Medicare and Medicaid

KEY TERMS

Term	Definition
Beneficiary	In the Medicare program, one who is eligible to receive Medicare benefits for medical coverage or illness or injury or for death benefits.
CMS	Centers for Medicare & Medicaid Services. The federal agency responsible for maintaining and monitoring the Medicare program, beneficiary services, and Medicaid and state operations.
Correct Coding Initiative (CCI)	Bundling edits created by CMS to combine various component items with a major service or procedure.
FI	Fiscal Intermediary. An insurance company under contract to the government that handles claims under Medicare Part A from hospitals, skilled nursing facilities, and home health agencies.
HCPCS	Healthcare Common Procedure Coding System; more commonly referred to as HCPCS (sometimes pronounced “hick pix”). A coding system designed by CMS to report patient services utilizing codes from CPT and other alphanumeric codes.
Hospice	An organization (private or public) that provides pain relief, symptom management, and support services to terminally ill patients and their families.
Inquiry Letters	Request from an insurance company for additional information required to process a claim for payment.
Limiting Charge	Typically applies to Medicare reimbursement. This is the absolute maximum fee a physician may charge a Medicare patient when not accepting assignment on the claim. This fee is set by the Centers for Medicare & Medicaid Services (CMS).
Locum Tenens	A physician who substitutes for another physician who is out of the office for an extended period of time.
Medicare	A national health insurance program for persons over the age of 65 and qualified disabled or blind persons regardless of income; administered by CMS.
Medicare Part A	A national health insurance program for persons over the age of 65 and qualified disabled or blind persons regardless of income; administered by CMS to cover the cost of hospitalizations and nursing facility charges.
Medicare Part B	An elective coverage program offered by CMS for aged and disabled patients to provide benefits for physician and other medical services as part of the Medicare program. This program has a monthly premium that must be paid by the beneficiary to keep the policy in good standing.
Medigap	A specialized insurance policy for Medicare beneficiaries that pays deductibles and co-payment amounts not covered by the Medicare program.
Medi-Medi	Insurance coverage by both Medicare and Medicaid.
PPS	Prospective Payment System. A payment method pertaining to hospital insurance based on a fixed dollar amount for a principal diagnosis.
SOF	Signature on File.

Introduction

Medicare is a federal health care insurance program under the direction of the Centers for Medicare & Medicaid Services (CMS). This program was established July l, 1966, by an act of Congress as a means to assist the elderly with the high cost of medical expenses. In later years, this program was expanded to include certain qualified disabled persons.

There are four divisions or programs within the Medicare system. Because each division or program has different policies regarding payment and coverage, separate organizations are responsible for the processing of claims as they pertain to each division.

Understanding the rules and regulations governing Medicare is essential to understanding the correct procedures for filing Medicare claims.

Medicare Part A

Medicare Part A provides coverage for inpatient care (hospitals, nursing homes, and skilled nursing facilities), hospice, and some home health services. Payments for Part A services are provided by a fiscal intermediary who is selected by CMS.

Part A does not require a monthly premium for coverage. Beneficiaries, although automatically eligible, must apply for the coverage. Individuals who are younger than the age of 65 but receive Social Security, Railroad Retirement, or disability benefits are automatically enrolled in the program the month they reach the age of 65. An enrollment package is sent to the individual 3 months prior to their 65th birthday or on the 24th month of disability.

For inpatient services, the patient has a cost share amount for each hospital stay. If the hospital visit extends beyond a certain amount of time, then the patient will be responsible for a daily co-payment in addition to the deductible.

Medicare Part B

Medicare Part B programs are under the direction of private insurance carriers who placed bids with the government to become intermediaries.

To participate in Medicare Part B, recipients have to pay a monthly premium for continued coverage. Part B covers physician services in both inpatient and outpatient settings; services of nonphysician professionals such as nurses, nurse midwives, and physician assistants; physical and occupational therapists, speech therapists, podiatrists, chiropractors, and clinical psychologists; diagnostic testing; radiology services and radioactive isotope therapy; ambulance services; durable medical equipment (DME) and supplies; and Prospective Payment System home health services.

With the Part B coverage package, the patient has a yearly deductible (e.g., $110), which applies to all covered outpatient services and a 20% co-payment on all assigned claims. For any items that are not covered under the Medicare program, the patient is responsible for the entire billed amount.

Medicare Part C

This is a Medicare Advantage program that combines Parts A and B, and sometimes Part D (prescription drug coverage). Medicare advantage plans are managed by private insurance companies approved by Medicare. These plans must cover medically necessary services. However, these plans can charge different co-payments, coinsurance, or deductibles for services.

Medicare Part D

This program helps pay for outpatient prescription drugs and may help lower the costs of prescription drugs and help protect against higher costs in the future.

Eligibility Requirements

To qualify for coverage, the recipient must meet specific eligibility requirements. These requirements are determined by the Social Security Administration based on specific conditions and factors as listed below. General Medicare eligibility requirements are:

Enrollee must have worked at least 10 years in Medicare-covered employment.

Enrollee must be a minimum of 65 years of age.

Enrollee must be a citizen or permanent resident of the United States.

If an enrollee is younger than 65 years, he or she must be disabled or have permanent kidney failure.

Medicare Identification Card

The Medicare identification card is red, white, and blue (Fig. 6-1). The letters following the patient’s identification number signify the type of patient account. Most commonly used types are:

A Wage earner

B Husband’s number used by wife 62 years of age or older

D Widow/widower

HDA Disabled adult

C Disabled child

This is a partial listing of the various identification letters used. A complete listing may be obtained from your local Social Security office.

The identification number is based on the Social Security number of the recipient or the husband’s number in the case of a dependent wife. In addition to listing the gender of the patient, the card also provides the effective dates of coverage for hospital insurance (Part A) and medical insurance (Part B).

Assignment and Participation

Accepting assignment means the physician agrees to accept as payment the amount allowed by the fee schedule. Typically on an assigned claim, Medicare pays 80% of the allowed amount and the patient has a co-payment of 20%, provided the annual deductible has been met.

Types of Providers

A participating provider has a contract to see Medicare patients and agrees to accept as payment the dollar amount set by Medicare based on the relative value or worth of a procedure code or service.

A nonparticipating provider (non par) has a contract to see a Medicare patient but has the option of deciding on a case-by-case basis whether to accept assignment or have the patient pay the limiting charge. When a non par accepts assignment, reimbursement is based on a fee that is 5% less in value than the fee of the participating provider. Provided the patient has met the annual deductible, Medicare pays 80% of the allowed amount and the patient pays a 20% co-payment. If the non par does not accept assignment, the office may collect for services directly from the patient. Fees allowed by Medicare in this circumstance are the allowed amount of the participating provider plus an additional 15%. This fee is called a limiting charge amount.

EXAMPLE

Medicare Physician Fee Schedule

Code	Participating Fee	Nonparticipating Fee	Limiting Charge
99212	$36.42	$34.60	$39.79
99213	$51.13	$48.50	$75.83
99214	$79.82	$75.83	$87.20

^∗Fees shown are based on Medicare payment schedule for 2006.

Medicare Payment System

Medicare bases payments on a Relative Value Study. For covered items, after the patient has met the yearly deductible (e.g., $110), Medicare will pay 80% of the allowed amount. In the case of outpatient psychiatric services, Medicare multiplies the allowed amount by 62.5% and then pays the new calculation at a rate of 80%.

Patient Services Payment Formula

Allowed Amount × 80% = Medicare Payment

Allowed Amount × 20% = Patient Co-payment

Outpatient Psychiatric Coverage Formula

Allowed Amount × 62.5% × 80% = Medicare Payment

Allowed Amount × 62.5% × 20% = Patient Co-payment

Allowed Amount × 62.5% × 37.5% = Additional Payment by Patient

For outpatient psychiatric benefits, the physician is entitled to collect from the patient up to the amount allowed for the service under the Medicare profile. Therefore, in addition to the 20% co-payment, the patient will be responsible for the additional 37.5% of the allowed amount.

REMINDER

The physician may collect up to the allowed amount for all covered services when accepting assignment on a Medicare claim. When not accepting assignment, the physician may collect only up to the “Limiting Charge” amount.

EXAMPLE

The patient was seen for a full session of psychotherapy in the office. The participating physician charged $125 for this service. The Medicare allowed amount for the service was $100. Under the payment formula, Medicare will pay $50 of the fee.

($100 × 62.5 payable at 80% = $50)

The patient’s co-payment is $12.50.

($100 × 62.5% × 20% = $12.50)

The patient has an additional payment of $37.50.

($100 × 37.5% = $37.50).

Laboratory Fees

In recent years, Medicare has made several changes to the way fees are collected for laboratory services. The laboratory providing the services must bill for the services and collect the money from Medicare. Medicare pays laboratory work at 100% of the fee schedule amounted for covered services. The patient does not have a co-payment or deductible for allowed services. The laboratory office must write off the difference of the allowed amount and the actual billed amount.

Medicare Payment Schedule

The Medicare payment schedule is the means devised by Medicare to advise an office how much is allowed for payment of specific CPT codes based on the participating status of the practice (par vs. non par), the place of service, and the limiting charge amount. The payment allocations are based on a relative value study or unit of worth for each code. This value is then multiplied by a conversion factor to develop the actual amount allowed for a service or procedure. In the Medicare fee schedule, the participating physician’s payment is based on the par column, which is 100% of the allowed amount. The nonparticipating physician’s payment is based on the non par column when that physician accepts assignment on a claim. This amount is 5% less in value than the participating’s column.

When not accepting assignment, the non par is held to the limiting charge amount and cannot charge more than that value for services. The limited charge column is equal to 115% of the participating physician’s charge column.

EXAMPLE

CPT Code	Fee Schedule Value: Participating Physician	Fee Schedule Value: Non Participating	Limiting Charge Amount
99201	$24.95	$23.70	$28.44
99202	$31.28	$29.72	$35.66
99203	$45.34	$43.07	$51.68
99204	$64.78	$61.54	$70.77^∗
99205	$102.24	$97.13	$116.56
99211	$18.87	$17.93	$21.52^†
99212	$19.63	$18.65	$22.38
99213	$29.80	$28.31	$33.97^†
99214	$52.50	$49.88	$59.86^†
99215	$73.42	$69.75	$83.70^†