Per Diem Payments

Per diem payments are payments for all services provided during a single day of care. A fixed payment level is set regardless of the actual services provided. This may apply to all patients or to patients that have been subgrouped by diagnosis, age, or other risk-related characteristics.

The goal of per diem billing is to reduce the risk to the payer for the large number of individual services provided to a patient. With traditional fee-for-service payments, a provider is paid more for performing more tests, procedures, and so on. With per diem payments, the provider receives the same payment regardless of which and how many services are provided on a single day of care. The risk is thus partially transferred from the payer to the provider. The provider loses rather than gains from providing more health care services on a single day. However, the payer remains at risk for the number of days of care.

This shifting of risk established different incentives for the payer and the provider. The provider is rewarded for providing fewer services or for spreading the same care over a longer period of service, that is, increasing length of stay. The incentive for the payer is to use strict utilization review methods to limit length of stay and to reduce the time required for treatments and tests.

Per diem billing also simplifies billing procedures. It is not necessary to track the individual services that are provided. All that is needed is the length of stay in the hospital or the number of days during which services were provided.