Quantifying the Value of Life Care Plans: “Submitted Charges”, or “Reimbursed Rates”

“The financial value of medical services is equal to the amounts charged by medical providers, and is not determined by the amount paid in cash by third-party payors.”

Core Principle of Valuation

According to Lawrence Lievense, FHFMA, FACMPE, FHIAS, a foremost expert in the field of health care finance in the United States:

“The financial value of medical services is equal to the amounts charged by medical providers, and is not determined by the amount paid in cash by third-party payors.”

Patient Financial Responsibility

When a patient seeks treatment with a health care provider, they sign a written, financial agreement to be responsible for the medical provider’s full charges. Financial agreements and consent to treat agreements are a routine part of the admission and registration procedures with all hospitals and medical providers. Where a patient is incapable of comprehending and/or signing such a contract, one is implied from the circumstances that necessitate care.

Pursuant to such a contract, the patient is personally financially responsible [liable] for all the medical provider’s charges. These agreements also provide that the health care providers will generally send the charges incurred by the patient to the patient’s health insurance, if the patient has such coverage.

Why Aren’t Life Care Plans Formulated Using Collateral Sources Such as Private Insurance or Medicare?

Routinely, healthcare providers enter into contractual agreements with private health insurance companies and Medicare to establish contractual relationships for providers to provide care to the health insurance companies’ and Medicare’s plan members, and for the health insurance companies to make payments for a patient’s bills in accordance with the policy benefits. These contracts often cover thousands, if not tens of thousands, of patients. These contracts are negotiated between the healthcare providers and health insurance companies or Medicare.

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Cash Payments and In-Kind Benefits

To fully pay the debts owed by patients to the health care providers, the insurers agree to pay providers both cash and “in-kind” benefits [non-cash, negotiated, contractual payments]. When needed for many contracts and patients, the value of specific in-kind benefits cannot be calculated for specific patients covered by a specific third-party payer for a specific admission.

Medical providers and plans such as private health insurance, Medicaid, and Medicare engage in such valuations on a contract-wide basis, both prospectively and retrospectively, for contract evaluation and negotiation.

Examples of In-Kind Benefits

These in-kind benefits can include a wide variety of items, including:

Rapid claims payment guarantees.
Assistance with marketing and advertising programs, including listing of the provider in the health insurance’s recommended services manual for patients, and access to the health plan’s (or Medicare’s) entire membership in the medical provider’s geographic region as a pool of potential patients.
Bonus payment programs based on various measures, such as high patient volume levels and minimum levels of patient complaints.
Exclusive provider agreements where another local competitor will not be contracted to provide services for the insurer’s beneficiaries; and
Accelerated process for resolution of denied treatment authorizations or denied payment for services rendered to beneficiaries.
Access to programs that efficiently and expeditiously verify a patient’s coverage and benefits under a health plan, including Medicare. This can be critical in minimizing bad debt, counseling patients about payables due, and meeting responsibilities legislated to the provider.

Tracking and Valuation of In-Kind Benefits

In-kind benefits provided by health insurers to health care providers as part of their contractual relationships are tracked by the providers and insurers during the term of the contracts so they may be priced and/or valued as part of contract reviews and/or renewal negotiations. Because these in-kind payments reflect largely administrative issues and related values for billings and services to large numbers of patients/insureds, generally, there is no individual valuation of the in-kind benefits applicable to any individual patient, or any individual patient’s medical service.

How Providers Are Fully Compensated

The combination of cash payments and in-kind benefits paid by insurers to providers as part of their contractual agreements fully compensates the provider for the plan-member patient’s debt for medical care provided, with the exception of co-pays and/or deductibles, which remain the patient’s responsibility to pay to the healthcare provider.

Accounting Treatment Under GAAP

When medical providers post payments from health insurers, the payment is posted as ‘cash’, and in-kind payments are posted with terminology which varies among providers, generally known as ‘adjustments’ and shown as ‘contractual allowances’, ‘contractual discounts’, ‘reductions’, ‘write-offs’, ‘Medicare Contractuals’, or similar terminology in accordance with Generally Accepted Accounting Practices (GAAP). However, the posting of in-kind payments as allowances or discounts does not mean that the health care provider did not receive valuable consideration for these amounts.

The contractual “in-kind” consideration from the overarching contract between the health insurer and the medical provider is what accounts for the amounts that are listed as adjustments (reductions) on individual patient accountings and explanations of benefits.

While it may appear from an individual patient's perspective that medical providers are accepting less than 100% of their billed charges, that is not, in fact, the case. Rather, the fact that cash payments attributable to services on individual patient accounts are less than the billed (submitted) charges illustrates that in-kind payments that take place over the term of the contract have considerable value. The total of the cash payment(s) plus the in-kind adjustment(s) plus any patient payable amounts will always equal 100% of full retail charges.”

Types of In-Kind Non-Cash Benefits/Remuneration

Accelerated appeals process for denied claims
Accelerated appeals process for denied/delayed treatment authorizations
Accelerated process of denied claims resubmission & resolution
Accelerated reporting to providers (IBNR, monthly/quarterly statuses, etc.)
Advance notice of changes in provider manuals
Advertising programs assistance
Assist the provider with hiring/recruitment of physicians, clinicians, and administrators
Bonus payment programs based on patient volume levels
Changes in benefits and eligibility verification processes
Changes in claims submission requirements
Dedicated staffing at the payor for provider authorizations, eligibilities, claims, and appeals
Electronic claims submission
Electronic denials
Electronic eligibility
Electronic funds transfer
Electronic resubmissions of claims
Electronic EOB’s
Enhanced eligibility and benefits verification capabilities
Enhanced (increased) detail on authorization notices
Enhanced (increased) detail on the explanation of benefits
Enhanced (increased) detail on remittance advices
Fixed (predictable) cash payments w/simplified reconciliation
Higher payment allowances for carve-out items
Inclusion of the providers’ direct collections line on beneficiary notices
Listing in health provider sources
Listing of providers on payors’ website—with patients directed to providers’ geo-specific areas
Marketing programs assistance
More frequent visits by payor representatives
Non-compete agreements (exclusive provider agreement)
Online contract access
Provider/physician access to desirable training seminars and conventions
Reduced pricing for providers attending payor seminars and conventions
Rapid claims payment guarantees
Regularly scheduled visits by payor representatives
Retrospective claims audit (vs concurrent or pre-payment)
Simplified contract renewal process
Staff training by payor teams
Stop-loss agreements for high balance patient accounts
Support and participation in provider health fairs and community activities”

Why a Life Care Plan Is Properly Formulated Using “Submitted Charges”

As described by Laurence Lievense in the preceding text, cash payments to providers by third-party payers do not equal the total value paid by third-party payers for goods and services rendered by providers. Beyond that, the primary reason life care planners do not quantify life care plans using “reimbursement rates” is that life care planners, like all experts who offer opinion testimony in the United States, are required to formulate opinions using relevant, reliable, and regularly employed peer-reviewed methods within their discipline.

Accepted Methodology and Standards

In brief, there is no relevant, reliable, or regularly employed peer-reviewed methodology within the discipline of life care planning that advocates the formulation of a life care plan using “reimbursement rates”.

All accepted methodologies and standards of practice within the discipline of life care planning involve quantifying a life care plan using usual and customary, market rates, i.e., usual and customary rates of “submitted charges.”

Supporting Industry Guidance

As an example, the International Association of Rehabilitation Professionals’ Consensus and Majority Statements derived from Life Care Planning Summits in 2000, 2002, 2004, 2006, 2008, 2010, 2012, and 2015:

“Best practices for identifying costs in Life Care Plans:

Employ verifiable data from appropriately referenced sources
Costs identified are geographically specific when appropriate and available
Non-discounted/market rate prices
More than one cost estimate, when appropriate”

Further, the tenets, methods, and best practices advocated by the American Academy of Physician Life Care Planners exercise the application of usual and customary market rates.

AMA Definition of Usual, Customary, and Reasonable

The American Medical Association’s Policy H-385.923 (Definition of Usual, Customary and Reasonable) states:

‘Usual’ fee means that fee usually charged, for a given service, by an individual physician [provider] to his private patient (i.e., his own usual fee);
A fee is ‘customary’ when it is within the range of usual fees currently charged by physicians of similar training and experience, for the same service within the same specific and limited geographical area; and
A fee is ‘reasonable’ when it meets the above two criteria and is justifiable, considering the special circumstances of the particular case in question, without regard to payments that have been discounted under governmental or private plans.

The American Medical Association maintains “there is no relationship between the Medicare fee schedule and Usual, Customary and Reasonable fees.”

Admissibility Considerations

Whether intentional or not, when a party asserts a life care planner should formulate the value of a life care plan using reimbursement rates, in effect, they assert the life care planner should formulate a life care plan without conforming to reliable, regularly employed peer-reviewed methods within their discipline—something that would fail to meet requisite admissibility standards within the United States.

Why Formulating a Life Care Plan Using Reimbursement Rates Is Speculative

As described by Laurence Lievense: “To fully pay the debts owed by patients to health care providers, insurers agree to pay providers both cash and 'in-kind' [non-cash] benefits. When needed for many contracts and patients, the value of specific 'in-kind' benefits cannot be calculated for specific patients covered by a specific third-party payer for a specific admission. ‘In-kind’ benefits provided by health insurers to health care providers as part of their contractual relationships are tracked by the providers and insurers during the term of the contracts so that they may be priced and/or valued as part of contract reviews and or renewal negotiations. Because these in-kind payments reflect largely administrative issues and related values for billings and services to large numbers of patients/insureds, generally, there is no individual valuation of the ‘in-kind’ benefits applicable to any individual patient, or an individual patient’s medical service.”

Probability vs. Possibility in Legal Standards

Any reliable valuation of future medically related goods and/or services requires information about how many bills will be paid through a combination of both cash payments and in-kind payments (non-cash, negotiated, contractual payments), which is impossible for a life care planner, or any other person, to foresee with a reasonable degree of probability.

Admissibility standards in the United States require experts to offer opinions using a reasonable degree of probability/certainty. Simply stated, courts are not interested in what is possible; courts are only interested in what is probable. Because it is rarely, if ever possible to reliably attribute non-cash remuneration provided by a third party payer to any individual patient, or any individual patient’s medical service; and because it is not generally possible for any person to reliably foresee how many of an individual’s medical bills will be paid through a combination of both cash payments, and in-kind non-cash payments, the quantification of a life care plan using “reimbursement rates” is speculative, and therefore, does not meet required standards of admissibility.

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Quantifying the Value of Life Care Plans: “Submitted Charges”, or “Reimbursed Rates”

Core Principle of Valuation

Patient Financial Responsibility

Why Aren’t Life Care Plans Formulated Using Collateral Sources Such as Private Insurance or Medicare?

Do you have additional questions?

Cash Payments and In-Kind Benefits

Examples of In-Kind Benefits

Tracking and Valuation of In-Kind Benefits

How Providers Are Fully Compensated

Accounting Treatment Under GAAP

Types of In-Kind Non-Cash Benefits/Remuneration

Why a Life Care Plan Is Properly Formulated Using “Submitted Charges”

Accepted Methodology and Standards

Supporting Industry Guidance

AMA Definition of Usual, Customary, and Reasonable

Admissibility Considerations

Why Formulating a Life Care Plan Using Reimbursement Rates Is Speculative

Probability vs. Possibility in Legal Standards

Our Focus We Specialize in The Formulation of Compensatory Economic Damages

Future Medical Expenses

Loss of Earnings

Loss of Household Services

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