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How Does Medicare Reimburse Hospitals?
Medicare provides coverage for millions of Americans over the age of 65 or individuals under 65 who have certain permanent disabilities. Medicare recipients can receive care at a variety of facilities, and hospitals are commonly used for emergency care, inpatient procedures, and longer hospital stays. Medicare benefits often cover care at these facilities through Medicare Part A, and Medicare reimbursement for these services varies. Billing is based on the provider’s relationship with Medicare and the average cost of care for a specific diagnosis or procedure.
What Medicare Benefits Cover Hospital Expenses? Medicare Part A is responsible for covering hospital expenses when a Medicare recipient is formally admitted. Part A may include coverage for inpatient surgeries, recovery from surgery, multi-day hospital stays due to illness or injury, or other inpatient procedures. Part A covers the first 60 days of a hospital stay after the associated deductible and coinsurance payments have been made. Part A also includes coverage for skilled nursing facilities and hospice care.
What Does it Mean for a Hospital to “Accept Assignment?” Medicare determines reimbursement based on whether or not a provider participates in Medicare services. This is known as “accepting assignment.” Providers that fully accept assignment are known as participating providers. They agree to accept all of Medicare’s predetermined prices for all procedures and tests that are provided under Medicare coverage. This means that no matter what a hospital normally charges for a procedure, they agree to only charge Medicare recipients a set price. The majority of providers fall into this category.
If a provider is a non-participating provider, it means that they have not signed a contract with Medicare to accept the insurance company’s prices for all procedures, but they do for accept assignment for some. This is mainly due to the fact that Medicare reimbursement amounts are often lower than those received from private insurance companies. For these providers, the patient may be required to pay for the full cost of the visit up front and can then seek personal reimbursement from Medicare afterwards.
The amount for each procedure or test that is not contracted with Medicare can be up to 15 percent higher than the Medicare approved amount. In addition, Medicare will only reimburse patients for 95 percent of the Medicare approved amount. This means that the patient may be required to pay up to 20 percent extra in addition to their standard deductible, copayments, coinsurance payments, and premium payments.
While rare, some hospitals completely opt out of Medicare services. This means that patients who obtain care at these facilities will not receive any Medicare reimbursement and will need to pay for the full cost of the procedure out of pocket. These providers are also not limited on the amount they can charge for their procedures.
Determining Medicare Reimbursement Rates If a healthcare provider does accept assignment for some or all procedures, the billing is done based on a preset list of diagnoses and associated billing codes. Medicare uses a pay-per-service model that uses Diagnosis-Related Groups (DRGs). Each DRG is based on a specific primary or secondary diagnosis, and these groups are assigned to a patient during their stay depending on the reason for their visit.
Up to 25 procedures can impact the specific DRG that is assigned to a patient, and multiple DRGs can be assigned to a patient during a single stay. The DRGs assigned can also be influenced by patient age and gender.
Each DRG is rated based on severity with three levels: Major Complication, Complication, or Non-Complication. The highest level, Major Complication, often significantly contributes to a patient’s illness and also often requires significant hospital resources and is associated with a higher cost. Non-Complications are associated with fewer required resources and do not impact patient health as severely.
Reimbursement is based on the DRGs and procedures that were assigned and performed during the patient’s hospital stay. Each DRG is assigned a cost based on the average cost based on previous visits. This assigned cost provides a simple method for Medicare to reimburse hospitals as it is only a simple flat rate based on the services provided.
Related articles:
How Much Does Medicare Cost the Government? (Opens in a new browser tab)
How Does a Medicare Advantage Plan Work? (Opens in a new browser tab)
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