Welcome to AMSA's Health Policy and a Pint!

Health Policy and a Pint is an information source for members of the American Medical Student Association (AMSA) and anyone interested in health policy to discuss current topics in health policy over a glass of their favorite beverage in a fun and relaxing environment. We will be recommending articles monthly for your group to take to a bar, a park or anywhere you want to promote active and lively discussion. If you get fired up by what you read, we'll also give you the info to do something about it. So check back monthly, post your thoughts and raise a glass to your health!

Tuesday, May 13, 2008

Medicare Structure

The Original Medicare: Parts A and B

Part A covers hospital stays (including stays in a skilled nursing facility) if certain criteria are met. Part B coverage includes physician and nursing services, x-rays, laboratory and diagnostic tests, influenza and pneumonia vaccinations, blood transfusions, renal dialysis, outpatient hospital procedures, limited ambulance transportation, Immunosuppressive drugs for organ transplant recipients, chemotherapy, hormonal treatments such as lupron, and other outpatient medical treatments administered in a doctor's office. Medication administration is covered under Part B only if it is administered by the physician during an office visit. Part B is optional and may be deferred if the beneficiary or their spouse is still actively working. There is a lifetime penalty (10% per year) imposed for not taking Part B if not actively working.

Part C: Medicare Advantage plans

With the passage of the Balanced Budget Act of 1997, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance plans, instead of through the original Medicare plan (Parts A and B). These programs were known as "Medicare+Choice" or "Part C" plans.

Medicare has a standard benefit package that covers medically necessary care members can receive from nearly any hospital or doctor in the country. For people who choose to enroll in a Medicare private health plan, Medicare pays the private health plan a set amount every month for each member. Members may have to pay a monthly premium in addition to the Medicare Part B premium and generally pay a fixed amount (a copayment of $20, for example) every time they see a doctor.

The private plans are required to offer a benefit package that is at least as good as Medicare’s, but they do not have to cover every benefit in the same way. Plans that pay less than Medicare for some benefits, like skilled nursing facility care, can balance their benefits package by offering lower copayments for doctor visits. Private plans get a hefty subsidy from the government for each beneficiary they enroll, and use some of the excess payments they receive to offer supplemental benefits.

Part D: Prescription Drug Plans

Medicare Part D went into effect on January 1, 2006. Anyone with Part A or B is eligible for Part D. In order to receive this benefit, a person with Medicare must enroll in a stand-alone Prescription Drug Plan (PDP) or Medicare Advantage plan with prescription drug coverage (MA-PD). These plans are approved and regulated by the Medicare program, but are actually designed and administered by private health insurance companies. Unlike Original Medicare (Part A and B), Part D coverage is not standardized. Plans choose which drugs (or even classes of drugs) they wish to cover, at what level (or tier) they wish to cover it, and are free to choose not to cover some drugs at all.

Out-of-pocket costs

Neither Part A nor Part B pays for all of a covered person's medical costs. The program contains premiums, deductibles and co-pays, which the covered individual must pay out-of-pocket. Some people may qualify to have other governmental programs (such as Medicaid) pay premiums and some or all of the costs associated with Medicare.
Part C and D plans may or may not charge premiums, at the programs' discretion. Part C plans may also choose to rebate a portion of the Part B premium to the member.

Payment for Services

Medicare contracts with regional insurance companies who process over one billion fee-for-service claims per year. In 2003, Medicare accounted for almost 13% of the entire federal budget. Based on the CMS projections, 33 cents of every dollar spent on health care in the U.S. is paid by Medicare and Medicaid (including State funding). Looked at from three different perspectives, 61 cents of every dollar spent on nursing homes, 47 cents of every dollar received by U.S. hospitals, and 27 cents of every dollar spent on physician services is funded by Medicare or Medicaid.

For institutional care such as hospital and nursing home care, Medicare uses prospective payment systems. A prospective payment system is one in which the health care institution receives a set amount of money for each episode of care provided to a patient, regardless of the actual amount of care used. The actual allotment of funds is based on a list of diagnosis-related groups (DRG). The actual amount depends on the kind of diagnosis made at the hospital. There are some issues surrounding Medicare's use of DRGs because if the patient uses less care, the hospital gets to keep the remainder. This, in theory, should balance the costs for the hospital. However, if the patient uses more care, then the hospital has to cover its own losses. This results in the issue of "upcoding," when a physician makes a more severe diagnosis to hedge against accidental costs.

Payment for physician services under Medicare has evolved since the program was created in 1965. Initially, Medicare compensated physicians based on the physician's charges, and allowed physicians to bill Medicare beneficiaries the amount in excess of Medicare's reimbursement. In 1975, annual increases in physician fees were limited by the Medicare Economic Index (MEI). The MEI was designed to measure changes in costs of physician's time and operating expenses, adjusted for changes in physician productivity. From 1984 to 1991, the yearly change in fees was determined by legislation. This was done because physician fees were rising faster than projected.

Provider Reimbursement

Provider Reimbursement

Before doctors can get paid, the hospitals and clinics (healthcare providers) where we work must receive reimbursement for the services they provide to patients. Providers can get either be reimbursed directly from the patient or indirectly from a third-party payer such as an insurance company or the government. Direct from patient payments usually take the form of co-payments and co-insurance (see primer # whatever). Indirect payments may be fee-for-service, budget, or capitation.

Just as individual physicians can be reimbursed per service they provide, so hospitals and clinics can bill insurance companies for each individual part of a patient’s care. This “a la carte” style of billing takes into account expenses such as hospital bed days, medications used, and professional time. Just as in physician FFS payment, FFS payments to providers gives an incentive to overproduce – to keep a patient in the hospital for an extra day, for instance.
In order to undermine the overproduction incentive, some insurers – such as Medicare – give a FFS payment dependent on the patient’s diagnosis on admission. This diagnosis-related-group (DRG) is less like an a la carte cafeteria and more like ordering a bundled entrĂ©e off a menu. The payment is based on the services usually required for a patient with that diagnosis. This gives providers an incentive to be efficient with the care they provide.

Global budgeting is a cost-control method of paying hospitals that gives a lump sum to pay for all patient services over a year. The idea is that hospitals only have a certain amount of money to spend on care. Problems with global budgeting arise when the hospital runs out of money before the end of the year, making them unable to provide services or necessitating a bail-out. It can also be difficult to determine how much to give for a hospital budget, as budgets are usually set based on previous year’s spending. This means more inefficient providers are rewarded for their ineptitude with more money, not given less in order to drive them to be efficient.

Capitation is a way of paying providers that gives a fee per patient rather than a fee for service. Insurers give a provider a set sum to give care to one patient for one year. Any money the provider does not spend, they are allowed to keep. This exerts a cost-controlling force on providers. However, it also may induce providers to limit the number and types of services provided to it’s enrollees. It also gives an incentive to only attract the healthiest – and thereby cheapest – patients to their clinic. Risk adjustment counteracts this tendency to cream-skim by paying more money for patients who are sick or who are demographically likely to become sick. Risk adjustment can be a good tool to encourage providers to tailor services to

Physician Reimbursement

Physician Reimbursement

We all like that doctors get paid. However, beyond picking up their bi-weekly paycheck and grumbling about how many taxes have been taken out, many doctors don’t take time to ponder the economic theory behind different methods of physician reimbursement. This really is a shame, because financial incentives have been shown to drive physician behavior. Below I have covered three of the most common ways of paying doctors – salary, fee-for-service, and pay-for-performance – and how these methods can impact the way doctors practice medicine.

A salary is a fixed, regular payment made by an employer to an employee. In some ways a salary represents a good-faith agreement on the part of the employee to work a certain number of hours at or above a set level of productivity. In medicine, a salaried physician may agree to see a certain number of patients a day, or to be responsible for a patient list or population.
One criticism of salaries is that they give a perverse incentive for the employee to do as little work as is possible to do without getting fired or demoted. After all, the payment will not vary based on the productivity of the employee. In medicine, professional values such as hard work and service to the patient may supersede this perverse incentive. Peer pressure from physician partners can also override a salaried professional’s inclination to under-produce in his time at the office.

Whereas salaries do not increase according to physician productivity, under fee-for-service (FFS) reimbursement, only measurable production is rewarded. Physicians are paid individually for each appointment, test or procedure they undertake. This gives a strong incentive for physicians to optimize production in the time they spend in the office, which can increase their efficiency.
FFS causes problems when physicians shift their practice toward reimbursable services and begin to provide medically unnecessary care – this can lead to large amounts of inefficient care. FFS payment has helped create a culture of medical practice in America that is largely dominated by procedures, prescriptions and tests. Medicare pays on a FFS basis.

Pay for performance (P4P) is a relatively new movement in physician reimbursement that attempts to pay physicians more for high quality, appropriate care. This type of payment is tied directly into problems with measuring quality in medical care. P4P models based on patient outcomes give an incentive for physicians to take on only the healthiest patients and simplest cases. P4P models based on evidence-based procedures (such as a yearly retina screen for diabetics) may shift care away from individualized services toward those that are reimbursed.