100 things to know about Medicare reimbursement | 2017

Since its launch in 1965, Medicare has been one of the most influential programs for hospitals, health systems and other providers. Medicare has played a prominent part in various reform movements, including the shift from fee-for-service to value-based payment models, and the program's policies and reimbursement rates have acted as a catalyst for change nationwide.

The following list sheds some light on several facets of Medicare reimbursement, covering everything from the latest update to the Inpatient Prospective Payment System to mandatory bundled payment models.

Inpatient hospital reimbursement
1. Hospitals that fall under CMS' Inpatient Prospective Payment System agree to pre-determined rates to serve Medicare beneficiaries. More than 3,300 acute care hospitals and 430 long-term care hospitals receive payments under the IPPS.

2. Hospitals generally receive IPPS payments on a per-discharge or per-case basis for Medicare beneficiary inpatient stays. Discharges are assigned to diagnosis-related groups, which sort them by similar clinical conditions and procedures administered by the hospital during the stay.

3. CMS updates the IPPS each fiscal year. CMS released the FY 2017 final rule in early August.

4. Under the FY 2017 final rule, acute care hospitals that report quality data and that are meaningful users of EHRs will receive a 0.95 percent increase in Medicare operating rates.

5. That overall 0.95 percent payment increase reflects a positive 2.7 percent market basket update, a negative 0.3 percentage point update for a productivity adjustment, a negative 0.75 percentage point update for cuts under the ACA, a negative 1.5 percentage point documentation and coding adjustment as part of the American Taxpayer Relief Act of 2012 and an increase of about 0.8 percentage points to remove the adjustment to offset the estimated costs of the two-midnight rule.

6. Hospitals that do not submit quality data lose a fourth of the market basket update (2.7 percent), and hospitals that are not meaningful users of EHRs will be subject to a three-fourths reduction of the market basket update in FY 2017.

7. Under the two-midnight rule, which was introduced in the 2014 IPPS rule, CMS expected a decline in the number of long observation stays and an increase in the number of inpatient admissions. CMS proposed offsetting the cost through a 0.2 percent reduction in inpatient payments. The payment reduction was strongly opposed by hospitals and sparked lawsuits challenging the payment cut.

8. CMS removed this adjustment for FY 2017 and also its effects in FYs 2014 through 2016. "CMS believes the assumptions underlying the -0.2 percent adjustment were reasonable at the time they were made," wrote CMS in the final rule. However, in light of the unique circumstances surrounding this adjustment, the agency decided to remove it.

9. As part of the ACA, Medicare disproportionate share hospital payments will be reduced by 75 percent, or $49.9 billion, by 2019. CMS said in the FY 2017 final IPPS rule it will distribute nearly $6 billion in DSH payments in FY 2017, about $400 million less than in FY 2016.

10. In the FY 2017 final rule, CMS added four new claims-based measures (three clinical episode-based payment measures and one communication and coordination of care measure) for the FY 2019 Inpatient Quality Reporting Program and subsequent years.

11. CMS removed 15 claims-based measures for the FY 2019 payment determination and subsequent years in the final rule.

12. CMS made changes to the Hospital Value-Based Purchasing Program, which was established under the ACA, in the final FY 2017 rule. The agency added two condition-specific payment measures (one for acute myocardial infarction and one for heart failure) beginning in FY 2021 and a 30-day mortality measure following coronary artery bypass graft surgery beginning in FY 2022. CMS said the condition-specific payment measures capture payments for all care, including readmissions and subsequent cardiac events, across multiple care settings, services and supplies during the 30-day episode of care.

13. CMS made several changes to existing Hospital Acquired Conditions Reduction Program policies in the FY 2017 final rule, including changing the program scoring methodology from current decile-based scoring to a continuous scoring methodology.

Outpatient hospital reimbursement
14. Medicare's Outpatient Prospective Payment System provides payment for most hospital outpatient department services and partial hospitalization services administered by hospital outpatient departments and community mental health centers.

15. CMS updates the OPPS for each fiscal year. CMS released the FY 2017 final rule in November.

16. CMS' final 2017 OPPS rule implements site-neutral payment provisions of the Bipartisan Budget Act of 2015. Under Section 603 of the Bipartisan Budget Act, certain off-campus provider-based departments that began billing under the OPPS on or after Nov. 2, 2015, will no longer be paid for most services under the OPPS. Instead, beginning Jan. 1, 2017, these facilities are paid under the Physician Fee Schedule. However, services provided in a dedicated emergency department will continue to be paid under the OPPS.

17. Under the final rule, CMS put certain restrictions on off-campus PBDs that began billing under the OPPS prior to Nov. 2, 2015. The agency finalized a proposal requiring these departments to provide services and bill from the same physical address as they did Nov. 2, 2015, to be exempt from the site-neutral payment provisions. Exceptions will be made for off-campus PBDs forced to temporarily or permanently relocate due to extraordinary circumstances, such as a natural disaster, according to CMS.

18. In July, CMS proposed requiring off-campus PBDs to offer the same services as they did on Nov. 2, 2015, to be excluded from the site-neutral payment provisions. However, CMS chose not to finalize this proposal. "CMS will monitor expansion of clinical service lines by off-campus PBDs and continue to consider whether a potential limitation on service line expansion should be adopted in the future," the agency said.

19. In 2016, CMS provided preliminary guidance on provisions of the 21st Century Cures Act that affect site-neutral payment provisions of the Bipartisan Budget Act of 2015.The 21st Century Cures Act, signed into law by former President Barack Obama Dec. 13, revised the site-neutral payment policy enacted by Section 603 of the Bipartisan Budget Act.

20. The 21st Century Cures Act exempts facilities that had concrete plans in place to build a new off-campus outpatient department before Nov. 2, 2015, when the Bipartisan Budget Act was passed. The guidance clarifies that these facilities will be exempt from the site-neutral payment provisions in 2018 if they meet mid-build requirements.

21. To be exempted, the hospital must have had a binding written agreement in place before Nov. 2, 2015, for the actual construction of the off-campus department. To qualify for the exemption in 2018, the hospital must submit the required attestation and certification documents to its Medicare Administrative Contractor by Feb. 13, 2017.

22. Under the final FY 2017 rule, CMS increased OPPS rates by 1.65 percent. CMS arrived at the rate increase through the following updates: a positive 2.7 percent market basket update, a negative 0.3 percent update for a productivity adjustment and a negative 0.75 percent update for cuts under the ACA.

23. For 2017, CMS added seven measures to the Hospital Outpatient Quality Reporting Program for the 2020 payment determination and subsequent years.

Physician Fee Schedule
24. Medicare uses the Physician Fee Schedule to reimburse providers for covered physicians' services provided to Medicare Part B beneficiaries.

25. CMS updates the fee schedule each year. The agency issued its update to the 2017 Medicare Physician Fee Schedule in November.

26. The final rule requires reporting of postoperative visits for high-volume/high-cost procedures by a sample of practitioners in practices with 10 or more physicians. Reporting is required for services related to global procedures provided on or after July 1, 2017.

27. In the final rule, CMS finalized its proposal to expand eligible telehealth services. The additional codes include those for end-stage renal disease-related dialysis, advanced care planning and critical care consultations.

28. Through the final rule, CMS aimed to improve data transparency. Medicare Advantage organizations use a bidding process to apply to participate in the Medicare Advantage program. The bids reflect the organization's estimated costs to provide benefits to enrollees. Under the final rule, Medicare Advantage organizations are required to release data associated with these bids on an annual basis. CMS will also require Medicare Advantage organizations and Part D sponsors to release medical loss ratio data on a yearly basis to help beneficiaries make enrollment decisions.

29. CMS revised the methodology used to calculate geographic practice cost indices in the final 2017 rule. CMS adjusts payments under the Physician Fee Schedule to reflect local differences in practice costs using geographic practice cost indices. The agency will revise the methodology used to calculate GPCIs to increase overall Physician Fee Schedule payments in Puerto Rico. The updates will be phased in over 2017 and 2018.

30. In the final rule, CMS revised the billing codes to more accurately pay for primary care, care management and cognitive specialties. Among the changes are new codes to pay primary care practices that use interprofessional care management resources to treat patients with behavioral health conditions.

Home health reimbursement
31. CMS issued its Home Health Perspective Payment System final rule for 2017 in November.

32. Under the final rule, CMS estimates Medicare payments to home health agencies will be reduced by 0.7 percent, or $130 million, in 2017.

33. The estimated decrease is based on the following: a $450 million increase to the home health payment update; a $420 million decrease due to the rebasing adjustments to the national, standardized 60-day episode payment rate, the national per-visit payment rates and the non-routine medical supplies conversion factor; and a $160 million decrease due to the adjustment to the national, standardized 60-day episode payment rate to account for nominal case-mix growth.

34. About 3.4 million Medicare beneficiaries received home health services from approximately 11,400 home health agencies in 2015, the most recent year data is available.

Medicare Access and CHIP Reauthorization Act
35. In October, CMS released the final rule for the Medicare Access and CHIP Reauthorization Act, a landmark law that replaces the sustainable growth rate formula in determining physician payments under Medicare Part B.

36. MACRA's first performance year began Jan. 1. Providers — physicians, physician assistants, nurse practitioners, clinical nurse specialists and certified registered nurse anesthetists — who bill Medicare for more than $30,000 a year or provide care to at least 100 Medicare patients qualify for MACRA's Quality Payment Program.

37. Providers participating in the program can begin collecting performance data between Jan. 1 and Oct. 2. Regardless of when providers begin collecting data, it is due to CMS by March 31, 2018.

38. The data collected in the first performance year will determine payment adjustments beginning Jan. 1, 2019.

39. There are two pathways for provider participation in MACRA's Quality Payment Program: the Merit-Based Incentive Payment System, or MIPS, and the Advanced Alternative Payment Model, or Advanced APM.

40. MIPS is designed for providers in traditional, fee-for-service Medicare, while Advanced APM is for providers who are participating in specific value-based models. 

41. Under MIPS, physicians will earn payment adjustments based on performance in four categories linked to quality and value. Payment adjustments in the first year will be neutral, positive or negative up to 4 percent. This will grow to 9 percent by 2022.

42. The final rule allows providers in the MIPS pathway to opt out of sending data to CMS in 2017. However, those who opt out will receive an automatic negative 4 percent Medicare payment adjustment in 2019. These providers can avoid the penalty by submitting data for just one quality measure or improvement activity.

43. Participation in an Advanced APM allows physicians to earn a 5 percent lump sum incentive payment each year from 2019 through 2024 and avoid MIPS reporting requirements and payment adjustments.

Medicare ACOs
44. Medicare offers several ACO programs, including the Medicare Shared Savings Program, the Pioneer ACO Model and the Next Generation ACO Model.

Pioneer ACO Model
45. CMS named the original 32 Pioneer ACOs in December 2011. First year performance data was released in July 2013, and nine Pioneers subsequently announced their departure from the program. While all 32 Pioneers improved quality and patient satisfaction scores in 2012, only 13 had enough savings to share in them with Medicare. Those 13 produced $76 million in shared savings.

46. The first two years of the Pioneer program were a shared savings arrangement. In year three of the program, those ACOs that showed savings over the first two years were eligible to move to a per-beneficiary per month payment amount, which was intended to replace much of the ACOs' fee-for-service payments with a prospective monthly payment.

47. By performance year four (2015), all but 12 Pioneer ACOs had dropped out of the program.

48. In 2015, eight of the 12 Pioneer ACOs generated savings and only six had enough savings to share in them with Medicare. The Pioneer ACOs generated more than $37 million in savings in performance year four.

49. Of the four Pioneer ACOs that generated losses in 2015, only one owed shared losses to CMS.

50. Only nine Pioneer ACOs participated in the model in 2016 — the fifth and final performance year.

Medicare Shared Savings Program
51. Many ACOs, including some that exited the Pioneer program, have chosen to participate in the Medicare Shared Savings Program, which includes three tracks. Track 1 includes no downside risk, while Tracks 2 and 3 include some downside risk, according to CMS.

52. The MSSP requires a three-year commitment to care for at least 5,000 Medicare patients.

53. CMS named the first MSSP ACOs in April 2012. Of the 114 ACOs that joined the program in 2012, just 54 achieved savings during the first year, and only 29 had enough savings to share in them with CMS.

54. Of the 392 ACOs participating in the MSSP in 2015, which was the fourth performance year, 119 earned shared savings. The MSSP ACOs generated $429 million in savings in 2015.

55. In 2015, 42 percent of the ACOs that had participated in the MSSP since 2012 earned shared savings, compared to 37 percent of those that started in 2013 and 22 percent that started in 2014.

56. Ninety-one percent of MSSP ACOs in their second or third performance year improved overall quality performance in 2015.

Next Generation ACO Model
57. As part of HHS' goal to shift 50 percent of Medicare provider payments to alternative payment models by 2018, CMS Innovation Center unveiled the Next Generation ACO in March 2015.

58. The Next Generation program requires shouldering greater levels of financial risk than other ACO models, but it also offers a bigger payoff.

59. The high-risk, high-reward model is a demonstration program with three initial performance years and two optional one-year extensions. The program began Jan. 1, 2016, and will end Dec. 31, 2020.

60. Next Generation ACOs have the option to choose between two risk models — one with increased risk compared to the MSSP and another with full risk. In both the increased- and full performance-risk arrangements, the ACOs are shielded from some risk, as beneficiary expenditures are capped in the 99th percentile and aggregate savings and losses are capped at 15 percent of the benchmark to help buffer ACOs from the possible impact of outliers.

61. Next Generation ACOs qualify as Advanced APMs under MACRA beginning in the 2017 reporter year.

Track 1+
62. With an aim of pushing more small physician practices and rural hospitals to adopt risk, CMS unveiled its newest ACO offering — Track 1+ — in December.

63. Track 1+ is offered in the MSSP and allows physician practices and hospitals to take on some downside risk, but limits exposure. The downside risk in Track 1+ is more limited than that of Tracks 2 or 3 of the MSSP.

64. Track 1+ will qualify as an Advanced APM under MACRA in 2018.

Bundled Payments for Care Improvement Initiative
65.Launched in 2013, the Bundled Payments for Care Improvement Initiative is comprised of four broadly defined models of care, which link payments for certain services Medicare beneficiaries receive during an episode of care. Under the initiative, the episode of care includes services the patient receives during a 30- or 60-day period that are anchored to a set diagnosis-related group.

66. Model 1, in which the episode of care was defined as the inpatient stay in the acute care hospital, began in April 2013 and ended March 31, 2016. Model 2 covers acute and post-acute care up to 90 days after discharge. In Model 3 the episode of care is triggered by an acute care hospital stay but begins at initiation of post-acute care services, according to CMS. Model 4 encompasses all services provided during the inpatient stay.

67. Hospitals that spend less than the target price for the episode of care keep the savings achieved. A hospital is required to repay Medicare if the costs exceed the target price. Payments are reconciled retrospectively in the first three BPCI models and determined prospectively in the fourth model.

68. In September 2016, CMS released its second annual evaluation report for Models 2-4 of the BPCI Initiative. CMS said overall 11 out of the 15 clinical episode groups analyzed across Models 2, 3 and 4 showed potential savings to Medicare, although future evaluation reports will have more data to analyze individual clinical episodes within these and additional groups.

Comprehensive Care for Joint Replacement Model
69. CMS showed it was serious about the transition to value-based models in July 2015, when it announced the Comprehensive Care for Joint Replacement Model — Medicare's first mandatory bundled payment model.

70. The CJR program was originally slated to begin Jan. 1, 2016. However, after reviewing nearly 400 comments from the public on the proposed rule, CMS pushed back the program start date to April 1, 2016. The program ends Dec. 31, 2020.

71. More than 800 hospitals in 67 metropolitan statistical areas across the U.S. are participating in the five-year CJR program, which focuses on lower extremity joint replacements.

72. Under the bundled payment pilot program, acute care hospitals are held accountable for the quality of care they deliver to Medicare beneficiaries for hip and knee replacements from the time of surgery through 90 days after discharge.

73. Under the CJR Model, hospitals receive retrospective episode-based payments. Hospitals that spend less than the target price for the episode of care while meeting or exceeding quality standards keep the savings achieved. A hospital is required to repay Medicare if the costs exceed the target price.

74. Hospitals that fail to meet quality and cost targets in the first year of the CJR program are not responsible for any repayment to Medicare. 

75. In December 2016, CMS finalized a rule that expanded the CJR Model to include additional surgical treatments for hip and femur fracture episodes. About 860 hospitals will participate in the hip and femur fracture bundles, which will be rolled out in the 67 MSAs already testing the CJR Model.

76. The expanded CJR program qualifies as an Advanced APM under MACRA.

Mandatory cardiac bundles
77. CMS finalized a mandatory bundled payment program for heart attacks and bypass surgeries in December 2016.

78. Under the final rule, acute care hospitals in certain markets will be accountable for the cost and quality of care provided to heart attack and coronary bypass patients beginning with hospitalization and extending 90 days after discharge.

79. Like the CJR Model, hospitals participating in the cardiac bundle will receive retrospective episode-based payments.

80. The heart attack and coronary bypass bundled payment model will be mandatory for hospitals in 98 MSAs. Approximately 1,120 hospitals will participate in the cardiac bundling model.

81. CMS also finalized a cardiac rehabilitation payment model in December, which will test whether a payment incentive can increase the utilization of cardiac rehabilitative services.

82. The cardiac rehabilitation payment model will be implemented in 90 MSAs, 45 of which were not selected for the heart attack and coronary bypass models. Approximately 1,320 hospitals will participate in the cardiac rehabilitation payment model.

83. The cardiac bundles begin July 1 and qualify as Advanced APMs under MACRA.

The Medicare Recovery Audit Contractor program
84. The Medicare Recovery Audit Contractor program's mission is to correct improper Medicare payments by identifying and collecting over- and underpayments.

85. The program was implemented nationwide for Medicare Parts A and B in January 2010. 

86. Healthcare providers have the option to appeal recovery auditors' findings, and HHS' Office of Medicare Hearings and Appeals administers hearings concerning denied Medicare claims. Claim denials that reach the third of five possible levels of the appeals process are brought before administrative law judges, who issue decisions regarding coverage determinations.

87. Due to a backlog in RAC appeals, OMHA temporarily suspended most new requests for administrative law judge hearings concerning payment denials in December 2013.

88. The backlog caused the RAC program to become the focus of litigation. In May 2014, the American Hospital Association; Baxter Regional Medical Center in Mountain Home, Ark.; Covenant Health in Knoxville, Tenn.; and Rutland (Vt.) Regional Medical Center filed a lawsuit concerning the backlog. They brought the matter to compel HHS to meet the statutory deadlines for administrative law judge review of Medicare claim denials.

89. The plaintiffs' legal claims were dismissed in 2014, but the U.S. Court of Appeals for the District of Columbia reversed the dismissal in February 2016. The appeals court remanded the case to the lower court, and instructed the court to "consider the problem as it now stands — worse, not better."

90. In December, Judge James Boasberg ordered HHS to incrementally reduce the backlog over the next four years. He ordered the agency to cut the backlog by 30 percent by the end of 2017; 60 percent by the end of 2018; 90 percent by the end of 2019; and to completely eliminate the backlog by Dec. 31, 2020.

91. HHS asked Judge Boasberg to reconsider the order. HHS said it would be impossible to reduce the appeals backlog on the schedule provided by the court without improperly paying claims, regardless of merit. In January, Judge Boasberg denied HHS' motion for reconsideration.

92. The American Hospital Association tracks RAC activity through its quarterly RACTrac survey. Since the AHA began the RACTrac survey in January 2010, more than 2,500 hospitals have participated.

93. In the third quarter of 2016, the most recent RACTrac results available, hospitals appealed 45 percent of all RAC claim denials. Sixty percent of those claim denials were overturned in the appeals process.

94. Forty-three percent of the 683 hospitals that participated in the RACTrac survey in the third quarter of 2016 reported spending more than $10,000 managing the RAC process. Twenty-four percent reported spending more $25,000 and 4 percent said they spent more than $100,000. 

95. CMS awarded the next round of contracts for the RAC program in October 2016. The contracts were issued to Performant Recovery, Cotiviti and HMS Federal Solutions. The contractors review Medicare Part A and B fee-for-service claims for all provider types other than home health/hospice, prosthetics, durable medical equipment, orthotics and supplies. Performant Recovery also performs post-payment review of home health/hospice and DMEPOS claims nationally.

96. Under the ACA, CMS is required to expand the RAC program to Medicare Part C, sometimes called Medicare Advantage, and Part D prescription drug coverage. CMS already expanded the program to Part D and extending the program to Part C is still in the works.

97. For Medicare Part D, audit contractors identify over- and underpayments made to pharmacies and sponsors, which offer prescription drug coverage as part of a managed care plan or a stand-alone prescription drug plan. Any potential fraud findings identified during the auditing process are referred to the Medicare Drug Integrity Contractor.

98. CMS conducts Risk Adjustment Data Validation audits to validate the accuracy of diagnosis data submitted to CMS for payment by Medicare Advantage organizations and to recover net overpayments associated with inaccurate diagnosis data.

99. In December 2015, CMS issued a request for information on expanding the RAC program to Medicare Advantage. At that time, CMS said it audited about 5 percent of Medicare Advantage organizations contracts per payment year. "Our ultimate goal is to have all MA contracts subject to either a comprehensive or condition-specific RADV audit for each payment year," said CMS in the request for information.

100. To increase the percentage of Medicare Advantage organizations contracts that are subject to some type of RADV audit, CMS is considering contracting with a Part C RAC to perform comprehensive and condition-specific audits.

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