Q&A: Percent of charges and per diem rates

Q. What does it mean for a payer to reimburse a facility through a percent-of-charges method?

A. While not as prevalent as it was in the past, the percent-of-charges method is a reimbursement approach commonly used by non-governmental payers to compensate hospitals and other facilities. The formula is simple. The total charges reported on the claim are multiplied by the contracted percentage. For example, assume the agreed percentage that the payer will pay is 85% of charges. Total charges are $11,200. The expected reimbursement from the payer is 85% of $11,200, which equals $9,520.

Per diems are a flat rate paid per day that the patient is hospitalized or resides in an SNF. Occasionally, the first few days may be paid at a higher rate than the subsequent days. Additionally, day rates may vary if the patient is in the ICU versus a routine medical-surgical bed.

Both payment methods are easy to administer but are used sparingly by third-party payers. From a revenue integrity perspective, there are limited risks to being over- or underpaid for the services provided.

For more information, see The Revenue Integrity Manager's Guidebook.

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