Lecture note Week 2-

3:

Provider
Payment
Mechanisms
Laksono Trisnantoro
Department of Public
Health
Content
Lecture Description
Key-terms
Sections of Lectures
References
Pertanyaan (essay)

Lecture Description

Indonesians are still relying heavily on out of pocket
spending on health care.
It means people have to pay directly to the health
providers when they got sick.
In the near future, Indonesias health financing system will
be changed to insurance based.
Therefore, instead of the patients, there will be other
parties (insurance agency or government) who will pay the
doctors.
These agencies will implement several payment
mechanisms for physician.
Based on the timing:
Two types of payment mechanisms
1. prospective
payment system;
and
2. retrospective
payment system
Can be for medical
doctors and hospitals
The lecture is
concerned more in
medical doctor
payment



Capitation
Prospective payment system:
Capitation and Budget



Government



Health
Insurance



Doctor



Hospital






Patient



Tax
premium




Budget
In Primary Care
At Hospital


Salary
Prospective payment system
Salary for medical doctor



Government



Doctor






Patient



Tax
In Primary Care
At Hospital
Retrospective payment system (1):
fee for service from out of pocket for MD and hospital



Doctor



Hospital






Patient
Payment From Out of
Pocket
Retrospective payment system (2):
fee for service from insurance company/government
for MD



Tax
premiu
m



Doctor






Patient



Government



Health
Insurance



FFS,
Bonus
Payment from
government/insuranc
e company



Hospital
The Dilemma
Retrospective payment
system is more
favorable to doctors
because it will increase
their motivation and
satisfaction.
On the other hand,
prospective payment
system is more of the
government or
insurances choice
because it provides
better efficiency and
quality.

In this lecture,
we will describe the detail of these
mechanisms so that the students will be
prepared for their future working
environment.
Whether it will be in government or in private
sector, in market driven environment or in
insurance based health financing system.
Key-terms
Payment Mechanisms
Health Financing
Health Insurance
Out of Pocket
Fee for service
Salary
Bonus
Capitation
Budget
Retrospective payment
Prospective payment
Section of Lectures
1. Introduction
2. Indonesian Health Financing System
3. Type of Provider Payment System
4. Doctors Life Satisfaction and payment
system
5. Comparing Malaysia and Indonesia
6. The Future of Medical Doctors payment
mechanism
1. Introduction
Provider Payment Mechanism = The way of
paying the doctors
Basically there are two types of Provider
Mechanism System:
Prospective payment system: Capitation, salary,
DRG
Retrospective payment system: fee-for-service
from out of pocket or from government/insurance
and bonus.
Which one is better in term sof
Quality and Efficiency?

Prospective payment
system is considered
better in providing
efficiency and quality
control.
In primary care level,
most commonly used
method is capitation
payment system

How and
Why?
2.
Indonesian health financing
system
9/3/2014 16
Study by Equitap Group in 2001
9/3/2014 17
9/3/2014 18
9/3/2014 19
9/3/2014 20
How Pay for Health Care
Since 2004, Indonesia increased the Social Insurance
9/3/2014 21
How Pay for Health Care
What is the impact?
-Reduce the out of pocket
- Increase the
prospective payment
3. Type of Provider Payments
Based on
Source of
Payment
Some sources of Payment
Out of Pocket
Government Revenue
Social and private
insurance.


Out of Pocket using fee-for service



Doctor



Hospital






Patient
Payment From Out of
Pocket
What is the meaning of Fee for
service?
Doctors are paid based on the service
provided
It is a market forces mechanism
It is difficult in making standard of fee
Doctors are happy. The income depends on
the productivity
Patient satisfaction is high because the doctor
has more attention.

Problems and Solution : fee for service
Problems
1. Tendencies for supplier induced
demand
2. Under referal. Doctors tend to
keep the patient.
3. Increasing health cost inflation
4. Difficult to have a proper budget
5. The higher income groups enjoy
better care. The poor will be
marginalized

Solution
1. Utilization
review
2. Quality
assurance

Notes: Supplier Induced Demand
The Doctor prescribes, orders, or
gives treatment not based on
patient need, but demand
The demand of patients can be
induced by doctor motivation to
have financial benefits from the
patients.
Why?
There is a different of knowledge
between doctors and patients
Government Revenue:
Doctors are paid by salary;
For primary care can be paid by capitation;
For hospital care: Using DRG.



Salary
Prospective payment system:
Salary for medical doctor



Government



Doctor






Patient



Tax
In Primary Care
At Hospital
What is the meaning of Salary
A monthly payment for medical doctor
Medical treatment is not influenced by
economic incentives
Planning and budgeting is easier
If the salary is low, there is a problem of
productivity



Capitation
Prospective payment system:
Capitation and Budget



Government



Health
Insurance



Doctor



Hospital






Patient



Tax
premium




Budget
In Primary Care
At Hospital
What is the meaning of
Capitation?
Concept: payment by insurance company to
health providers for services they deliver,
where the amount is not based on the type
and or amount of health services provided,
but based on the number of
members( Feldstein, 1983)

One type of Prospective payment system is
Capitation that is now implemented by the
largest insurance company in Indonesia PT
Askes.
in capitation payment mechanism the doctors
are paid before they provide service.
Problems and Solution in Capitation
Problems
1. Underutilization
forprofit maximisation
(supplier reduced
demand)
2. Doctors attention may
be low
3. Patient satisfaction
tends to be low
4. Excessive referral
Solution
1. Utilization review
2. (quality assurance)
3. Complain management


Social and private insurance:
Primary health care paid
by capitation,
Secondary and tertiary
care paid by:
salary and/or
fee for service.

Retrospective payment system (2):
fee for service from insurance company/government
for MD (at secundair and tertiary care)



Tax
premiu
m



Doctor






Patient



Government



Health
Insurance



FFS,
Bonus
Payment from
government/insuranc
e company



Hospital
4. How is Medical Doctor
perception?

Doctors Life Satisfaction
The function:
f( Income, Leisure, and Deed)
Doctors satisfaction derive
from individual culture
Materialism
(Income and
Leisure)
Humble and modest
(Deed, charity,
philanthropist)
.



39
The Income consists of:
Salary +
Fee-for-service +
Capitation +
Minus:
Cost of treatment and Income Tax

5. Comparing Malaysia and
Indonesia

Medical Doctor in Indonesia: Earning at Risk,
In Malaysa: Salary based
Standard
Income
Unlimited
incentives
based
on market
forces
Limited
incentives
Salary
Traditional
Payment
Incentive
Payment
42
Earning at risk
Salary
Salary
From where the incentives?
Fee from the hospitals
Some illegal payment
from pharmaceutical
industry
Some illegal payment
from laboratory and
medical equipment
Private practice
Based on fee-for-service
mechanism

The impact of fee for service in Indonesia:
There is no standard income





Province GP Internist Surgeon Ob-Gyn Pediatrician
N Sumatera
3,965 10,505 19,657 18,033 6,810
Bengkulu
6,205 22,600 20,650 74,924 18,600
Jakarta
3,351 33,790 14,477 24,809 21,878
C. Java
8,162 23,875 27,550 25,833 17,250
Jogjakarta
2,154 9,810 19,769 18,241 6,584
NTB
6,830 14,466 21,667 54,050 16,974
N. Sulawesi
9,041 20,361 20,978 22,760 7,845
Papua
4,578 22,062 24,150 37,883 24,235
TOTAL
6,174 18,886 19,317 29,388 14,490
Professional Income
Pilot, accountant,
bank employee
Salary and limited
incentives
Medical doctor
Artist, singer,
painter, football
player
Earning at Risk
The Unlimited Incentives
45
Unlimited incentives in fee-for-
service
Increasing the income gap between doctors
Inducing cost of service in-efficiency
Reducing the quality of hospital care
Reducing the competitiveness of hospital

The biggest problem
Supplier Induced Demand
Doctors
Patient
s
Hospital
Wants
Needs
Demand

Doctors intentionally
increase the demand of
hospital care based on
economic incentive,not
patients need.
How to prevent these problems?
One possible solution: the Managed Care
Managed Care
System that manages healthcare delivery with
the aim of controlling costs. A cost containment
system that directs the utilization of health
benefits by:
(a) restricting the type, level, and frequency of
treatment;
(b) limiting the access to care; and
(c) controlling the level of reimbursement for services
6
The Future of Medical
Doctor Payment
Mechanism
How is the Future
Medical Doctors who work in relatively
free market
Medical Doctors who work in managed
care and salaried system
Professional Income
Pilot, accountant,
bank employee
Salary and limited
incentives
Managed-Care
Medical doctor
Artist, singer,
painter, football
player
Earning at Risk:
Free- Market
The Future
52
What are the
impacts to
medical
doctors?
49% people
<2US$ a day

16.7 % people
<1.55 US$ a day
7.4 % people
<1 US$ a day

10%
Indonesian is
rich
54









1
2
3
Poor people
There is a different
needs and demand
Health Care
Needs

49% people
<2US$ a day

16.7 % people
<1.55 US$ a day
7.4 % people
<1 US$ a day

10%
Indonesian is
rich
55









1
2
3
Poor people
There is a different
needs and demand
Health Care
Needs

49% people
<2US$ a day

16.7 % people
<1.55 US$ a day
7.4 % people
<1 US$ a day

10%
Indonesian is
rich
56









1
2
3
Poor people
The trend of health
finance
Health Care
Needs

Out of pocket and
private insurance
Social Insurance
49% people
<2US$ a day

16.7 % people
<1.55 US$ a day
7.4 % people
<1 US$ a day

10%
Indonesian is
rich
57









1
2
3
Poor people
Different Medical
Doctor Income?
Health Care
Needs

Out of pocket and
private insurance
Social Insurance
How the doctor options for the
working place?


The future
1. Some of you will work
in high income
environment
2. Some of you will work
in limited income
environment
Is the number
1 always
happy?
Happiness is not a matter of having high
income
Materialism Humble and modest
.



60
Summary
Doctor Payment Mechanism is a complex issue, which is influenced by
Health Financing Scheme, political economy condition, and culture.
Doctor payment mechanism timing can be prospective and retrospective
one.
It can be in the forms of fee-for service, salary, capitation, or combination.
The source of payment is a complex combination of: out of pocket, health
insurance payment, and government salary.
The behaviour of medical doctors relate to this payment mechanism and
may affect quality of care.
There are various possibilities of the payment mechanism in the future.
Medical Student should prepare for having limited income or unlimited
ones.
Happiness is not only a matter of high and unlimited income.
References

1. Abbey, D. C (2009) Healthcare Payment Systems: An
Introduction
2. Kongstvedt, P (2008) Managed Health Care Handbook
3. Rokx, C, Schieber G, Harimurti, P, Tandon A, Somanathan, A.
(2009) Health Financing in Indonesia. A Reform road map.
4. Trisnantoro, L (2007) Memahami Penggunaan Ilmu Ekonomi
dalam Manajemen Rumah Sakit, Gadjah Mada University
Press, (can be downloaded in
www.kebijakankesehatanindonesia.net )

Questions
Why is payment for doctors should be
regulated?
What motivates doctors to work
professionally?
How should insurance company/government
negotiate with doctors association to reach
better understanding in payment
mechanisms?