NR 517 Week 3 Reimbursement Model Comparison Example

Reimbursement Model Comparison: The Same Hip Fracture Episode Run Through Fee-for-Service Medicare, a Medicare Advantage Plan and a 30-Day Episode Model, With Each Difference Stated as a Fact About One Patient

Student Name

College of Nursing, Chamberlain University

NR 517: Policy & Economics of Healthcare Delivery

Instructor Name

Month Day, Year

Reimbursement Model Comparison: The Same Hip Fracture Episode Run Through Fee-for-Service Medicare, a Medicare Advantage Plan and a 30-Day Episode Model, With Each Difference Stated as a Fact About One Patient

The Fixed Episode

The episode is held constant through the whole paper. Mrs. D., 82, falls at home and fractures her right hip. She is admitted to a community hospital, has the fracture fixed with an intramedullary nail the next morning, and is ready to leave the hospital on her fourth day. She cannot yet walk safely alone and lives by herself, so her team recommends about two weeks in a skilled nursing facility (SNF), followed by home health therapy. The clinical facts do not change below. Only the payment arrangement changes, and with it who pays, who carries the risk and what each party is encouraged to do. Her supplemental coverage is also set aside for this comparison: in Arrangements 1 and 3 she has a Medigap policy that pays her deductible and coinsurance, while Medicare Advantage enrollees cannot use Medigap, so in Arrangement 2 her own share would depend on the plan's cost-sharing rules.

Arrangement 1: Traditional Medicare, Fee for Service

How the money moves. The hospital receives one fixed payment for the inpatient stay, set by the diagnosis-related group her case falls into, whatever the length of stay. The surgeon and anesthesiologist bill Medicare Part B separately. Because Mrs. D. was an inpatient for at least three days, not counting the day she leaves, Medicare Part A covers the SNF stay, with no daily coinsurance for days 1 to 20 and $217 a day from day 21 in 2026 (Centers for Medicare & Medicaid Services, n.d.-a). The SNF bills Medicare daily, and a home health agency bills for a period of care after that.

Who carries the risk. Medicare carries the risk of the total cost of the episode, since each provider is paid separately for its part. The hospital carries only the risk that its own costs exceed the fixed payment for the stay.

What each party is encouraged to do. The hospital is encouraged to keep the stay short and efficient, since its payment is fixed. Nothing in this arrangement encourages the hospital to limit what happens after discharge. The SNF is paid by the day and has no payment reason to shorten the stay. For Mrs. D., this arrangement makes a SNF stay easy to obtain, as long as her hospital stay meets the three-day rule.

Arrangement 2: Medicare Advantage

How the money moves. Medicare pays a private plan a fixed monthly amount per enrollee, adjusted for risk, and the plan pays the hospital, physicians, SNF and home health agency under its own contracts. Many plans pay hospitals on a diagnosis-related group basis similar to Medicare's, but the rates are negotiated. Plans are not required to apply the three-day inpatient rule and many waive it, but most require prior authorization before a SNF admission.

Who carries the risk. The plan carries the risk of the total cost of Mrs. D.'s care, since its income for her is fixed regardless of what she uses.

What each party is encouraged to do. The plan is encouraged to limit costly services, including SNF days, and uses prior authorization to review them. An inspector general review of refused authorization requests concluded that about one in eight involved care that satisfied Medicare's own coverage standards (Office of Inspector General, 2022). For Mrs. D., this arrangement could mean the SNF stay is approved for fewer days, or denied in favor of home health, and her discharge could be delayed while the request is reviewed.

Arrangement 3: Traditional Medicare With a 30-Day Episode Model

How the money moves. Under the Transforming Episode Accountability Model, which began on January 1, 2026 and runs for five performance years, hospitals paid under Medicare's inpatient system in selected areas must participate. Its five procedure groups include surgery for fractures of the hip and femur. Providers are still paid as in Arrangement 1, but after the episode, which ends 30 days after discharge, Medicare compares its total spending with a target price. If spending is below the target, the hospital may receive a payment, subject to a quality adjustment; if above, it may owe money back. Hospitals must also refer patients to primary care (Centers for Medicare & Medicaid Services, n.d.-b).

Who carries the risk. Risk is shared. Medicare still pays each claim, but the hospital now carries part of the risk for spending it does not bill, including SNF days and readmissions.

What each party is encouraged to do. The hospital is now encouraged to care about where Mrs. D. goes and for how long, choosing SNFs with shorter, effective stays or supporting a discharge home with therapy when safe. For Mrs. D., this arrangement may mean more attention to her follow-up and a shorter SNF stay. It could also mean pressure to go home sooner than she feels ready, which the quality adjustment is meant to guard against.

The Differences, Side by Side

Three differences stand out for the same patient. First, whether a SNF stay happens at all depends in Arrangement 1 on the three-day rule, in Arrangement 2 on the plan's authorization, and in Arrangement 3 on the rule plus the hospital's interest in the episode total. Second, the party with a reason to limit post-acute spending is nobody in Arrangement 1, the plan in Arrangement 2 and the hospital in Arrangement 3. Third, the party Mrs. D. or her nurse would negotiate with over her discharge changes: the SNF and Medicare's rules, the plan's reviewer, or the hospital's own case management team.

None of these arrangements is simply better. Each allocates risk to a different party and so changes whose judgment shapes the decision about Mrs. D.'s recovery. A nurse planning her discharge should know which arrangement applies, because it decides who will say yes or no to the plan the team recommends.

At the bedside this turns into a simple habit: find out on the first day which of the three arrangements covers the patient. The answer determines whom the discharge planner will call first, how long an authorization might take and whether a delay in the hospital protects or threatens the patient's coverage for the next stage of recovery. Case managers usually know the answer, but the nurse who asks early is the one who can warn the family before the question becomes urgent.

References

Centers for Medicare & Medicaid Services. (n.d.-a). Skilled nursing facility (SNF) care. Medicare.gov. Retrieved September 30, 2026, from https://www.medicare.gov/coverage/skilled-nursing-facility-snf-care

Centers for Medicare & Medicaid Services. (n.d.-b). Transforming Episode Accountability Model (TEAM). Retrieved September 30, 2026, from https://www.cms.gov/priorities/innovation/innovation-models/team-model

Office of Inspector General. (2022). Some Medicare Advantage organization denials of prior authorization requests raise concerns about beneficiary access to medically necessary care (OEI-09-18-00260). U.S. Department of Health and Human Services. https://oig.hhs.gov/oei/reports/OEI-09-18-00260.pdf