Glossary

Healthcare policy and administration involves a lot of technical terms. Check here if you need to look something up. We will keep updating this list as the publication grows.

340B Program - Imagine a giant firehose of money spraying into “non-profit” hospitals. That’s 340B. Hospitals buy drugs at steep discounts, resell them at full price, and pocket the spread. No law requires them to pass the savings on. Purchases hit ~$68B in 2023, growing 23% a year. Result? Higher drug prices, higher premiums, and fatter hospital monopolies.

ACA Exchange/Marketplace - The Affordable Care Act (ACA) did many things. One of which was an attempt to make a functioning marketplace for individual insurance plans. It’s tough to get favorable rates if you’re not part of a group, after all. Of course, they put this marketplace under CMS’s jurisdiction and made a ton of rules for the plans. Customization? Nope! Innovation? Not here.

ACO (Accountable Care Organization) - CMS tells a group of doctors or hospitals: “If you save us money while keeping patients alive, we’ll share some of the savings with you.” However, it usually means endless meetings, dashboards, and “quality metrics” that somehow always reward paperwork more than patient care. Supposedly they align incentives. Occasionally, it works with large primary care practices. It doesn’t work with specialty care at all. The downside risk is just too great.
ASC (Ambulatory Surgical Center) - Not all surgery requires a hospitalization. If they don’t, they can be done in an ASC, where patients typically go home the same day. As techniques improve, surgery gets quicker and safer. This mean even things like spine surgery and brain tumor removal are occasionally being done in ASCs. They are typically lean, efficient, and high quality. Because many are owned and operated by physicians, since doctors can own ASCs but not hospitals.

Bundled Payment - CMS and insurers love to bundle things together when making payments. The phrase has thus taken on many different meanings. However, bundles for surgery now typically refer to a single fee that covers everything: the physician, the hospital, the post-operative care, the implants, and the rehab. When hospital administrators smell a bundle, they use that as a way to control doctors. “No your patient can’t go to rehab, that will hurt our margin on this bundle.”
Capitation - In healthcare, capitation is typically given in contrast to “fee for service.” In capitation, a group (doctors, hospital, or insurance company) gets a per-member-per-month payment to provide care. Costs go over, they eat the loss. Costs stay low, they keep the revenue. Organizations respond to these incentives and stay away from high-priced care. It incentivizes denying patients expensive care when they need it.

CMS (Centers for Medicare & Medicaid Services) - The behemoth inside HHS. CMS runs Medicare, Medicaid, and the ACA marketplace, burning through more than a quarter of federal spending. Its budget beats Defense, State, Agriculture, Homeland Security, and Energy combined. If CMS were a country, it would be the 5th largest economy in the world.

Commercial Insurers - Various companies provide health insurance coverage as a commodity. We all know their names, so no point listing them here. The have a variety of products, so not everyone covered by insurance X has the same thing. They can be servicing an ERISA plan, Medicare Advantage, Medicaid Managed Care, an ACA exchange plan, or their own plan (see other glossary entries for further explanations). They often get blamed for high healthcare prices, being that they tend to act a bit evil at times, but they typically run very low profit margins. But compared to CMS, they almost look… rational.

CPT (Current Procedural Terminology) - These are the codes doctors live and die by. Every test, procedure, or visit must have a CPT code, or CMS won’t pay. The AMA owns and updates them, making a tidy profit in the process. Doctors who stick to what’s coded do well. Doctors who are good at finding codes for everything they do (and who only do things which have codes) generate a lot of money.

DRG (Diagnosis Related Group) - While doctors get paid for doing things (see CPT), hospitals get paid for diagnoses. Admission diagnosis sets the rate, boosted if the patient has MCCs/CCs (complications). The system rewards institutions good at gaming codes, not necessarily at delivering care.

EMR (Electronic Medical Record) - Mandated by the 2009 stimulus bill, EMRs were sold as “modernizing medicine.” In reality, they’re billing software dressed up as medical charts. Written into 600+ pages of regulations (many by the software companies themselves), the rules locked out competition. The result? A near-monopoly of clunky systems that tether doctors to computers instead of allowing them to provide care.
ERISA (Employee Retirement Income Security Act) - The legislation matters less than what it regulates: self-funded employer plans. With these plans, employers don’t actually buy insurance; they pay their employees healthcare costs directly, with the “insurance company” simply processing claims. Nearly 2/3 of individuals with private insurance are actually covered by these plans. It’s important to know if you’re in one, because then it’s actually your employer, not the insurance company, which makes the rules (such as prior authorization or narrow networks).
Fee-for-Service (FFS) - Perform a service, get a fee. Every clinic visit, wart removal, vaccine administration, and complex brain surgery is a service. They each generate a fee. In contrast to capitation (see above), which pays a doctor or hospital to take care of a group of patients, FFS pays a doctor or hospital based on how much they do. It incentivizes doing more care, even when patients may not need it.
Fee Schedule - CMS’s menu of prices. Want to know how much they’ll pay for a visit, hospitalization, or hip replacement? It’s in the fee schedule. Different ones exist for physicians, hospitals, ASCs, nursing homes, and therapies. All of these are centrally planned.

HCC (Hierarchical Condition Category) - When Medicare pays private insurance companies to provide healthcare for Medicare beneficiaries (see Medicare Advantage below), it pays them a capitated rate (see capitation above). This rate is adjusted based on HCCs. More HCC = sicker patient = more money from CMS.

HHS (Department of Health & Human Services) - Cabinet-level department that houses CMS, FDA, NIH, CDC, and others. CMS dwarfs the rest, consuming almost all the budget.

HOPD (Hospital Outpatient Department) - For the purposes of Medicare payment, this is any hospital owned facility which provides services. This can be a clinic, an emergency department, an urgent care, an ambulatory surgery center… as long as a hospital owns it, it bills under the hospital outpatient fee schedule. If it’s owned by a different entity, it gets billed under a different fee schedule (even if the service is exactly the same).
ICD (International Classification of Diseases) - Every CPT code (see above) must have an associated diagnosis. Can’t just bill for no reason, after all. CMS requires use of ICD codes (now on their 10th iteration). This leaves doctors searching through checklists of codes, many of which seem utterly absurd (V97.33XD: sucked into jet engine, subsequent encounter).

MAC (Medicare Administrative Contractor) - CMS doesn’t actually process claims directly. It outsources that to private third parties, which divide the US into regions. Each region has a designated MAC. Despite being a federal system, each MAC can have their own local coverage determinations (LCDs).

MCC/CC (Major/Minor Complication or Comorbidity) - Hospitals get paid more if admitted patients are sicker. MCCs/CCs are the magic diagnoses that boost DRG payments. Hospitals hound doctors to document them, because every “acute on chronic” note is more revenue.

Medicaid - Began as insurance for the poor and vulnerable. Then expansions layered on: ACA added able-bodied adults, and states added more. In some states, over 40% of residents are on Medicaid. Nationally, it covers about a quarter of Americans. If only it was as good at paying doctors as it was at “covering” Americans.
Medicaid Managed Care - Most states pay managed care organizations (MCOs) a flat monthly rate to run Medicaid. Nearly all states use them because they keep budgets predictable. Doctors then deal with the MCO’s rules, not directly with the state.
Medicare - A federal program meant to provide health insurance for the elderly. Since they typically weren’t employed, and thus lacked employer-based coverage. It consists of Part A (which covers hospitals and nursing homes), Part B (physician services, outpatient hospital services, and durable medical equipment), Part C (Medicare Advantage, see below), and part D (prescription drugs).
Medicare Advantage - Rather than having Medicare operate under a fee-for-service model (see above), Medicare allows beneficiaries to opt into a capitated private insurance plan. These Medicare Advantage plans receive a capitated rate (see above) from CMS while they pay for care. Doctors and hospitals are left negotiating with private companies who get their payments (and rules) from CMS.
MLR (Medical Loss Ratio) - Passed by the Affordable Care Act, this rule requires that insurance companies pay out 80-85% of their revenue for direct healthcare costs. The MLR does not apply to all insurance plans, though. Notably, the ERISA plans (see above) are not regulated by MLR.

PBM (Pharmacy Benefit Manager) - Middlemen who design formularies, run pharmacy networks, and negotiate rebates with drug companies. Employers and insurers used them first; Medicare Part D cemented them as gatekeepers for millions of seniors. Now, they thrive on rebates baked into government rules.

Prior Authorization - If doctors and hospitals get paid under fee-for-service (see above), there must be some way to limit spending. Healthcare is an elastic good, and when physicians and hospitals have a financial incentive to over-utilize services, it will happen. Thus, both private and public payers have prior authorization mechanisms to control utilization. It’s a high-friction process that often delays care, upsetting doctor and patient alike. Nobody has found a way to make it work, yet.

Prospective Payment System (PPS) - Instead of letting doctors and hospitals charge the government whatever they want, CMS has instituted prospective payment systems. Centrally planned, they set reimbursement for procedures, hospitalizations, and therapies. The fee for a 15-minute office visit is set, and there’s no negotiating.

RUC (Relative Value Scale Update Committee) - If doctors are to get paid for their CPT codes (see above), they need those codes to be valued. The RUC meets thrice yearly to determine values of new codes and to re-value old codes. It then gives its recommendations to CMS for the following year fee schedule.
RVU (Relative Value Unit) - The fiat currency of physician payment. Every service gets a number of RVUs: work RVU (time + skill), practice expense RVU, and malpractice RVU. CMS multiplies by a conversion factor to spit out payment. More RVUs, more money.

Stark Law - CMS’s way of saying: “We don’t trust you with your own MRI machine.” If you take Medicare, you generally can’t refer patients to facilities you (or family) own for certain services. The compliance maze keeps lawyers busy.

Value-Based Payment (VBP) - This uses centrally planned metrics as an attempt of CMS to combat the perverse incentives of fee-for-service (see above) with paying for “value.” CMS arbitrarily picks what metric it values in the moment, and will shift payment according to how a doctor or hospital meet that metric. There are thousands of metrics, and the calculations get quite complicated. This further incentivizes documentation and compliance over actual care.