A thorough understanding of Medicare reimbursements allows healthcare facilities to improve different aspects of their services.
From effectively calculating budgets and thus minimizing losses to improving the services that facilities provide, compliance with Medicare regulations is profoundly important.
Below, you will find everything there is to know about Medicare reimbursements and how to calculate them.
What are Medicare reimbursements?
Most facilities accept Medicare and have Medicare patients.
Medicare is a federal health insurance program designed to cover costs for specific groups of people. Generally, it covers people over 65, but it also covers medical costs for individuals with disabilities or specific, debilitating illnesses.
Medicare also exists for beneficiaries who have to share their medical expenses. In other words, these people make copayments or pay coinsurance. Beneficiaries receive a quarterly Medicare summary notice explaining the details of their coverage.
Medicare reimbursements are part of a complex system with several parts. Overall, understanding how it works helps healthcare professionals know how to make a request for medical payments and what to expect.
The Centers for Medicare & Medicaid Services (CMS) reimburses healthcare professionals and facilities for Medicare and Medicaid services.
Reimbursements may involve Medicare Part A, Part B, Part C, and Part D. Each Part covers different aspects of the individual’s healthcare. For example, Part A usually covers hospital insurance; Part B is more for medical insurance and usually covers up to 80 percent. Medicare Advantage Part C usually includes plans with extra benefits from private insurance companies. Part D covers prescription drugs according to specific plan rules.
Read this article to learn more about Medicare Advantage plans and original Medicare parts.
Types of Medicare reimbursements
Different payment systems reimburse healthcare providers. Two systems stand out: the prospective payment system (PPS) and the inpatient prospective payment system (IPPS).
PPS
In general, “prospective payment system” is a term the CMS uses for various Medicare and Medicaid services. This system determines how much is reimbursed based on predetermined rates. This ensures that healthcare providers use cost-effective care and treatment while still providing high-quality care.
PPS has different applications in different fields. For example, it has home health PPS for home care, outpatient PPS (OPPS), and acute inpatient PPS (IPPS), the last of which is described below.
IPPS
The inpatient prospective payment system reimburses hospitals for services they provide based on predetermined rates. This system incentivizes hospitals to be more cost-effective. There is a formula to calculate a fixed amount for each patient, depending on the treatment the patient requires and their diagnosis:
MS-DRG PAYMENT = RELATIVE WEIGHT × HOSPITAL RATE
The MS-DRG, which stands for Medicare severity diagnosis-related group, is calculated by applying this formula. Federal regulations modify the hospital rate each year to accommodate changes in hospital types and sizes.
The main difference between the PPS and the IPPS is that the PPS refers to several services, while the IPPS is specific to hospital services.
4 factors for calculating Medicare reimbursements
Many factors are taken into account when calculating Medicare reimbursement rates. The resource-based relative value scale (RBRVS) is a major component in this calculation.
The RBRVS establishes payment rates based on a few main components to calculate and file for reimbursements. These factors are relative value units, facility location, conversion factor, and type of provider.
1. Relative value units
Relative value units (RVUs) reflect the resources needed for each service or medical procedure. There is a formula for calculating the total RVUs for a service, which is the sum of the following three components:
TOTAL RVU = Work RVU + Practice Expense RVU + Liability Expense RVU
Each component is described below:
Work RVU
- Reflects each provider's time, effort, and skill to perform a service
- Considers the complexity of the procedure and the level of training required
Practice Expense RVU
- Practice costs, such as rent, support staff, equipment, and other facility costs related to the procedure
- The expenses a healthcare facility incurs to maintain its operations
Liability Expense RVU
- Also called malpractice RVU
- Expenses related to malpractice insurance, which depend on each medical specialty
- Refers to the risk of providing a specific service
Once the three values are obtained, they are added together, and that is the TOTAL RVU, as per the formula.
2. Facility location (Based on Geographic Practice Cost Index)
The facility location or GPCI (geographic practice cost index) also adjusts the reimbursed value. This is because different areas have different living costs or expenses. For example, rural regions typically have lower costs than large cities.
3. Conversion factor
The CF or conversion factor also varies annually. Several economic factors are taken into account to calculate the CF each year. This conversion factor is then multiplied by the TOTAL RVU to determine the total Medicare-approved reimbursement.
4. Type of provider
Another factor affecting reimbursement rates is the type of medical services provider. For example, reimbursement differs for a physician than for a physician assistant or nurse practitioner. Physicians tend to receive a slightly higher reimbursement as they have a higher level of training.
The RBRVS system seeks to ensure that healthcare providers obtain the reimbursement necessary to optimize their treatments and plan their finances accordingly.
Determine the Medicare reimbursement rate for your facility
To achieve the best care, healthcare facilities must consider all the factors and details of Medicare reimbursements. This allows them to provide the highest quality of care and also be cost-effective.
Healthcare facilities need to calculate the four aspects mentioned above (total RVUs, geographic adjustments, conversion factor, and provider type) to calculate Medicare reimbursements. Once taken into account, these four aspects allow them to generate a value for how much is reimbursed per procedure.
Additionally, HCPCS or healthcare procedure coding systems determine the maximum cost of a service. Since there is an HCPCS code for each specific service, the CMS has a list of the maximum amount it can reimburse per service provided.
Once the value of the reimbursement has been determined, facilities can file a claim with Medicare (usually online). This claim must be submitted within a year of the provided service. Facilities need to ensure that each service's HCPCS code is correct to ensure proper processing. Finally, facilities must follow up on the reimbursement to appeal if necessary and maintain detailed records of all submitted claims, such as itemized bills.
Generally, reimbursements are straightforward when the facility complies with Medicare regulations and fills out the reimbursements correctly.
Typically, healthcare facilities—especially large facilities—have specialized administrative contractors in charge of Medicare reimbursements, medical payment forms, and patient requests for medical coverage.
Explore more healthcare and staffing resources on Nursa
Medicare reimbursements can sound very complicated. However, once healthcare facilities understand the factors to consider, reimbursements are usually straightforward.
These reimbursements are highly important to cover patients' medical expenses. This is why every healthcare facility should be well informed about how to perform procedures and comply with Medicare regulations.
One of the best decisions a healthcare facility can make to comply with Medicare regulations is to meet minimum staffing standards. Facilities must always have sufficient staff to provide patients with the best and most cost-effective service. Thanks to applications and services that connect facilities with healthcare professionals, facilities can ensure that they have sufficient staff to cover shifts.
Learn more about staffing, healthcare news, and how Nursa helps facilities fill short-term staffing needs on the Nursa facility blog.
Sources:
- Centers for Medicare & Medicaid Services: Inpatient Prospective Payment System (IPPS)
- American Hospital Directory: Medicare Inpatient Prospective Payment System
- National Library of Medicine: Factors Affecting Differences in Medicare Reimbursements for Physicians' Services
- Centers for Medicare & Medicaid Services: Healthcare Common Procedure Coding System (HCPCS)
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