Why Is It Important to Understand the Gap Between Employer and Medicare Payments?

Public payers underpay for medical services and you can hardly challenge hospitals. However, there is no relationship between a hospital’s prices charged to commercial payers and its volume of Medicare patients. 

There is never a good time to take on hospital prices, but the task is essential if the nation ever gets a grip on healthcare costs. Most hospital markets are now consolidated, creating an imbalance in bargaining power and driving up costs. A growing trend in vertical consolidation – when hospital or heathcare systems purchase physician practices and other ancillary services – has resulted in increased costs, in part through the addition of facility fees for non-hospital-based services.

Protecting the interest of local hospitals has been a priority for policymakers. In order to comply with Medicare’s regulations and rates, it’s essential to understand how Medicare sets its rates.

The Medicare Rate Calculation Process

The detailed process of calculating Medicare rates involves a carefully structured approach that mainly utilizes the Prospective Payment System (PPS) and the Resource-Based Relative Value Scale (RBRVS). This system ensures consistent reimbursement for essential healthcare services.

The PPS assigns a fixed amount to healthcare providers for each service they provide. Payments for inpatient care are determined based on Diagnosis-Related Groups (DRGs), which categorize hospital cases according to the nature and severity of the illness. These payments are then adjusted for factors like local wages, cost of living, and special circumstances such as teaching hospitals or treating low-income patients.

The Centers for Medicare Services (CMS) provides a set payment to private health plans based on the number of beneficiaries enrolled under Medicare Advantage Plans introduced in 1997. The payment benchmark for these plans considers county-level Medicare spending, national averages, and plan quality. Some plans calculate their payments using a weighted average of county rates and health plan bids.

Outpatient services also rely on resource costs and complexity to determine payments. Hospitals may receive additional payments for using new drugs or devices, providing high-cost services, or being specialized facilities like cancer centers, pediatric hospitals, or rural healthcare facilities. CMS relies on input from an advisory panel to establish these rates.

The Resource-Based Relative Value Scale (RBRVS) assesses the value of each service for fee-for-service payments by considering physician work, practice expenses, and professional liability insurance. These values are adjusted geographically to accommodate local cost differences.

To ensure payment adequacy, CMS considers feedback from various stakeholders, including the Medicare Payment Advisory Commission (MedPAC), which issues annual reports on payment sufficiency. These recommendations are crucial in ensuring that Medicare rates adequately meet the needs of patients and providers.

In summary, determining Medicare rates involves standardized calculations, regional adjustments, and stakeholder input, creating a comprehensive payment system that evolves with changes in healthcare economics and policies.

Provider Cost Data: How Does CMS Collect It?

The Centers for Medicare Services (CMS) rigorously collect provider cost data through the Medicare Cost Report (MCR), which is a crucial requirement for all Medicare-approved facilities. This report includes hospitals, skilled nursing facilities, home health agencies, hospices, rural health clinics, federally qualified health centers, and comprehensive outpatient rehabilitation facilities. 

The MCR, submitted within five months after the fiscal year ends, contains detailed information on hospital revenues, capacity, discharge volume, charges, and operating costs. An authorized officer ensures compliance with relevant laws and regulations to guarantee accuracy. The MCR serves as the primary national source for standardized hospital operating costs.

Critics raise concerns about the stringent guidelines outlined in federal code 42 CFR 413.9(c)(3), which might exclude certain justified expenses. The MCR focuses solely on operating costs associated with patient care, excluding luxurious items or services exceeding necessary provision costs. Physician costs, usually a significant expense, are categorized into three groups within the MCR:

• Non-reimbursable services: Costs related to research and non-patient care activities are not considered.
• Professional services to individual patients: These costs are not part of MCR reimbursement and are covered by other payment methods.
• General services benefiting hospital patients: These costs are eligible for reimbursement under the MCR, including critical services like emergency room care and intensive care units.

The transparency in delineating allowed and disallowed costs enables states to use innovative tools such as CMSPricer. By leveraging CMSPricer, this tool evolutionary SaaS-powered CMSPricer expands its reach to diverse audiences, empowering TPAs and PPOs to elevate their pricing and reimbursement game, ultimately improving the effectiveness of healthcare plans. With unrivaled transparency and consistency, payers reap the benefits of streamlined financial planning and contract negotiations. Even self-insured employers can confidently predict and control healthcare costs, optimizing resource allocation with precision.

How Payers and TPAs Can Achieve Success?

For healthcare payers and TPAs, expanding into new markets and attracting new participants is a key driver of success. However, with constantly evolving CMS policies and rates, accurately pricing claims can be a daunting and costly task without the right tools.

That’s where a cloud-based Software-as-a-Service (SaaS) CMS re-pricing solution comes in. By seamlessly integrating with existing systems, this technology streamlines the process of creating CMS compliant data while safeguarding private health information. This not only accelerates delivery but also ensures accuracy and compliance.

But what exactly are the advantages of using a SaaS-based CMS re-pricing system? For starters, it should have built-in CMS approved models and constantly updated policies and rates to guarantee accurate claims pricing. It should also be user-friendly, allowing easy editing without the need for IT expertise.

For experts in the field, the top recommendation is CMSPricer. Not only does it provide all of the aforementioned solutions, but it also offers automated workflow, efficient batch processing, and full compliance with CMS Medicare accuracy requirements. CMSPricer can handle all PPS types of institutional and professional claims, and even supports claim editing for referenced-based pricing. Plus, its custom interface makes importing and exporting claim files a breeze.

But that’s not all – CMSPricer also offers cost-saving opportunities for its clients. With tiered plans and volume discounts, users can optimize their costs and easily keep track of their account balances.

So if you’re in search of a reliable and comprehensive SaaS-based Medicare claims re-pricing tool, look no further than CMSPricer. Schedule a FREE digital consultation with their experts today and see for yourself the difference it can make for your business!