PAYING FOR HOSPITAL AND PHYSICIAN SERVICES

2

Upon successful completion of this module, the student will be able to satisfy the following outcomes:

· Case

· Understand and calculate Medicare payments for hospital services.

· Understand and calculate Medicare payments for physician services.

· SLP

· Discuss the characteristics of major hospital payment systems.

· Discuss the characteristics of major physician payment systems.

· Discussion

· Understand the difference between prospective and retrospective payment mechanisms.

· Discuss major payment reform initiatives in the Patient Protection and Affordable Care Act.

· Reflect on course concepts.

Module Overview

Part I - Paying for Hospital Services - Overview

Many private and public payers reimburse hospital inpatient services based on a predetermined, fixed amount for a particular service. The payment amount is derived based on the classification system of that service (for example, diagnosis-related groups). Medicare, as the largest public payer for health care in the United States, reimburses hospital inpatient services through this type of prospective payment system. Diagnostic Related Groups (DRG) include about 500 distinct categories or groupings to classify hospital inpatient cases that are expected to have similar hospital resource use. DRGs are assigned by a "grouper" program based on diagnoses, procedures, age, sex, discharge status, and comorbidities. DRGs serve as the foundation for Medicare's prospective payment system. Many private payers emulate Medicare's reimbursement system to develop their own DRG-based prospective payment system for inpatient services. In this module, we will explore how Medicare calculates its inpatient payment rate. Below are examples of Diagnostic Related Groups:

DRG	Description	Case Weight	Outlier
001	Craniotomy Age>17 Years, Except for Trauma	3.0932	32
037	Orbital Procedures	0.8821	26
072	Nasal Trauma	0.6419	26
115	Permanent Cardiac Pacemaker	3.5513	33
191	Pancreas, Liver, Shunt Procedure	3.6598	36
302	Kidney Transplant	4.1370	35
418	Post-Operative Infections	0.9777	29
441	Hand Procedure/Surgery	0.8785	25
488	HIV Extensive O.R. Procedure	4.2177	37

Prospective Payment: The Prospective category involves three elements:

Operating Payment: The operating payment is a major part of Medicare's prospective payment; however, if the patient's condition requires additional services or a longer stay in the hospital, Medicare makes what are called "outlier" payments. These payments may be more than the operating and capital payments. The elements of the operating payment are as follows: DRG Relative Weight x ((Labor Related Large Urban Standardized Amount x Core-Based Statistical Area [CBSA] wage index) + (Nonlabor Related National Large Urban Standardized Amount x Cost of Living Adjustment)) x (1+ Indirect Medical Education + Disproportionate Share Hospital).

Capital Payment: Beginning in 1992, Medicare began paying hospitals for their capital costs associated with care and treatment of a patient, on a prospective basis. The elements of the Capital Payment are as follows: DRG relative Rate x Federal Capital Rate x Large Urban Add-On x Geographic Cost Adjustment Factor x Cost of Living Adjustment x (1+ Indirect Medical Education + Disproportionate Share Hospital)

Outlier Payment: Outlier payments are additional payments made for patients who use an extraordinary or unusually large amount of resources. The background page has a link to the Medicare site containing information on the process and formula for calculating total payments including outliers.

Part II - Paying for Physician Services - Overview

Medicare, as the single largest payer in the United States, uses the resource-based relative value scale (RBRVS) to reimburse physician services. In this module, we will explore how to calculate physician reimbursements based on Medicare's RBRVS model.

How are physician rates calculated?

There are Medicare payment rates for 7,000 current procedural terminology (CPT) codes. The specific values vary by region. The payment rates are the product of three relative values and geographic cost indexes and a conversion factor. For every procedure there are three relative value units (RVU). These RVUs reflect the cost of a particular procedure:

· Work RVU - Represents physician time, skill level, stress, and other related factors.

· Practice expense RVU - Represents non-physician costs, excluding malpractice costs.

· Malpractice RVU - Represents the cost of malpractice insurance.

The following table should help you better understand how rates are calculated:

Categories	RVU	Geographic Cost Index	Product	Conversion Factor
Work	27.36	1.089	29.80	-
Practice Expense	33.59	1.473	49.48	-
Malpractice	6.82	0.646	4.41	-
Total	-	-	83.69	69.87

The product values are added up and multiplied by the conversion factor. Using the above figures, the payment rate would be $5,847.42.

Now that we know the Medicare Approved Rate, we can move on to:

How are Physicians Reimbursed?

The following should help you better understand the distinction made between physicians:

Participating Physicians:

· Accept assignment on each and every case.

· Bill Medicare and the patient 100% of the Medicare-approved fee for a procedure.

· Receive payment from Medicare equal to 80% of the Medicare-approved fee, and patient pays 20% of the approved fee.

Non-participating Physicians who accept assignment on a case-by-case basis:

· Bill Medicare and the patient 95% of the Medicare-approved fee for a procedure.

· Receive payment from Medicare equal to 80% of the Medicare-approved fee for non-participating physicians (95%), and patient pays 20% of the approved fee.

Non-participating Physicians who do not accept assignment:

· Bill the patient for 115% of the Medicare-approved fee for non-participating physicians (which is already at 95% of fee for participating physicians).

· Receive entire payment from the patient. Then Medicare reimburses the patient for 80% of the approved fee for non-participating physicians.

The following examples should help you better understand billing by and payment to physicians:

Assume the Medicare-approved fee for a procedure is $1,000. This means that the Medicare-approved fee for non-participating physicians is $950.

The Participating physician will bill Medicare and the patient. Medicare will pay the doctor $800 (80%), and the patient pays $200 (20%).

The non-participating physician who accepts assignment bills Medicare and the patient. Medicare pays $760 (80% of the $950) and the patient pays $190 (20% of the $950).

The non-participating physician who does not accept assignment bills the patient a maximum of $1,092.50 (115% of the $950). This is called limiting charge. The patient pays the physician the entire amount. Then Medicare reimburses the patient $760 (80% of the $950 approved fee). In this scenario, the physician gets paid more than the participating physician but can only look to the patient. In this scenario, the patient is on the hook for $332.50, because Medicare will not pay more than $760.