Medicare- A nationwide, federally administered health insurance program that covers the cost of hospitalization, medical care, and some related services for eligible persons. Medicare has two parts. Part A covers inpatient hospital costs (currently reimbursed prospectively using the DRG system). Medicare pays for pharmaceuticals provided in hospitals but not for those provided in outpatient settings. Also called Supplementary Medical Insurance Program, part B covers outpatient costs for Medicare patients (currently reimbursed retrospectively).

Outlier Threshold- The upper range (threshold) in length of stay before a patient’s stay in a hospital becomes an outlier. It is the maximum number of days a patient may stay in the hospital for the same fixed reimbursement rate. The outlier threshold is determined by the Centers for Medicare and Medicaid Services (CMS), formerly known as the Health Care Financing Administration (HCFA).

Approved Charge- The amount Medicare pays a physician based on the Medicare fee schedule. Physicians may bill the beneficiaries for an additional amount, subject to the limiting charge allowed. 

Diagnosis-Related Group (DRG)-A patient classification scheme that provides a means of relating the type of patient a hospital treats to the costs incurred by the hospital. DRGs demonstrate groups of patients using similar resource consumption and length of stay. It also is known as a statistical system of classifying any inpatient stay into groups for the purposes of payment. DRGs may be primary or secondary; an outlier classification also exists. This is the form of reimbursement that the CMS uses to pay hospitals for Medicare and Medicaid recipients. Also used by a few states for all payers and by many private health plans (usually non-HMO) for contracting purposes.

Home Health Resource Group (HHRG)- Groupings for prospective reimbursement under Medicare for home health agencies. Placement into an HHRG is based on the OASIS score. Reimbursement rates correspond to the level of home health provided. 

Peer Review Organization (PRO)- A federal program established by the Tax Equity and Fiscal Responsibility Act of 1982 that monitors the medical necessity and quality of services provided to Medicare and Medicaid beneficiaries under the prospective payment system.

Prospective Payment System- A healthcare payment system used by the federal government since 1983 for reimbursing healthcare providers/agencies for medical care provided to Medicare and Medicaid participants. The payment is fixed and based on the operating costs of the patient’s diagnosis.

Case Mix Group (CMG)- Each CMG has a relative weight that determines the base payment rate for inpatient rehabilitation facilities under the Medicare system.

Capitation- A fixed amount of money per-member-per-month (PMPM) paid to a care provider for covered services rather than based on specific services provided. The typical reimbursement method used by HMOs. Whether a member uses the health service once or more than once, a provider who is capitated receives the same payment.

Overview of Medicare

  • Medicare is health insurance provided by the government.
  • Created in 1966 under Title XVIII of the Social Security Act.
  • Administered by Centers for Medicare & Medicaid Services (CMS)
  • Covers some but not all medical costs.
  • Pays under the Prospective Payment System (PPS) for most care settings

Eligibility for Medicare benefits:

  • 65 or older
  • have a specific long term disability (Been entitled to Social Security disability benefits for at least 24 months after a 5 month coordination period for a total of 29 months)
  • have Lou Gehrig’s Disease (Waiting period waived)
  • diagnosed with permanent kidney failure (ESRD) requiring dialysis or transplant

Medicare has 4 parts

  1. Part A (Hospital Insurance) 
  2. Part B (Medical Insurance)
  3. Part C (Medicare Advantage Plan)
  4. Part D (Prescription Drugs)

Medicare Part A

No premium
Helps pay for:

  • Inpatient hospital
  • Skilled nursing facility-SNF
  • Home health
  • Hospice care

Inpatient Hospital Coverage Under Medicare

  • beneficiary responsible for initial deductible and copayment for all days after day 60
  • Benefit Period

    • starts when the beneficiary first enters a hospital and ends when there has been a break of at least 60 consecutive days since inpatient hospital or skilled nursing care was provided. 
    • No limit to the number of benefit periods covered during a beneficiary’s lifetime
    • inpatient hospital care is normally limited to 90 days during a benefit period
    • copayment required for days 61-90
    • If the 90 days are exhausted, can elect to use days from a non-renewable “lifetime reserve” of up to 60 additional days of inpatient hospital care. (copayment required for these days also)

SNF Coverage Under Medicare

  • only covered if follows w/i 30 days of a hospital stay of 3 days or more and medically necessary.
  • Limited to 100 days per benefit period
  • copayment required for days 21-100
  • custodial care not covered

Home Health Care Under Medicare Part A

  • covers first 100 visits following 3 day hospitalization or SNF stay
  • No copay or deductible
  • Home Health Aide covered for home bound member if intermittent or part time skilled nursing and/or other therapy or rehabilitation provided. 
  • Full time nursing is NOT covered

Medicare Hospice Coverage

  • terminally ill with life expectancy of 6 months or less
  • relinquish standard Medicare benefit for the treatment of their illness
  • If requires treatment for a condition not related to their terminal illness Medicare will pay for services for that condition.
  • No deductible for hospice program
  • small coinsurance for drugs and inpatient respite care

Medicare Part B

Pay a monthly premium for coverage
Helps pay for 

  • physician and surgeon 
  • outpatient services
  • home health
  • DME
  • ER
  • physical therapy
  • Ambulance

Home health coverage is for that which is not associated with a hospital or SNF stay and days after the 100 covered under part A.
No copayment or deductible for Home health
DME requires a 20% coinsurance

Medicare Part C (Medicare Advantage Plan)

Option to get coverage for parts A and B and sometimes D, through a private health plan such as an HMO or PPO.
Plans contract with the government to administer Medicare benefits to members.
Plans are required to provide services covered in Medicare parts A and B except hospice.

Medicare Part D

  • Provides subsidized access to prescription drug coverage on a voluntary basis.
  • Participants pay a premium.
  • Covers most FDA approved prescription drugs