Medicare Reimbursement

In the US, there are publicly funded payers such as Medicaid and Medicare, and privately funded payers such as managed care companies. In general, the extent and range of benefits provided are governed by law in public payer systems and by contracts between the private payers and the purchasers of health care (usually employers).

Medicare fees are standardized, available to the public and non-negotiable. Commercial payer fees are non-standardized, confidential and negotiable. Private insurers typically reimburse physicians based on fee schedules tied to the HCPCS and CPT codes. Diagnosis-related groups (DRGs) are a system for classifying inpatient patient care by relating common characteristics such as diagnosis, treatment and age, to an expected consumption of hospital resources and length of stay. Many providers of healthcare can lose substantial sums of money because they are not coding their patients’ claims in an accurate and complete manner. Medical device manufacturers must determine whether existing payment levels are adequate.

This fee-for-service system as presently constructed rewards increased volume of services whether these services enhance quality outcomes for Medicare beneficiaries. Such a system of physician reimbursement by itself and without improvement is unworkable and unsustainable over the long-term. Therefore, the American Academy of Family Physicians (AAFP) supports the restructuring of Medicare reimbursement to reward quality and care coordination. This restructuring must be built on a fundamental reform of the underlying fee-for-service reimbursement system.

The government represents the single largest payer for health care through a variety of programs including Medicare, Medicaid, State Children’s Health Insurance Program (SCHIP), The Department of Veterans Affairs (VA), TRICARE (Department of Defense (DoD), Bureau of Indian Affairs, and a variety of other programs. Although these programs are funded with public money, they behave differently when it comes to reimbursement. Private payers, which consist primarily of employer-based health insurance plans differ fundamentally in their operating structure compared to the government.

Historically, unlike private insurers, Medicare has not made explicit value-based decisions or used a cost-effectiveness analysis to determine coverage.

Decisions for coverage are evidence-based, which means the following points are considered when making coverage determinations:

1.  Evidence and value;
2. High quality clinical trials performed in credible sites;
3.  Comparison to the “gold standard”;
4.  Peer-reviewed clinical data published in credible journals;
5. Proof of widespread utilization in applicable patient groups;
6.  Proof that the technology improves clinical outcomes.

Medicare coverage decisions are made at the national or local level by contractors, with the majority (90%) of coverage decisions made locally. This is purposeful, based on the premise that standards of care vary geographically and coverage should reflect local standards of care.