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Medicare Payment Policies for Providers and Plans A Primer

This primer provides an overview of Medicare payment policies for healthcare providers and plans, including payment determination for durable medical equipment, the Medicare Physician Fee Schedule, Medicare Prospective Payment for hospitals, SNFs, and home health, and Medicare Advantage and Part D plans. It also discusses recent changes in payment policies and the movement towards competitive bidding for DME.

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Medicare Payment Policies for Providers and Plans A Primer

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  1. Medicare Payment Policies for Providers and PlansA Primer William Scanlon For The Alliance for Health Reform’s Medicare: A Primer March 11, 2011

  2. Payment Objectives Assure beneficiary access Promote efficiency Accommodate/ promote quality

  3. Medicare Payment Determination Durable Medical Equipment

  4. Medicare Physician Fee Schedule • Fees based on: • Resource Based Relative Value Scale (RBRVS) • Values determined by Harvard study in 80’s/ Updated since by AMA’s Relative Value Scale Update Committee (RUC) • Components—Work, Practice Expense, Malpractice • 7000+ services Fee for a service = RVUi X Conversion Factor X Geographic Adjustor

  5. Medicare Physician Fee Schedule Sustainable Growth Rate (SGR) • Creates an incentive to control volume and intensity • Sets annual spending target per beneficiary based on inflation, changes in law, and GDP • SGR formula makes annual change in fees--- • Higher if prior year’s spending below target • Lower if prior year’s spending above target • Projected reductions in fees due to SGR and their postponements since 2002 create pending 24.9 percent reduction

  6. Medicare Prospective Payment(Hospitals, SNFs, Home Health) • Payments based on administrative data • Cost reports • Itemized claims • Patient assessments • Research data • Payment Model • Payments updated annually • ACA productivity adjustment X X

  7. Medicare Prospective Payment

  8. Competitively Determined Payments Medicare Advantage and Part D Plans • Plans bids determine monthly capitation • Bids compared to benchmarks • MA benchmark—Traditional (FFS) spending with modifications • Part D benchmark---Average of all plans’ bids • Plans with bids below benchmark • Share difference with Medicare • Offer lower or no beneficiary premiums and extra benefits • Plans with bids above benchmark • Difference added to the beneficiary’s premiums

  9. Medicare Advantage Payment Changes2012 • Benchmarks lowered • Range from 95-115% of FFS inversely related to area costs • Share of bid/benchmark difference kept by plans • Bonus payments for plans with higher quality scores

  10. DME Bidding Movement away from fees based on 1980s charges Competition with exclusion Selected items and areas in 2011 with later expansion

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