How is durable medical equipment dme reimbursed in the hhpps

Historical PersPective of cMs reiMburseMent systeMs In 1964 the Johnson administration avoided opposition from hospitals for passage of the Medicare and Medicaid programs by adopting retrospective reasonable cost-basis payment arrangements originally established by BlueCross. Reimburse- ment according to a retrospective reasonable cost system meant that hospitals reported actual charges for inpatient care to payers after discharge of the patient from the hospital. Payers then reimbursed hospitals 80 percent of allowed charges. Although this policy helped secure passage of Medicare and Medicaid (by entic- ing hospital participation), subsequent spiraling reimbursement costs ensued. Shortly after the passage of Medicare and Medicaid, Congress began inves- tigating prospective payment systems (PPS) (Table 9-1), which established pre- determined rates based on patient category or the type of facility (with annual increases based on an inflation index and a geographic wage index): ● Prospective cost-based rates are also established in advance, but they are based on reported health care costs (charges) from which a predetermined per diem (Latin meaning “for each day”) rate is determined. Annual rates are usually adjusted using actual costs from the prior year. This method may be based on the facility’s case mix (patient acuity) (e.g., resource utilization groups [RUGs] for skilled nurs- ing care facilities). ● Prospective price-based rates are associated with a particular category of patient (e.g., inpatients), and rates are established by the payer (e.g., Medicare) prior to the provision of health care services (e.g., diagnosis-related groups [DRGs] for inpatient care). TABLE 9-1 Prospective payment systems, year implemented, and type PROSPECTIVE PAYMENT SYSTEM YEAR TYPE Ambulance Fee Schedule 2002 Ambulatory Surgical Center (ASC) Payment Rates 1994 Clinical Laboratory Fee Schedule 1985 Durable Medical Equipment, Prosthetics/Orthotics, and Supplies (DMEPOS) Fee Schedule 1989 End-Stage Renal Disease (ESRD) Composite Payment Rate System 2005 Home Health Prospective Payment System (HH PPS) (Home Health Resource Groups [HHRG]) 2000 Hospital Inpatient Prospective Patient System (IPPS) 1983 Hospital Outpatient Prospective Payment System (HOPPS) 2001 Inpatient Psychiatric Facility Prospective Payment System (IPF PPS) 2004 Inpatient Rehabilitation Facility Prospective Payment System (IRF PPS) 2002 Long-Term (Acute) Care Hospital Prospective Payment System (LTCH PPS) 2001 Resource-Based Relative Value Scale (RBRVS) System (or Medicare Physician Fee Schedule 1992 [MPFS]) Skilled Nursing Facility Prospective Payment System (SNF PPS) 1998 Current Procedural Terminology © 2015 American Medical Association. All Rights Reserved. Cost-based Cost-based Cost-based Cost-based Price-based Price-based Price-based Price-based Cost-based Price-based Price-based Cost-based Cost-based

EXAMPLE: Prior to 1983, acute care hospitals generated invoices based on total charges for an inpatient stay. In 1982 an eight-day inpatient hospitalization at $225 per day (including ancillary service charges) would be billed $1,800. This per diem reimbursement rate actually discouraged hospitals from limiting inpa- tient lengths of stay. In 1983 the hospital would have been reimbursed a PPS rate of $950 for the same inpatient hospitalization, regardless of length of stay. The PPS rate encourages hospitals to limit inpatient lengths of stay because any reimbursement received in excess of the actual cost of providing care is retained by the facility. (In this example, if the $950 PPS rate had been paid in 1980, the hospital would have absorbed the $850 loss.) CASe MIX MANAGeMeNt The term case mix describes a health care organization’s patient population and is based on a number of characteristics, such as age, diagnosis, gender, resources consumed, risk factors, treatments received, and type of health insurance. A facility’s case mix reflects the diversity, clinical complexity, and resource needs of the patient population. A case mix index is the relative weight assigned for a facility’s patient population, and it is used in a formula to calculate health care reimbursement. If 1.000 represents an average relative weight, a weight lower than 1.000 (such as 0.9271) indicates that the resource needs of a hospital’s patient population are less complex. A facility’s case mix index is calculated by totaling all relative weights for a period of time and dividing by the total number of patients treated during that period of time. Thus, a facility assigned a lower case mix index will receive less reimbursement for services provided. Conversely, a facility assigned a higher case mix index will receive higher reimbursement for services provided. For example, a hospital’s case mix index is calculated by totalling all DRG relative weights for a period of time and dividing by the total number of patients treated during that period of time. (A list of DRG relative weights can be found at www.cms.gov.) Facilities typically calculate statistics for case mix management purposes by: ● ● Total relative weight (relative weight × total number of cases) Total payment (reimbursement amount per case × total number of cases) EXAMPLE: Hospital inpatients are classified according to diagnosis-related groups (DRGs) based on principal and secondary diagnosis, surgical proce- dures performed, age, discharge status, medical complexity (e.g., existence of comorbidities and/or complications), and resource needs. Each DRG has a relative weight associated with it, and that weight is related to the complex- ity of patient resources. Anywhere Medical Center’s case mix index (relative weight) is 1.135. In January, MS-DRG 123 had 54 cases with a reimburse- ment amount of $3,100 each. ● Total relative weight for MS-DRG 123 is 61.29 (1.135 × 54) ● Total payment for MS-DRG 123 is $167,400 (54 × $3,100)

cMs PayMent systeMs The federal government administers several health care programs, some of which require services to be reimbursed according to a predetermined reim- bursement methodology (payment system). Federal health care programs (an over- view of each is located in Chapter 2) include: ● CHAMPVA ● Indian Health Service (IHS) ● Medicaid (including the State Children’s Health Insurance Program, or SCHIP) ● Medicare ● TRICARE (formerly CHAMPUS) ● Workers’ Compensation (also a state health care program) Depending on the type of health care services provided to beneficiaries, the federal government requires that one of the payment systems listed in Table 9-1 be used for the CHAMPVA, Medicaid, Medicare, and TRICARE programs. aMbulance fee scHedule The Balanced Budget Act of 1997 required establishment of an ambulance fee schedule payment system for ambulance services provided to Medicare benefi- ciaries. Starting in April 2002, the ambulance fee schedule was phased in over a five-year period replacing a retrospective reasonable cost payment system for providers and suppliers of ambulance services (because such a wide variation of payment rates resulted for the same service). This schedule requires: ● Ambulance suppliers to accept Medicare assignment ● Reporting of HCPCS codes on claims for ambulance services ● Establishment of increased payment under the fee schedule for ambulance ser- vices furnished in rural areas based on the location of the beneficiary at the time the beneficiary is placed onboard the ambulance ● Revision of the certification requirements for coverage of nonemergency ambu- lance services ● Medicare to pay for beneficiary transportation services when other means of transportation are contraindicated. Ambulance services are divided into different levels of ground (land and water transportation) and air ambulance services based on the medically necessary treatment provided during transport EXAMPLE: A patient was transported by ambulance from her home to the local hospital for care. Under the retrospective reasonable cost payment system, the ambulance company charged $600, and Medicare paid 80 percent of that amount, or $480. The ambulance fee schedule requires Medicare to reimburse the ambu- lance company $425, which is an amount equal to the predetermined rate or fee schedule. aMbulatory surgical center PayMent rates An ambulatory surgical center (ASC) is a state-licensed, Medicare-certified supplier (not provider) of surgical health care services that must accept assignment on Medicare claims. An ASC must be a separate entity distinguishable from any