100 things to know about Medicare reimbursement

It's often said that where Medicare goes, private payers will follow. For hospitals, health systems and other providers, it has been the most influential healthcare program for the industry in recent decades.

Medicare continues to play a prominent part in various reform movements, such as the shift from fee-for-service to value-based payments and the push for greater price transparency. The program's pay rates and policies have the potential to act as a catalyst for change nationwide, or to provoke coast-to-coast controversy (as has been the case with the new two-midnight rule).

The following list sheds some light on the many facets of and issues surrounding Medicare reimbursement in the form of 100 things to know, covering everything from the latest update to the Inpatient Prospective Payment System to the Bundled Payments for Care Improvement Initiative. 

Inpatient hospital reimbursement 

1. Hospitals that fall under CMS' Inpatient Prospective Payment System agree to pre-determined rates in order to serve Medicare patients. About 3,400 acute-care hospitals and 435 long-term care hospitals receive payments under the IPPS. Hospitals generally receive IPPS payment on a per-discharge or per-case basis for Medicare beneficiary inpatient stays. Discharges are assigned to diagnosis-related groups, which sorts them by similar clinical conditions and procedures administered by the hospital during the stay. 

2. The IPPS per-discharge payment is based on two national base payment rates for operating expenses and capital expenses. These rates are adjusted to account for the patient's clinical condition and related treatment relative to average Medicare case costs and for market conditions in the hospital's geographic area.

3. CMS updates the IPPS for each physical year. The fiscal year 2015 IPPS final rule was released in early August and increases hospital inpatient payment rates by 1.4 percent. That overall payment increase reflects a 2.9 percent market basket update, which was offset by a negative 0.5 percent productivity adjustment, negative 0.2 percent market basket cut mandated under the Patient Protection and Affordable Care Act and a negative 0.8 percent adjustment in accordance with the American Taxpayer Relief Act of 2012.

4. The FY 2015 IPPS rule also promotes price transparency. Hospitals must publicize a list of their standard charges or provide their policies for allowing the public to view a list of those charges in response to an inquiry. 

5. Despite protests from hospitals about the two-midnight rule — under which inpatient admissions must span at least two midnights to qualify for Medicare Part A payments — the FY 2015 IPPS final rule leaves the controversial policy intact.

6. The final IPPS rule also increases the maximum penalty under Medicare's Hospital Readmissions Reduction Program from 2 percent to 3 percent. The HRR program is a national quality initiative that penalizes hospitals for high 30-day readmission rates for certain conditions for patients, after adjusting for patients' illness severity.  CMS has initially focused on readmissions for heart attack, heart failure and pneumonia; the agency plans to add chronic obstructive pulmonary disorder and total hip and knee replacement to the program for fiscal year 2015.

7. Additionally, the IPPS final rule promotes quality care by enacting a 1 percent reimbursement cut for hospitals with the poorest performance (in the lowest quartile) in reducing hospital-acquired conditions. The Hospital-Acquired Condition Reduction Program is mandated by the PPACA, staring in fiscal year 2015. The program has three measures, including the patient safety indicators PSI 90 composite measure, the central line-associated bloodstream infections measure and the catheter-associated urinary tract infections measures.

8. Furthermore, the final rule updates the Hospital Value-Based Purchasing Program, another PPACA initiative, which adjusts IPPS payments based on quality of care. In fiscal year 2014, CMS took back 1.25 percent of Medicare payments to hospitals through the IPPS and redistributed the resulting $1.1 billion based on hospitals' performance on quality measures such as patient satisfaction and effective treatment of heart failure. In fiscal year 2014, 778 hospitals lost more than 0.2 percent of their Medicare pay, while 630 hospitals received a bonus of more than 0.2 percent. For 2015, the final rule increases the applicable percent reduction to fund the program to 1.5 percent of Medicare reimbursement, which will garner $1.4 billion for value-based incentives.

9. The PPACA reduces Medicare disproportionate share hospital payments by 75 percent, or $49.9 billion, by 2019. The IPPS final rule reflects that in a 1.3 percent Medicare DSH payment cut for fiscal year 2015. DSH payments are distributed to hospitals that treat a significantly disproportionate amount of low-income patients. 

Outpatient hospital reimbursement 

10. More than 4,000 hospitals receive reimbursement through Medicare's Outpatient Prospective Payment system, which provides payment for most hospital outpatient department services and partial hospitalization services administered by hospital outpatient departments and community mental health centers. OPPS rates vary depending on ambulatory payment classification groups for procedures and services.

11. CMS has proposed updating the OPPS market basket by 2.1 percent in 2015. That overall increase reflects a projected hospital market basket increase of 2.7 percent, minus a 0.4 percentage point multi-factor productivity adjustment and a 0.2 percentage point adjustment required by law. 

12. The proposed payment rate increase of 2.1 percent for acute-care hospitals under the OPPS would be a "modest credit positive" for hospitals, according to Moody's Investors Service. Outpatient revenue is increasing as a percentage of total revenue at Moody's rated hospital companies, and subsequently outpatient reimbursement are becoming more important in how they affect the financial results of hospital operators.

13. Additionally, CMS' proposed OPPS rule includes the continuation of a 2 percent pay cut for hospitals that don't meet outpatient quality reporting requirements. Moody's doesn't expect that this will have a significant impact on rated hospital companies.

14. However, the proposal's provision to start collecting data on services provided in off-campus provider-based departments could potentially have a negative financial effect on hospital operators that have been aggressively aligning with physicians, as CMS could use the data it collects to measure Medicare costs and/or make changes in how it reimburses hospitals that have been changing the billing of acquired physician practices to a hospital outpatient department under the OPPS, according to Moody's.

15. Additionally, the OPPS proposed rule includes additional comprehensive-ambulatory payment classifications. Comprehensive-APCs were created to pay for high-cost device-dependent services using a single payment for a hospital stay in 29 device-dependent APCs. A comprehensive-APC policy meant to expand the items and services packaged into a single payment for a comprehensive primary care service was included in a final rule for calendar year 2014; CMS delayed implementation by a year to give the agency and hospitals more time to evaluate and comment on the policy. According to Moody's, "operators that have the ability to control the costs of devices, either through the leveraging of scale in purchasing devices or their ability to track costs, would be in the best position to benefit from the comprehensive payment."

16. For 2015, CMS has also proposed conditional packaging of all ancillary services — which are integral, supporting or adjunctive to a primary service — assigned to APCs with a geometric mean cost of $100 or less.

17. Under the rule, CMS would also maintain the community mental health center outlier payments threshold at 3.4 times the highest CMHC Partial Hospitalization Program APC payment rate.

18. CMS has also proposed that for hospitals to receive outlier payments under the PPS, the cost of the service administered must be more than the multiple threshold of 1.75 times the APC payment rate and exceed the 2015 fixed dollar threshold of the APC payment, plus $3,100.


19. Earlier this summer, in the same rule that included proposed payment and policy changes for hospital outpatient departments, CMS released proposed payment and policy updates for ASCs for 2015.

20. There are more than 5,300 Medicare-certified ASCs paid under the OPPS. OPPS payment amounts vary based on the APC groups to which services or procedures are assigned.

21. ASC reimbursement rates are updated annually to reflect inflation by the percentage increase in the Consumer Price Index for all urban consumers. The ASC annual update also takes a multi-factor productivity adjustment into account.

22. The Consumer Price Index update is projected to be 1.7 percent and the MFP adjustment is projected to be 0.5 percent for calendar year 2015. Subsequently, the FP-adjusted CPI-U update would be 1.2 percent for CY 2015.

The debate over site-neutral payments 

23. The Medicare program currently pays significantly different rates for the same services provided in different settings. For instance, according to the Medicare Payment Advisory Commission, Medicare paid hospital outpatient departments 78 percent more on average than ambulatory surgery centers for the same procedure in 2013. MedPAC and CMS have been considering options to eliminate the gap between payment rates for different settings for certain care services, a proposal that has been met with backlash from hospital advocates.

24. The controversy surrounding site-neutral payments has been inflamed partly by the recent shift of services from physician offices to HOPDs, according to Health Affairs. MedPAC and others have expressed concerns about this development, with MedPAC in particular pointing out the share of physician visits (evaluation and management services) and certain diagnostic cardiology procedures administered in a HOPD setting increased by 8 percent between 2010 and 2011 and by 9 percent between 2011 and 2012. "Because of the higher payment rates for outpatient department services, this shift in site of service means that Medicare spending on these services is increasing even though there may be no difference in the care the patient receives," the Health Affairs issues brief states. "Out-of-pocket costs to the beneficiary are also higher since beneficiaries are responsible for roughly 20 percent of the payment amount for outpatient services."

25. MedPAC and CMS have both introduced proposals to get rid of the payment differentials for particular services. MedPAC has recommended limiting payments to hospital outpatient departments. In 2012, the Commission advised Congress to set payment rates for evaluation and management services provided in HOPDs that are equivalent to rates paid under the physician fee schedule.  In subsequent years, MedPAC has recommended additional reforms to eliminate the payment differential between HOPDs and ASCs. In its annual report to Congress this past March, MedPAC evaluated 450 ambulatory payment classifications and found 66 that don't require emergency standby capacity, don't have extra costs associated with greater patient complexity and don't need the additional overhead that comes with services that must be provided in a hospital setting. Aligning HOPD payments with physician fee schedule rates for these APCs would reduce Medicare spending and beneficiary cost sharing by $1.1 billion in one year.

26. In April, the HHS Office of Inspector General reignited the argument over HOPD payments by recommending CMS reduce hospital outpatient prospective payment system rates for ASC-approved procedures to ASC levels for low-risk patients. The OIG report stated reducing hospital outpatient prospective payments rates for ASC-approved procedures for low-risk cases could save Medicare as much as $15 billion from 2012 through 2017. Lower HOPD reimbursements could also save beneficiaries $2 billion to $4 billion in copays and coinsurance during the same time period.

27. Hospital leaders and organizations such as the American Hospital Association have criticized these site-neutral payment proposals, arguing that hospitals need the higher payments because all of them — even those not designated as safety-net hospitals — play a unique role in their communities, compared with ASCs and other outpatient care providers. Hospitals provide care for all patients regardless of their ability to pay, something ASCs don't do, according to AHA policy director Roslyne Schulman.

28. Still, according to Health Affairs, CMS and MedPAC have indicated they're still interested in exploring the potential to enact site-neutral payments in areas where the reimbursement differential isn't deemed appropriate. The Protecting Access to Medicare Act, which President Barack Obama signed into law April 1, could give CMS an additional opportunity and authority to revisit the site-neutral payment issue through its provisions expanding the types of information CMS can use to determine costs under the physician fee schedule. The law also encourages the agency to address potentially misvalued codes, according to the issue brief. 

The three-day hospital stay requirement 

29. CMS is exploring whether or not dropping Medicare's nursing home coverage requirement of a preceding inpatient hospital stay of at least three days, according to a Kaiser Health News report. Sean Cavanaugh, Medicare's deputy administrator, told Kaiser CMS is using new payment model pilot projects to determine whether eliminating the three-day rule improves quality and lowers costs.

30. The three-day requirement has led to problems for Medicare beneficiaries who were in the hospital under observation care rather than as inpatients, according to the report. Observation stays have been on the rise, and the number of observation patients who don't quality for Medicare nursing home care coverage increased by 88 percent during a six-year period, reaching 1.8 million in 2012.

31. The payment experiments that waive the three-day rule include the Medicare Pioneer Accountable Care Organization program. The Pioneer ACO project involves approximately 600,000 senior patients at more than 170 hospitals, according to the report. Under the Pioneer ACO model, patients who spent little or no time in the hospital can still receive nursing home care, which is covered by a set payment from Medicare shared by all of the patient's providers.

32. CMS' Bundled Payments for Care Improvement initiative is another experiment that eliminates the three-day rule. Under this initiative, which currently involves more than 6,000 provider participants, Medicare provides a set fee for any of 48 procedures selected by a participating hospital. Patients admitted to hospitals involved in the initiative can qualify for a waiver to get nursing home coverage even if they don't have a preceding three-day hospital stay, according to the report.

33. Medicare Advantage plans, an alternative to traditional Medicare administered by private health insurers, are already allowed to disregard the three-day requirement. This year, 95 percent of Medicare Advantage plans waived the rule, according to an analysis conducted by health research firm Avalere Health for Kaiser.

34. Some have argued the Medicare program should get rid of the three-day requirement for nursing home coverage before the various payment experiments show results. For instance, Diane Paulson, a senior attorney at Greater Boston Legal Services who handles observation care appeals, told Kaiser nursing home care and other benefits should be covered if they are medically necessary. However, others have advocated for caution. Mark Froimson, MD, president of the Cleveland Clinic system's Euclid (Ohio) Hospital, told Kaiser it's important to ensure changing the long-standing requirement is safe.

The two-midnight rule

35. As mentioned in the inpatient hospital reimbursement section, the two-midnight rule mandates inpatient admissions must span at least two midnights to qualify for Medicare Part A payments. Inpatient stays shorter than two midnights should be treated and billed as outpatient services. CMS included the two-midnight rule in its 2014 Medicare IPPS rule to better monitor Medicare reimbursement for short inpatient stays and ensure inpatient admissions are medically necessary.

36. The rule was originally due to take effect earlier this year. However, following fierce opposition from hospitals and other healthcare groups, CMS delayed the two-midnight rule through Sept. 30. Medicare administrative contractors and recovery auditors will not conduct two-midnight post-payment reviews of claims with admissions dates between Oct. 1, 2013, and Oct. 1, 2014. However, MACs and RAC will carry out prepayment reviews (or "probe and educate" audits) of hospital admissions that occur between March 31, 2014, and Sept. 30, 2014. Depending on the hospital, auditors will review 10 to 25 claims per facility.

37. Medicare auditors will base their claims reviews of a physician's expectation of medically necessary care enduring for more than two midnights on the information available to the admitting physician at the time of admission.

38. Hospitals are permitted to rebill for medically reasonable and necessary Part B inpatient services if their Part A claims are denied, as long as the denial is based on the determination that the inpatient admission wasn't reasonable and necessary.

39. Physician documentation will be crucial to two-midnight rule compliance. CMS has stated a reasonable inpatient stay that lasts more than two midnights must show "sufficient documentation…rooted in good medical practice." MACS and RACs conducting reviews of physicians' assessments and plans of care will expect to see documentation including patient history, comorbidities, the severity of signs and symptoms, current medical needs and the risk of an adverse event.

40. CMS has also instructed Medicare contractors to use the general two-midnight benchmark instruction when reviewing claims that involve canceled surgical procedures. That means that if the physician expects a patient going in for surgery to require a hospital stay that spans two or more midnights at the time of admission and documents that expectation in the medical record, the inpatient admission will be considered appropriate for payment under Medicare Part A, according to CMS.

41. Hospital leaders, physicians and healthcare groups have criticized the two-midnight rule, saying it is unclear and undermines the medical judgment of physicians. The American Hospital Association and several health systems have sued CMS, arguing the rule is "arbitrary" and "capricious." Its complaint states the rule "unwisely permits the government to supplant treating physicians' judgment." A separate but related complaint also filed in federal court opposes CMS' decision to reduce Medicare reimbursement rates because of increased costs resulting from the two-midnight rule. The plaintiffs for both complaints include the American Hospital Association, Phoenix-based Banner Health, Mount Sinai Hospital in New York City, Philadelphia-based Albert Einstein Healthcare Network, Wake Forest University Baptist Medical Center in Winston-Salem, N.C., the Greater New York Hospital Association, Healthcare Association of New York State, the New Jersey Hospital Association and The Hospital & Healthsystem Association of Pennsylvania.

42. Congressional lawmakers have also opposed the new policy. In March, Sens. Robert Menendez (D-N.J.) and Deb Fischer (D-Neb.) introduced the Two-Midnight Rule Coordination and Improvement Act, which would establish new guidelines for CMS' creation of criteria payment methodologies concerning short inpatient hospital stays. Rep. Menendez called the current two-midnight regulation "rigid" and said it could interfere with physicians' ability to make proper medical determinations.

43. The two-midnight rule will reduce revenue for most hospitals when it takes effect this October, according to a report from Moody's Investors Service. Moody's expects the rule to weaken hospital operating profitability in calendar year 2014 and beyond as it lowers Medicare reimbursement, although the regulation's impact will vary across the nonprofit hospital sector.

44. The rule could decrease revenues for hospitals by $3,000 to $4,000 per case as more stays are classified as outpatient. Inpatient stays have Medicare reimbursement rates that are, on average, two or three times higher than outpatient cases, according to Moody's.

45. The two-midnight rule is expected to speed up the decline in inpatient volumes as care shifts to an outpatient setting. The rule adds to other pressures driving the rise in outpatient admissions, including Medicare reviews of medical necessities and changes in care delivery models.

46. Low-acuity community hospitals will see the biggest impact, since they tend to have a greater share of cases that involve short hospital stays, according to Moody's. These hospitals with low average lengths of stay are generally smaller, lower-rated and are therefore less capable of handling reduced revenue than other hospitals.

47. The drop in revenue will also affect all hospitals that rely on inpatient care for most of their operating profit, regardless of their size. For this reason, tertiary hospitals and academic medical centers that focus on inpatient care will see negative financial effects. Meanwhile, hospitals that perform large numbers of surgeries on an inpatient basis won't be hit as hard, since CMS classifies many inpatient surgeries as "inpatient only."

48. Moody's anticipates smaller hospitals with less integrated staffs will be at a disadvantage when it comes to adapting to the rule change. While larger hospitals probably won't have problems enacting physician documentation changes to ensure compliance with the rule, smaller hospitals with limited medical and support staffs may face challenges.

49. The two-midnight rule could have one upside for hospitals: Moody's predicts the new regulation could ease the pressure of RAC reviews. RACs have reviewed the medical necessity of many short-stay admission claims, contributing to the shift from inpatient care to outpatient settings and reducing hospital revenue. By clearing up any ambiguity regarding short-stay admissions, the two-midnight rule could make the RAC situation less stressful for providers. 

Physician reimbursement 

50. Medicare uses the Physician Fee Schedule to reimburse providers for covered physicians' services provided to Medicare Part B beneficiaries. The PFS assigns relative values to more than 7,000 services meant to account for the amount of work, malpractice expenses, and direct and indirect practice expenses associated with providing the service. The relative value components are also multiplied by a geographic adjustment factor to account for cost variations across localities.

51. In July, CMS released its proposed rule that would update the Medicare Physician Fee Schedule for calendar year 2015. The rule doesn't contain proposals or announcements concerning the PFS update or the sustainable growth rate, a statutory formula meant to control growth in Medicare spending on physicians' services. Since the PFS rate and SGR-related cuts are determined under a statutory formula, CMS cannot change them. The final figures will be announced in the final rule issued in November.

52. In order to emphasize primary care, CMS has proposed making separate payments for chronic care management services, starting in 2015. The proposed rule includes a payment rate of $41.92 for the CCM services code, which could be billed no more than once per month for each qualified patient. Additionally, CMS has not proposed establishing separate standards providers furnishing these services would have to meet.

53. As part of an ongoing effort to identify and review misvalued codes, CMS has proposed adding 80 codes to the list of those that could potentially be misvalued. The agency identified most of these codes by reviewing high-expenditure services by specialty, although others were selected through methods such as public nomination. Additionally, the proposed rule would refine how CMS accounts for infrastructure costs related to radiation therapy equipment. This would result in a reduction in radiation therapy service payments, which the agency would redistribute to other services.

54. Also under the misvalued code initiative, CMS has proposed converting all 10- and 90-day global codes to 0-day global codes beginning in calendar year 2017. "The Office of the Inspector General has identified a number of surgical procedures that include more visits in the global period than are being furnished," CMS states in a news release. "In order to address the potential for misvaluation of surgical services, we are proposing to value include in the for these procedures all services provided on the day of surgery, and to pay separately for visits and services actually furnished after the day of the procedure beginning in CY 2017."

55. CMS has proposed adding annual wellness visits, psychoanalysis, psychotherapy, and prolonged evaluation and management services to the list of services that can be provided to Medicare beneficiaries under the program's telehealth benefit.

56. CMS is required to review and, if needed, adjust malpractice RVUs every five years. For 2015, the agency conducted its third comprehensive review and update of the RVUs and has proposed new malpractice RVUs for all services, based on updated professional liability insurance premiums.

57. As required by law, the proposed rule would also update geographic price indices for the PFS. For instance, in 2015, CMS has suggested using territory-level wage data to determine the work GPCI and employee wage component of the Practice Expense GPCI for the Virgin Islands.

58. Under the proposed rule, CMS would begin collecting data on services furnished in off-campus provider-based departments by requiring physicians to report a modifier for services administered in these settings.

59. Furthermore, the proposed PFS rule would waive the deductible and coinsurance associated with anesthesia related to screening colonoscopies, since anesthesia provided separately by an anesthesia professional is "becoming the prevalent practice in connection with screening colonoscopies, replacing the previous standard of moderate sedation provided intravenously by the endoscopist, which was bundled into the payment for the screening colonoscopy codes," according to CMS.

60. The proposed rule also includes several measures meant to increase transparency. For instance, it includes a provision that would ensure all revisions to payment inputs underpinning final PFS payment rates would be subject to public comment before being used for payment. Additionally, CMS has proposed eliminating the continuing medical education exclusion under the Sunshine Act, which would require pharmaceutical and medical device companies to report payments to physicians for CME.  

The sustainable growth rate 

61. The Balanced Budget Act of 1997 amended the Social Security Act to create the SGR formula, which was meant to control growth in Medicare spending for physicians' services by establishing targets for expenditures, according to CMS. The formula takes into account the estimated percentage change in fees for physicians' services, the estimated percentage change in expenditures due to changes in laws or regulations, the change in the average number of Medicare fee-for-service beneficiaries and the estimated 10-year average annual percentage change in real gross domestic product per capita. The SGR targets aren't direct limits on spending. Rather, if the actual expenditures are greater than the SGR target, the Physician Fee Schedule update is supposed to be reduced. Under the law, the update for the year is determined by comparing cumulative actual spending to cumulative target spending from April 1, 1996 through the end of the year preceding the year the update will apply to.

62. The Medicare Payment Advisory Commission has informed Congress the SGR is "fundamentally flawed and is creating instability in the Medicare program for providers and beneficiaries." The formula's methodology of tying annual payment increases to cumulative expenditures has encouraged providers to administer higher volumes of services and has disproportionately burdened those in specialties with little ability to provide higher volumes of care, according to MedPAC. Consequently, the commission has recommended that Congress repeal the SGR. Provider groups such as the American Medical Association have also urged policymakers to permanently fix the SGR.

63. Every year since 2003, Congress has enacted a short-term legislative patch to delay the SGR cuts, a practice MedPAC said has provoked uncertainty and anger among providers and anxiety among beneficiaries. The latest patch — passed as part of the Bipartisan Budget Act of 2013 — will delay a required 24 percent Medicare pay cut and provide a 0.5 percent payment update for physicians through March 2015.  

64. Members of the House and Senate have been working to find a permanent solution to the SGR. In addition to the House bill approved last summer, the Senate Finance and House Ways and Means committees issued a proposal earlier this year that would repeal and replace the physician pay formula. Last month, the Senate Finance and House Ways and Means committees both passed separate but similar bills to replace the SGR. Both measures would replace the flawed Medicare physician payment formula with a value-based payment system beginning in 2017. The House bill includes a 0.5 percent annual payment update through 2017, while the senate proposal would freeze current payment levels until 2023.

65. However, repealing the SGR would come at a cost. The Congressional Budget Office has estimated the cost of a House bill approved last year that would repeal and replace the formula would be $153.2 billion from 2014 to 2023. 

Home health providers

66. According to the most recent CMS data, roughly 3.5 million beneficiaries received home health services in 2013 from 12,000 home health agencies, accounting for approximately $18 billion in Medicare spending.

67. CMS recently released proposed changes to the Medicare home health prospective payment system for calendar year 2015. Overall, CMS expects that its proposed changes — which include calibrating case-mix weights relative to each other, based on 2013 data, and alterations to the wage index related to Metropolitan Statistical Area delineation changes — to the payment system for 2015 will reduce Medicare payments to home health agencies by 0.3 percent, or $58 million.

68. The proposed 0.3 percent decrease takes into account a 2.2 percent home health payment update percentage and rebasing adjustments to the national, standardized 60-day episode payment rate, national per-visit payment rates and the non-routine medical supplies conversion factor.

69. The PPACA mandates that certifying physicians or allowed non-physician providers must have a face-to-face encounter with a patient before certifying eligibility for the Medicare home health benefit. Among other changes in the proposed rule, CMS has proposed eliminating the face-to-face encounter narrative requirement, under which providers must write a brief description of the patient's clinical condition and how that condition supports homebound status and the need for skilled services. Under the CMS proposed rule, the physician would still need to certify that a face-to-face encounter occurred and document the date of the encounter.  

End-stage renal disease treatment providers 

70. In July, CMS released a proposed rule including a 0.3 percent overall rate increase for Medicare payments to end-stage renal disease facilities in calendar year 2015.

71. Hospital-based ESRD facilities will see an estimated 0.5 percent increase in payments under the proposed rule.

72. Additionally, the rule contains changes to the ESRD Quality Incentive Program for 2017 and 2018, such as the adoption of a readmission measure and the transition of the patient experience survey measure for in-center hemodialysis patients to pay-for-performance.

Price transparency

73. The Medicare program has been a major driving force behind the call for more price transparency in healthcare. In 2013, the agency caused a stir with a landmark release of Medicare hospital charge data for the 100 most common inpatient services and 30 most common outpatient services.

74. It's important to note that the hospital charges don't reflect what Medicare and health insurers actually pay. Medicare rates, which are based on set fee schedules, are typically much lower than the listed charges, and private health insurers also negotiate their own lower rates. However, price transparency advocates have argued the charges still matter because they represent the starting point for reduced rate negotiations, and uninsured patients can get charged the full listed amount, according to The Wall Street Journal.

75. The data revealed that Medicare charges varied widely for both inpatient and outpatient services. For instance, charges for major joint replacements without complications or death ranged from a low of $5,304 at Chicksaw Nation Medical Center in Ada, Okla., to a high of $223,373 at Monterey Park (Calif.) Hospital. Although the reasons behind the dramatic variations are still up for debate, higher reimbursement rates for certain hospitals — such as teaching facilities and those in regions with high labor costs — explain some of the discrepancies.

76. The initial release of the data followed a 36-page investigative report journalist Steve Brill wrote for TIME on the hospital health insurance market and healthcare costs. Mr. Brill has written that a CMS spokesperson told him the announcement of the hospital billing data is partly in response to his article. The report and the data release are part of the U.S. healthcare price transparency movement, which has been gaining momentum as consumers take on more responsibility for the cost of their care.

77. In June, CMS provided its first annual update to the Medicare hospital charge data the agency originally released last year. The updated data offers insight into hospital charge trends from 2011 to 2012. News outlets including The Wall Street Journal and The New York Times have analyzed it and found hospital charges increased for the treatment of common ailments. For instance, charges for chest pain went up by 10 percent, from an average of $16,815 in 2011 to $18,505 in 2012. Additionally, charges for digestive disorders went up by 8.5 percent, from $20,278 in 2011 to nearly $22,000 in 2012, according to the Times.

78. The reasons behind the general rise in hospital charges are complicated and somewhat unclear. Industry experts say hospitals could be increasing their charges to compensate for higher IT or drug costs, declining volumes and slower Medicare payment growth rates, according to the Times. From 2011 to 2012, Medicare reimbursement rates went up by just 1 percent for most inpatient stays, and the updated data shows the total number of discharges decreased by nearly 7,000.

79. In April, CMS also gave the public unprecedented access to Medicare physician payment data. The newly released data set includes information on more than 880,000 healthcare professionals across the country who received a total of $77 billion in Medicare Part B fee-for-service payments in 2012. With the data, it's possible to compare 6,000 different types of services, procedures and payments received by individual providers, according to HHS.

80. The physician payment data release builds on the agency's decision earlier this year to evaluate Freedom of Information Act, or FOIA, requests from the media on a case-by-case basis for individual Medicare payments made to physicians, effective this past March. Previously, HHS said that "considering the two competing interests of public transparency and privacy," Medicare physician data could not be provided through FOIA requests. The decision to disclose the data was spurred by a federal judge's decision last year to lift a 1979 injunction that barred the release of individual physicians' annual Medicare payments. That court decision stems from a January 2011 request from Dow Jones, publisher of The Wall Street Journal.

81. The release of the data concerned physician groups, such as the American Medical Association. After CMS made the payment data public, the AMA released a statement  saying that while the organization is "committed to transparency and the availability of information for patients to make informed decisions about their medical care," it has some concerns about CMS' release of physician data. "We believe that the broad data dump today by CMS has significant short-comings regarding the accuracy and value of the medical services rendered by physicians," AMA President Ardis Dee Hoven, MD, said. "Releasing the data without context will likely lead to inaccuracies, misinterpretations, false conclusions and other unintended consequences."

82. Various news outlets analyzed the data, raising questions about various physician billing trends. The New York Times found a small fraction of physicians account for a significant amount of Medicare spending. According to the Times, about 2 percent of physicians received about $15 billion in Medicare payments. Furthermore, only 25 percent of physicians accounted for 75 percent of Medicare spending. In 2012, 100 physicians — mainly eye and cancer specialists —received a total of $610 million from Medicare, according to the analysis.

83. The Wall Street Journal used the data to delve into unusual Medicare physician billing, revealing that more than 2,300 physicians received $500,000 or more in Medicare reimbursement in 2012 from a single service or procedure. For instance, the Journal found the Los Angeles-based practice of physician Ronald S. Weaver, MD, received 98 percent of its $2.3 million in Medicare payments in 2012 for instances of a rarely used cardiac procedure, although Dr. Weaver is not a cardiologist. The procedure — which involves strapping the patient to a bed and using three cuffs to increase blood flow — is seen as a last resort treatment for severe chest pain, and there's no consensus among cardiologists as to whether it has significant benefits, according to the analysis.

84. The practice of billing mostly for one service isn't in itself unusual. Physicians can specialize in specific services and build their practices around those treatments. However, according to the Journal, a close examination of those who earn the most from few services shows they are straying from routine medical practice or operating outside their expertise. For example, urologist Evangelos G. Geraniotis, MD, of Hyannis, Mass., received $1 million out of a total of $2.1 million in Medicare payments in 2012 from a cystoscopy and fulguration procedure that isn't deemed routine in a urological practice, according to the Journal. However, the physicians in question say they aren't driven by financial incentives and that the treatments they administer help to keep patients healthy. Dr. Weaver said the cardiac procedure he specializes in benefits his patients, and Dr. Geraniotis attributes his billing and treatment practices to a more aggressive approach that keeps patients out of the hospital, according to the Journal. 

The Medicare Recovery Audit Contractor program 

85. Medicare RACs have performed a vast number of audits in the four-plus years since their launch, recouping almost $2.25 billion in Medicare funds from hospitals and other providers from July through December 2013 alone.  In fiscal year 2012, Medicare RACs identified $2.4 billion in improper payments, according to CMS. Of that total, $2.3 billion were overpayments.

86. According to CMS, ensuring accuracy, efficiency and effectiveness are key to RAC success. Maximizing transparency, minimizing provider burden and developing provider education are areas of focus as well, according to the agency.

87. RACs are paid with contingency fees. In FY 2012, Medicare RACs earned up to 12.5 percent of their recovery total, except for claim types that involved durable medical equipment. In 2012, Medicare RACs received $142.3 million overall in contingency fees, while returning $1.9 billion to the Medicare Trust Fund (after accounting for costs and appeal reversals).

88. The American Hospital Association tracks RAC activity through its quarterly RACTrac survey. The survey measures Medicare recovery auditor, or RAC, activity. AHA created the web-based survey because of the lack of data from CMS concerning the impact RACs have on providers, according to the RACTrac website. The most recent survey information for the first quarter of this year showed 48 percent of 1,165 hospitals surveyed reported spending more than $25,000 managing the RAC process.

89. The American Hospital Association has urged CMS to improve the RAC program by adopting the reforms included in the Medicare Audit Improvement Act of 2013, under which Medicare RACs would be limited to a hard cap of additional medical record requests. The bill would also impose financial penalties on RACs for auditing errors, improve RAC transparency and allow denied inpatient claims to be billed as outpatient claims when appropriate. Rep. Jim McDermott (D-Wash.), a ranking member of the House Ways and Means Health Subcommittee, has also called on CMS to reform the RAC program to enhance auditor accountability and performance.

90. Additionally, the AHA has expressed concern about a temporary suspension in administrative law judge hearings concerning payment denials from RACs. In December, OMHA announced a temporary suspension of most new requests for administrative law judge hearings concerning payment denials from RACs due to a backlog in appealed claims. Most new hearing requests will be delayed by at least two years. The AHA has urged CMS to work with OMHA to address the suspension to mitigate detrimental effects for hospitals. Additionally, earlier this year, 111 House members sent a letter to HHS Secretary Kathleen Sebelius asking her to take immediate action to reform the RAC program. The temporary suspension of administrative law judge hearing requests illustrates a need for change, the lawmakers wrote.

91. In February, CMS announced it would "pause" additional documentation requests from Medicare RACs as the agency procures the next round of RAC contracts. June 1 was the last day RACs could send improper payment files to Medicare administrative contractors for adjustment. In response to industry feedback, CMS also announced it would make adjustments to the RAC program, such as making RACs wait 30 days to allow for discussion before sending claims to MACs for discussion, meaning that providers will no longer have to choose between initiating a discussion and an appeal.

92. Earlier this year, the agency had agreed to postpone awarding the new contracts because of a lawsuit filed by CGI, a current RAC. CGI has claimed the payment terms proposed by CMS in the new contracts will create "an intolerable revenue flow model," according to a RAC Monitor report. However, CMS has said the RAC program will be reinstated this month to review limited billing issues. Under the new contract arrangement, RACs will review claims related to spinal fusions, outpatient therapy services, durable medical equipment, prosthetics, orthotics and supplies, and cosmetic procedures.

Accountable care organizations

93. As the healthcare industry seeks to transition from fee-for-service to value-based payments, accountable care organizations have become increasingly popular as a performance-based reimbursement model. Medicare offers several ACO programs, including the Medicare Shared Savings Program, the Advance Payment ACO Model and the Pioneer ACO Model.

94. 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.

95. Many ACOs have chosen to participate in the Medicare Shared Savings Program, which requires a three-year commitment to care for at least 5,000 Medicare patients. CMS named the first 27 MSSP ACOs in April 2012. Of the total 114 ACOs that joined the MSSP in 2012, just 54 achieved savings during their first year, and only 29 had enough savings to share in them with CMS. Seven of the nine ACOs that left the Pioneer program in 2013 switched to the MSSP, which has no downside risk. In December 2013, CMS announced an additional 123 ACOs had joined the MSSP.

96. As part of the proposed rule for updating the Physician Fee Schedule in 2015, CMS has suggested increasing the quality measures used to assess MSSP ACOs from 33 to 37. The new scored measures include the Stewardship of Patient Resources measure (which involves asking the patient whether the care team talked with them about the costs of prescription medication), 30-day all-cause skilled nursing facility measure, depression readmission at 12 months, a diabetes measure for foot and eye exam, a coronary artery disease symptom management measure, and a documentation of current medication in the medical record measure. CMS also retired eight measures — involving medication reconciliation, diabetes care, ischemic vascular disease and coronary artery disease —  that "have not kept up with clinical best practice, are redundant with other measures  that make up the quality reporting standard, or that could be replaced by similar measures that are appropriate for ACO quality reporting." 

Bundled payments

97. CMS' Bundled Payments for Care Improvement Initiative is currently letting healthcare providers take part in a test of bundled payments' power to drive more coordinated care across various settings. The BPCI initiative involves four different payment models, depending on the type of healthcare providers involved and the nature and time frame for services included in the bundle.

98. The BPCI program offers several potential strategic opportunities for providers, such as reducing costs, improving quality, providing a platform for more meaningful physician engagement and allowing hospitals to gain a better understanding of the total cost of care.

99. Participants can select as many as 48 different clinically related condition episodes for each BPCI model. Model 1 involves an episode of care focused on acute-care inpatient hospitalization, and participants agree to provide a standard discount to Medicare from the typical Part A payments for inpatient hospital services. In Model 2, the episode of care includes the inpatient stay in an acute-care hospital and all related services during the episode, which will be considered to end either a minimum of 30 and up to 90 days after discharge. Model 3 involves episodes of care that are triggered by an acute-care hospital stay but begin at the initiation of post-acute care services with a participating skilled nursing facility, inpatient rehabilitation facility, long-term care hospital or home health agency. By contrast, under Model 4, CMS will make a single, prospectively determined bundled payment to the participating hospital for all services administered during the inpatient stay. Related readmissions for 30 days after discharge are included in the bundled payment amount.

100. CMS' implementation plan has two phases for BPCI Models 2, 3 and 4. Phase one, or the preparation period, is the initial time frame during which CMS and the participants prepare for the assumption of financial risk. Phase two is the actual risk-bearing period. In July, CMS announced 4,122 providers would be added to phase one of the BPCI, joining the 2,412 providers already participating. "Through the Bundled Payments for Care Improvement initiative, CMS is taking another step forward in identifying models that will provide better quality of care and improved health for Medicare beneficiaries, at lower costs for our nation's taxpayers," CMS officials said in a statement. "We are very pleased with the additional interest in the initiative, and we expect a number of phase one participants to continue to phase two." 


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