Why did the practice of billing based on charges by commercial insurers and allowable costs by Medicare change?

The transition from billing based on charges by commercial insurers and allowable costs by Medicare to new methodologies is significantly influenced by the advent of managed care plans, which introduced selective contracting. This model allowed insurers to negotiate contracts with specific providers, often focusing on lowering costs and improving the quality of care.

Managed care emphasizes cost-control strategies, which altered the payment landscape. Under this system, payers can create networks of preferred providers, thereby encouraging patients to use those facilities and reducing their overall healthcare expenditures. Selective contracting allows insurers to establish fixed payment rates with particular providers, shifting the focus away from the traditional fee-for-service model that billed based on individual services rendered or costs incurred.

This shift also incentivizes providers to manage their resources efficiently while still delivering quality care, thus promoting a more sustainable healthcare system. As a result, billing methods evolved to reflect the negotiated rates defined in these contracts rather than relying on the previous practices of billing based on incurred charges.

In contrast, while advancements in technology, patient attitudes towards costs, and the influence of physicians play roles in the broader context of healthcare delivery and financing, they do not directly address the fundamental change in the billing practices initiated by the rise of managed care.