figures were 4.37 days and 81,355. For normal births, the length of average stay varied among hospitals from a low of 2.35 days at Memorial Hospital in Easton to a high of 3.49 days at Maryland General Hospital in Baltimore. Charges varied from $565 in Garrett County Hospital to $1,350 at University Hospital in Baltimore. After controlling for differences in wages, other costs, and environmental factors, the length of stay varied from a low of 2.63 days at Baltimore City Hospital to the previously mentioned high of 3.49 days at Maryland General. Charges varied even more--from $864 at Mercy Hospital to 81,350 at University Hospital. REFERENCES American Hospital Association. 1980. Hospital Statistics, 1980 Edition. Chicago: American Hospital Association. Ashford, J. R. 1978. Policies for maternity care in England and Wales: TOo fast and too far? ~ The Place of Birth, Sheila Kitzinger and John A. Davis, eds. New York& Oxford University Press. Health Insurance Association of America. 1976. Surgical Prevailing Health care Charges System. New York& Health Insurance Association. Maternity Center Association. 1979. Bconaaic Aspects of the Childbearing Center. New York: Maternity Center Association. Office of Personnel Management. 1980. A Government-Wide Service Benefit Plan, 1980. Washington, D.C.& u.s. Government Printing Office. Pragmatics, Inc. 1978. Birthing Centers: Alternatives in Obstetric Services for Indiana. Indianapolis& Pragmatics, Inc. Rochester Area Hospitals' Corporation. 1980. Annual Report of the Rochester Area Hospitals' Corporation, Rx for Hospitals. Rochester, N.Y.& Rochester Area Hospitals Corporation. Select Panel for the Promotion of Child Health. 1981. Better Health for Our Children& A National Strategy. washington, D.c., u.s. Government Printing Office. Stat~ of Maryland. 1981. Charge Report, Health Services Cost Review Commission, August 2, 1981. u.s. Congress. 1981. Nurse Midwifery& Consumers' Freedom of Choice. Hearing before the Subcommittee on Oversight and Investigations of the Committee on Interstate and Foreign Commerce, House of Representatives, 96th Congress, 2nd Session, December 18, 1980. Washington, D.C.: u.s. Government Printing Office.