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Physician Reimbursement Case Essay

Discuss the general differences between facility and non-facility rates. Discuss the MS-DRG system for hospital inpatient services. Include in your discussion the history of the MS-DRG system and the need for the updated system. There are two types of bills used in healthcare. Which type of bill is used for physician services? Which type of bill is used for hospital services? (Hint: your book is incorrect.)

Facility vs. Non-Facility Rates

The place of service can greatly affect reimbursement, depending on the type of service provided and the location. The reason being is that Medicare typically reimburses physicians based on a method called Relative Value Units (RVUs), which has three components: work, practice expense, and malpractice. Procedures that can be performed in either a facility or non-facility setting have different practice expense RVUs, depending on the place of service. Therefore, the practice expense is a major component in rate determination, because place of service is part of this practice expense component. The practice expense component includes rent/lease of space, supplies, equipment, and clinical and administrative staff expenses. In a general sense, facilities are hospitals, skilled nursing facilities, nursing homes, or any other place that bills for Medicare Part A.

Some physicians work out of a hospital owned facility, meaning that they are employed by and work in a facility owned and billed for by a hospital, and those physicians would be billing based on the facility rates. When physicians provide a service in a facility such as a hospital, the total RVU is lower due to the fact that they do not incur the full practice expense associated with providing that service; such expenses are the cost of having full staff, equipment, space, or supply costs. Hence, Medicare reduces the payment based on the location of service. On the other hand, the most common non-facility location is the physician’s office when the practice is not organization-based. In the non-facility setting, the physician practice incurs the full expense of providing the service and is therefore reimbursed at a higher total RVU.

When physicians provide services in a facility setting a CMS 1500 claim form must be submitted for those services, and the hospital or ASC submits a UB-92 or CMS 1500 claim form for the “facility fee.” Medicare then reimburses the physicians at the lower facility RVU rate and reimburses the facility (the hospital or ASC) for the space, staffing, and technical services it provided. However, when services are performed in a non-facility setting, such as medical office, and submit the same CMS 1500 claim form for the services provided, Medicare reimburses the physician based on the non-facility RVU.

In terms of RVUs, Medicare assigns the RVUs based on input from the AAOS and socioeconomic surveys on where the service is or should be performed. In some instances, both a facility and non-facility practice expense RVU factor may be assigned, but in other cases, such as a total knee replacement, only one practice expense RVU is applicable. With a total knee replacement, the facility and non-facility practice expense RVUs are exactly the same, meaning that Medicare will only reimburse this procedure in a facility setting.

MS-DRG System

The CMS-DRG classification system was the most widely utilized system for classifying acute care inpatients and measuring case mix. The implementation of MS-DRGs is a major change. CMS was then moved to MS-DRGs in response to recommendations by the Medicare Payment Advisory Commission (MedPAC). In a 2005 report, MedPAC recommended that the Medicare DRG system be revised to take into account severity of illness. The MS-DRGs would enable CMS to provide greater reimbursement to hospitals serving more severely ill patients. Hospitals treating less severely ill patients would receive reduced reimbursement. Using the previous DRG system and their own severity DRG research as a model, CMS developed the new MS-DRG system. The Development of the MS-DRGs involved a complete revision of the complication and comorbidity (CC) list. CMS preformed a comprehensive review of all diagnosis codes to determine which codes should be classified as CCs when present as a secondary diagnosis.

CMS then categorized these diagnosis codes into the different severity levels. CMS also consolidated the CMS DRGs into a new set of base DRGs and then divided each into severity subclasses or MS-DRGs. The CC list has been completely revised for MS-DRGs. The MS-DRG CC list is a very different list than the CMS-DRG CC list. Under CMS-DRGs, a CC was defined as a secondary diagnosis that increased the length of stay by at least 1 day for 75 percent of the cases. Under MS-DRGs, CMS identified those diagnoses whose presence as a secondary diagnosis leads to substantially increased hospital resource use. They then categorized this CC list into three different levels of severity as follows: * Major complications or comorbidities (MCCs) reflect the highest level of severity. * CCs represent the next level of severity.

* Non-CCs are at the lowest level of severity. Non-CCs are diagnosis codes that do not significantly affect severity of illness and resource use and do not affect DRG assignment. Additionally, CC exclusions were carried over to MS-DRGs. Some MCCs and CCs are excluded because they are too closely related to the principal diagnoses. This is called the CC Exclusion List and identifies conditions that will not be considered a CC or MCC for a given principal diagnosis. The MS-DRG system consists of 745 MS-DRGs compared to the previous 538 CMS-DRGs. The MS-DRGs range from 001-999, with many unused numbers to accommodate future MS-DRG expansion. Every CMS DRG has been completely renumbered. Also, there is no correlation between the CMS-DRG numbers and the MS-DRG numbers. For example: CMS DRG 006 is Carpal Tunnel Release, while MS-DRG 006 is Liver Transplant w/o MCC. As with CMS DRGs, one MS-DRG is assigned to each inpatient stay.

The CMS-DRGs were assigned using the principal diagnosis and additional diagnoses, the principal procedure and additional procedures, age, sex and discharge status. On the other hand, the MS-DRGs use the same information, but they do not take into account the factor of age. Moreover, diagnoses and procedures assigned by using ICD-9-CM codes still determine the MS-DRG assignment. Accurate and complete ICD-9-CM coding by HIM professionals is even more essential for correct MS-DRG assignment and subsequent reimbursement. The Major Diagnostic Categories (MDCs) have not changed with the implementation of MS-DRGs. With some exceptions, all principal diagnoses continue to be divided into one of 25 MDCs that generally correspond to a single organ system. Examples of MDCs include:

* MDC 1 Diseases and Disorders of the Nervous System
* MDC 2 Diseases and Disorders of the Eye
* MDC 3 Diseases and Disorders of the Ear, Nose, Mouth and Throat * MDC 4 Diseases and Disorders of the Respiratory System * MDC 5 Diseases and Disorders of the Circulatory System In the CMS-DRG system, many DRGs were split based on the presence or absence of a CC. In the new MS-DRG system, many DRGs are split into one, two or three MS-DRGs based on whether any one of the secondary diagnoses has been categorized as an MCC, a CC or no CC. In terms of MS-DRG reimbursement, similar to CMS-DRGs, hospitals are typically paid a set fee for treating all patients in an MS-DRG, regardless of the actual cost for that case. Each MS-DRG is assigned a weight. This weight is used to adjust for the fact that different types of patients consume different resources and have different costs.

Physician Bills

The physician bills for the services he/she provides. In their offices, that would be the physician services during the office visit and exam, any lab specimens collected and/or studies performed, and any minor procedures or surgeries, etc. For services provided at the hospital, physicians bill for only what was done and not for any of the supplies or space used. The physician bills are usually submitted on a standardized form called a Universal Billing Form and the Diagnoses and Services are codified for the form. For Diagnoses, they use the International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM) codes and for the physician services, ancillary services, and procedures they typically use the CPT coding system (Common Procedural Terminology, an American Medical Association coding scheme).

Payment is usually made according to a Reasonable and Customary (R&C) charge based on aggregated data from multiple insurers. Alternatively, if physicians have agreed to participate as participating physicians in an insurance plan provider network, using the CPT codes to describe the services, they would be paid according to a fee schedule, which is based upon similar aggregate data and which is included in contract terms with any insurance companies. However In some contract arrangements, they are paid by capitation, which is a flat rate per person who has selected them as the managing primary physician or Primary Care Physician (PCP). Medicare and Medicaid pay according to their own government determined fee schedules as well. Hospital Bills

The hospital submits bills for an inpatient stay with the daily charges for the room, which includes meals, some of the routine supplies used and the nursing services, charges for use of the Emergency room and the personnel there, charges for each time unit spent in an operating room plus the supplies used while in the OR, diagnostic procedures performed such as X-rays and labs, medications given, and therapies such as physical or respiratory therapy.

Payment is made either according to an R&C (reasonable and customary) amount based on industry data, or by contract with different insurance companies, for different payment in different ways, with whom the hospital has made agreements. Medicare and Medicaid pay typically by a Prospective Payment System (PPS) that pays in advance by projection of the anticipated number of cases of different types based upon historical data at that facility. The PPS payment is reconciled later with a flat rate per type of case, called DRG Payment (Diagnosis Related Groups).

For hospital outpatient services, the bill is similar except there are no room charges, just the ancillary services, supplies, use of special surgical rooms, and medications, gases and anesthesia. Nursing services are included in the OP facility billings. Additionally, for inpatient and outpatient use of hospital facilities, Anesthesiologists, Radiologists, Emergency Physicians, and sometimes Pathologists and Anesthetists, usually bill separately from the hospital using the methods described above under the “physician” heading.

The hospital uses a billing form that is a standardized form developed by the Federal government and called a UB-04 (Universal Bill, 2004) and codifies the services and number of days in the different types of care units. The code system used to explain what the diagnoses and services were is the ICD-9-CM Diagnosis and Procedures codes (International Classification of Diseases, 9th Revision, and clinical Modification). Although some contracts may require the use of other coding schemes for the ancillary services and surgical procedures, which may be HCPCS (Healthcare Common Procedure Coding System, a US Government coding system) or CPT codes (Current Procedural Terminology, an American Medical Association — AMA– coding scheme publication).


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