Cost-Based, Charge-Based, and Contractual Payment Systems: 1st Edition (Paperback) book cover

Cost-Based, Charge-Based, and Contractual Payment Systems

1st Edition

By Duane C. Abbey

Productivity Press

181 pages | 3 B/W Illus.

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The fourth book in the Healthcare Payment System series, Cost-Based, Charge-Based, and Contractual Payment Systems compares cost-based systems, charge-based payment approaches, and contractually-based payment processes with fee-schedule payment systems and prospective payment systems. Supplying readers with a clear understanding of important background material on the different types of healthcare providers, it covers the basics of cost-based, charge-based, and contractual payment systems.

The book illustrates essential concepts with a series of simple case studies—making it ideal for anyone interested in learning more about the specific systems and processes used for payment in healthcare services. It discusses Medicare cost-based payment systems, Medicare payment approaches, and includes an appendix that outlines the various Medicare payment systems. Demystifying contractual language, it outlines managed care contracts and also:

  • Delves into the intricacies involved with adjudication of claims
  • Considers capitated payment systems
  • Addresses healthcare costs and cost-based reimbursement systems
  • Examines charge-based and contractual payment systems
  • Describes where healthcare payment systems are headed in the future

Since compliance is inherent throughout the process of providing services, filling claims, and receiving payment, the book examines the range of compliance concerns, including statutory, contractual, and overpayment issues. Using numerous examples to illustrate the processes used for capitated contract arrangements, the book includes coverage of claim adjustment, managed care contracts, and the various combinations of payment systems used by third-party administrators.

Table of Contents


Preliminary Comments

Review of Healthcare Payment Systems

Claims Filing and Payment

Deductibles and Copayments

Fee Schedule Payment Systems

Prospective Payment Systems

Cost-Based Payment Systems

Charge-Based Payment Systems

Capitation Payment Systems

Contractual Payment Systems

Healthcare Provider Concepts


Nonphysician Practitioners and Providers



Hospitals and Integrated Delivery Systems

Special Provider Organizations

DME Suppliers

Skilled Nursing Facilities

Home Health Agencies

Independent Diagnostic Testing Facilities

Comprehensive Outpatient Rehabilitation Facilities

Clinical Laboratories

Ambulatory Surgical Centers

Claim Adjudication and Payment Processing

Summary and Conclusion

Healthcare Provider Costs and Cost-Based Payment Systems


Costs and Cost Accounting

Medicare Cost Report

Cost-Based Payment: Key Features

Critical Access Hospitals

Rural Health Clinics and Federally Qualified Health Centers

Summary and Conclusion

Healthcare Provider Charges and Charge-Based Payment Systems


Charge-Based Payment: Key Features

Charge Structures for Healthcare Providers

Healthcare Pricing Strategies

Chargemasters for Hospitals and Integrated Delivery Systems

Charge CompressionMedicare Charging Rule

Healthcare Provider Charges and Public Scrutiny

Summary and Conclusion

Contractual Payment Systems


HIPAA Transaction Standards

Managed Care Organizations

Terminology and Contract Features


Reimbursement and Payment Terms

Provision of Services

Payer and Payee Obligations

Payment Mechanisms

Credentialing Processes

Medical Necessity and Coverage Issues

Administrative Proceedings

Access to Records and Audits

Negotiating and Analyzing MCO Contracts

Precontract Data Gathering

Contract and Relationship Analysis

Financial Analysis and Modeling

Operational Monitoring

Renewal and Termination

Medicare Advantage Plans

Summary and Conclusion

Capitated Payment Systems


Capitation: Key Features

Risk Management through Insurance

Models for Capitation

Summary and Conclusion

Claim Adjudication and Compliance


Statutory versus Contractual Compliance

Audits and Reviews

Types of Audits

Audit Process

Extrapolation Process

Audit Reports

Audit Dependence on Payment Mechanism

Claim Modification Issues

A Systematic Approach to Compliance

Secondary-Payer Issues

Healthcare Provider Credentialing

Summary and Conclusion

Summary, Conclusion, and the Future

Healthcare Payment Systems: A Historical Perspective

Extreme Variability in Payment Systems

Compliance Issues

Payment Systems: The Future


List of Acronyms

Appendix: Synopsis of the Medicare Program’s Payment Systems

Appendix: Case Study List


About the Author

Duane C. Abbey, Ph.D., CFP, is a management consultant and president of Abbey & Abbey Consultants, Inc. Based in Ames, Iowa, Abbey & Abbey specializes in healthcare consulting and related areas. Dr. Abbey, whose work in healthcare now spans more than 25 years, earned his graduate degrees at the University of Notre Dame and Iowa State University. Today, he spends about half of his time developing and teaching workshops (for students who affectionately quip that the Federal Register is his favorite reading material) and making presentations to professional organizations. He devotes the other half to consulting work that involves performing chargemaster reviews, compliance reviews, providing litigation support, and conducting reimbursement studies.

Dr. Abbey also uses his mathematical and financial background to perform financial assessments, develop complex financial models, and conduct various types of statistical work. His studies in the field of neurolinguistic programming have enhanced his ability to provide organizational communication facilitation services for healthcare organizations. He also provides litigation support services for attorneys representing healthcare providers in legal proceedings.

Dr. Abbey can be contacted by e-mail at [email protected] The main website for his company is :

Subject Categories

BISAC Subject Codes/Headings:
BUSINESS & ECONOMICS / Quality Control
BUSINESS & ECONOMICS / Information Management
COMPUTERS / Information Technology