HEALTHCARE PAYMENT METHODOLOGIES

Management Network, Inc

December 12, 2011

Health Systems

Course Outcomes
Introduction to hospital billing and Facility E/M guidelines Payment Methodologies
MS-DRGs APCs
Addendum B OCE Edits

RBRVS
Fee for service

POS 11 vs POS 22 billing CMS guidelines for facility E/M use

Reimbursement Methodologies

Episode of Care Reimbursement

Providers receive a one-lump sum for all the services they provide during and episode of care

Concepts related to Episode of Care Reimbursement

Capitation Prospective payment

Prospective payment systems include:

Medicare Severity-adjusted Diagnosis Related Groups (MS-DRGs) Ambulatory Payment Classifications (APCs)

Reimbursement Methodologies

Fee for Service Reimbursement

Providers receive payment for each service rendered

Concepts related to Fee for Service Reimbursement

Retrospective payment method Third Party fee schedules Discounted fee for service payments

Discounted fee for service payments include:

Resource Based Relative Value Scale (RBRVS) Usual, Customary, and Reasonable (UCR) % of Charges or Negotiated contract rates

Prospective Payment Systems

Medicares Reimbursement Reform Initiatives to reduce hospital expenses while not impacting the quality of care delivered IPPS

An Inpatient Prospective Payment System (IPPS) was implemented in 1983 Generally, payment was based on grouping Major Diagnostic Categories (MDCs) into Diagnosis Related Groups (DRGs) As a result, hospitals started shifting services to the outpatient setting where reimbursement was still based on cost.

OPPS
Medicares response to the increased spending on outpatient healthcare services Authorized by the Balanced Budget Act of 1997 to develop an OPPS culminating in the implementation of APCs in August 2000
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Payment Components
MS-DRGs ICD-9 Codes APCs HCPCS Codes RBRVS HCPCS codes

MDC
MS-DRG Group Complications/ CoMorbidities

APC Group
Status Indicator Payment Rate

Physician work
Practice Expense Malpractice Insurance

Relative Rate
Average LOS

Relative weight
Coinsurance

Geographic Practice Cost Indices

Conversion Factor

MS-DRG Classification
The MS-DRGs (Medicare Severity DRGs) are a patient classification system which provides a means of relating types of patients a hospital treats (i.e., its case mix) to the costs incurred by the hospital. Payment for inpatient hospital services is made on the basis of a rate per discharge that varies according to the MS-DRG to which a beneficiary's stay is assigned. All inpatient transfer/discharge bills from both PPS and non-PPS facilities, including those from waiver States, long-term care facilities, and excluded units are classified by the Grouper software program into one of 745 diagnosis related groups (DRGs).

Source: Medicare Claims Processing Manual

Ambulatory Payment Classification

The Balanced Budget Act of 1997 authorized CMS to implement a prospective payment system for hospital outpatient services, commonly known as the Outpatient Prospective Payment System. (OPPS) As a result, the Ambulatory Payment Classification (APC) has been used by Medicare to reimburse hospitals for outpatient services since 2000.

OPPS applies to all hospital outpatient departments , except for some specified facility types (for example Critical Access hospitals)

In the Beginning

Before APCs
Outpatient reimbursement was based on charges Reimbursement was usually not affected if the hospital forgot to report a HCPCS code Levels of E/M didnt exist Coding was a HIM function

Integrated Outpatient Code Editor

The OCE software performs the following functions when processing a claim:
Edits a claim for accuracy of submitted data Assigns APCs Assigns CMS-designated status indicators Assigns payment indicators Computes discounts, if applicable Determines a claim disposition based on generated edits Determines if packaging is applicable Determines payment adjustment, if applicable

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Integrated Outpatient Code Editor

There are currently 83 different edits in the OCE. An edit can result in 1 of 6 dispositions

Disposition
Claim Rejection

Description
The provider can correct and resubmit the claim but cannot appeal the claim rejection. The provider can not resubmit the claim but can appeal the claim denial The provider can resubmit the claim one the problems are corrected

Claim Denial

Claim Return to Provider

Claim Suspension

The claim is not returned to the provider, but is not processed for payment until the FI/MAC makes a determination or obtains further information.
The claim can be processed for payment with some line items rejected for payment. The line item can be corrected and resubmitted but cannot be appealed. The claim can be processed for payment with some line items denied for payment. The line item cannot be resubmitted but can be appealed

Line Item Rejection

Line Item Denial

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Possible Challenges

Implementation of APCs increased the importance of accurate coding.

Incorrect coding leads to incorrect payments. Hospitals must review their outpatient documentation practices to ensure the medical record supports the services reported.
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Possible Challenges

For every service performed, your department manager should know:

Methodology for reporting charges
HCPCS reporting Factoring in the charge Rolling the charge

The status and comment indicators Applicable modifiers Documentation requirements

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Possible Challenges

Hospitals must regularly review and become familiar with National and Local Coverage Determinations.

Since outdated CDMs create a significant compliance risk, Hospitals must assure timely updates, proper use of modifiers, and correct associations between revenue and procedure codes.

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Resource-Based Relative Value System

Medicare RBRVS was developed through the 1980s and implementation began in 1992 as a 5-year phase-in from UCR (lower of usual, customary, or reasonable charges)

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(eligible for hospital reimbursement)

Provider Based Clinic

POS 22

(not eligible for hospital reimbursement)

Physician Office POS 11

RBRVS Professional Fees

APCs Outpatient Hospital Payment

Payment Increase Discounted RBRVS Professional Fee Payment

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(eligible for hospital reimbursement)

Provider Based Clinic

POS 22

(not eligible for hospital reimbursement)

Physician Office POS 11

Hospital Payment
$168.92 Payment Increase Discounted RBRVS $162.41 $331.33

RBRVS $197.06

Example: Reimbursement for New Patient Visit 99205 (Medicare National payment amounts)

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CMS Facility EM Guidelines

Federal Register April 7, 2000

CMS emphasizes the importance of hospitals assessing the intensity of clinic visits and reporting E/M levels accordingly CMS iterates that physician E/M levels do not adequately describe non-physician resources CMS guides hospitals to develop a system for mapping E/M levels based on differences in resource utilization Each facility will be held accountable for following its own system which relates to the intensity of resources CMS does not expect to see a high degree of correlation between physician and facility E/M levels
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Putting all the Pieces Together

Does your team understand how this all relates to their individual functions?

Managing both technical and profee revenue in a manner that optimizes revenue generation requires the following:

A broad knowledge base of the differences and similarities in payment methodologies for provider types An understanding of how the pieces of the puzzle fit together A global approach to the decision making process If you make a certain decision for profee billing what are your considerations and how will you impact the technical billing?

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Putting all the Pieces Together

To ensure success, your readiness plan must: Mentor, Direct and Train coding/billing staff in coding rules to achieve desired outcomes Produce meaningful and useful financial reports for Senior Managers Support and assist faculty in achieving proper reimbursement for services performed Provide analyses for new technology services performed in a cutting edge healthcare organization to ensure appropriate payment Be the advocate when payers are not recognizing the value of the new technology services

Who is the go to resource in your organization for all things financial and revenue operations related for the Clinical Partners and the coding billing staff? We can help you formulate the plan that best suits your organization.

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