Paying providers

Harvard professors offer new reimbursement formula

Topics: Reimbursement, Finance, Employee Headcount, Staffing, Labor Expense, Workforce, Facilities, Planning, Strategy, Patient Navigation, Methodologies, Performance Improvement, Cost and Productivity, Efficiency

August 23, 2011

A formula that calculates how long a patient spends with each physician office employee and uses equipment during an appointment could more effectively determine reimbursement rates and reduce health care costs, according to an article in the Harvard Business Review.

The proposal—developed by Harvard Business School professors Robert Kaplan and Michael Porter—estimates the hourly rate of each employee by dividing salary, benefits, and the cost of using technology and facilities by the number of hours each employee works. The system also factors in how long patients spend at each portion of their visit.

According to Porter, the current cost-estimate model is based on a "cost-plus system" which has made reimbursement go up. "Since providers misunderstand their costs, they are unable to link cost to process improvements or outcomes, preventing them from making systematic and sustainable cost reductions," Kaplan and Porter write.

The proposed system would require health care providers to determine their interaction with patients, the services offered, and the length of treatment. For example, if a patient spends 18 minutes with a receptionist who costs $45 per hour, 24 minutes with a nurse who costs $65 per hour, and 9 minutes with a physician who costs $300 per hour, the total cost of the visit equals $84.50, Kaplan and Porter estimate (McCarthy, National Journal, 8/21 [subscription required]).

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