Medicare-Based Managed Care Contract Pitfalls: 6 Questions to Clarify Payer Reimbursement Terms
As managed care contracts move away from grouper-based methodologies, it's common for payers to casually refer to their new methodology as "Medicare-based;" in reality, however, it is very rare that a payer strictly follows Medicare's payment methodology for commercial products. To best understand a payer's proposed reimbursement under a "Medicare-based" system, it's important to determine how closely the payer is following the components of CMS' pricing system. Identifying the differences will help the facility understand what compensation to expect, in turn leading to more accurate collections and successful appeals.
Consider rates proposed by a payer in a short, succinct manner such as 120 percent of 2012 Medicare rates. At a glance, the payer's methodology seems straightforward and transparent; however, this proposal doesn't provide the specific information needed by the facility to determine precisely how claims will be reimbursed. How closely will the payer's payments under this proposal actually follow Medicare's 2012 methodology? To find out, additional questions must be answered:
Which version of rates developed by CMS is the payer using?
For each calendar year, CMS publishes several updated versions of its ASC rates. Commercial payers can select any version as their rate basis. Even though the payer might refer to their rates as Medicare-based, the payer's actual rate basis might not be the most up-to-date version used by CMS, or it might even be a version of rates that was never implemented by Medicare.
There can be substantial differences among the versions of CMS' published ASC rates, which would significantly impact the payer's reimbursement. For example, CMS published seven different versions of 2012 ASC rates, and in the March 2012 update, the rate for lithotripsy was reduced almost 21 percent. If the ASC provides lithotripsy services and the payer says they're paying based on 2012 Medicare, it's crucial to know whether they intend to pay rates based on the higher rate or the lower rate.
In order to know precisely how the payer will adjudicate claims and prevent any confusion, be sure the payer specifies the Federal Register publication date of the rates being used as the basis for pricing. If the payer representative is unsure of the publication date, have the payer provide a sample set of rates for high volume CPTs in order to verify that the payer's interpretation of the rates matches your own.
How will the rates change during the term of the managed care agreement?
Medicare-based managed care contracts typically present rates either based on a specific version of Medicare rates, or based on "then current" rates. If an agreement has rates based on a specific version, then the payer will need to clarify how they intend to reimburse newly created codes that are developed during the course of the agreement. For instance, will they base reimbursement on the Medicare rate from the first year that the new code was published? Will reimbursement be based on a default rate?
If the payer is basing rates on "then current" Medicare rates, then newly developed codes should be addressed due to the update process; however, be aware that for most payers there is a lag time between the time new rates are published by CMS and the time the payer implements them in their claims payment systems to use for pricing. The lag time between CMS' publication and a payer's implementation can vary from days to weeks and even months. Therefore, even if a contract is based on "current" Medicare, the actual payments may differ from Medicare during periods while the payer updates their claims payment systems with the latest Medicare rates.
Are the Medicare rates area-adjusted?
Another methodology point requiring clarity is whether the payer intends to pay based on national, unadjusted Medicare ASC rates, or geographic wage-adjusted rates. This becomes a larger concern for facilities whose wage index is further from 1.000 since there will be a bigger difference between the national rates and the wage-adjusted rates.
In addition, if the payer is applying wage adjustments, it's a good idea to confirm whether the payer is calculating wage-adjusted rates in the same way that CMS does, or using an alternate calculation. Medicare calculates area-adjusted rates by applying the wage index to 50 percent of the base rate, and the other 50 percent of the base rate is unadjusted. Commercial payers that are not as familiar with Medicare methodologies sometimes apply the wage index differently, resulting in unexpected payment amounts.
Are procedures without a Medicare rate reimbursed?
Since the list of Medicare ASC allowable procedures is developed for a 65 and over population, it doesn't necessarily include rates for all procedures that can be safely performed at an ASC on a commercial population. Some payers make additions to Medicare's list of allowed CPTs in order to better address the commercial population's needs. Ask if the payer augments Medicare's allowable procedure list with additional procedures that they have determined to be allowable at ASCs; if it does, request the full list of procedures and the corresponding reimbursement rates. Also clarify whether the payer has a default rate used to pay for codes that aren't allowed by Medicare or included on their list of additional allowed procedures.
How are multiple procedures reimbursed?
Multiple surgery reductions are another area in which commercial payers won't necessarily follow Medicare’s methodology. Payers can reduce payment for secondary procedures by more than 50 percent, or limit the number of procedures that are eligible for reimbursement. This information is typically spelled out on the compensation exhibit so it's easier to identify the difference from Medicare's methodology.
What is often less clear is whether the payer is incorporating Medicare's logic that designates which procedures are eligible for multiple procedure reductions. If a procedure isn't eligible for reduction by Medicare, then it is always reimbursed at the full Medicare rate; therefore, Medicare's rate is set to reflect this logic If the payer decides to reduce the compensation for these codes when they are in a secondary position, then the intent of Medicare's rate as a basis for reimbursement is lost.
When seeking clarification on multiple procedure methodology it's also a good idea to confirm how the payer determines the "primary procedure," i.e. the CPT that is paid at 100 percent of the reimbursement rate. It is most common for payers, including Medicare, to define the primary procedure as the procedure with the highest allowable regardless of its actual position on the submitted claim; however, some payers do not re-order the procedures, and codes are reimbursed in the exact order in which they are submitted. If the latter is the case, the provider has the additional responsibility of submitting claims with the procedures listed in order with the highest allowable procedure first. This ensures that the payment will emulate Medicare's methodology and optimizes multiple procedure reimbursement.
How are prosthetics and implants paid?
In general, Medicare does not have a separate payment provision for prosthetic and implants; commercial payers, on the other hand, will sometimes include additional compensation for some or all implant devices. This may include the use of a third-party implant vendor. When requesting clarification regarding implant payment, also clarify any billing requirements that may be necessary to secure reimbursement such as invoice submission and cost markup requirements.
When managed care payers shift to new reimbursement methodologies, it's incumbent upon the provider to dissect the nomenclature in order to understand what the payer is truly offering. While the reimbursement system is described as Medicare-based, the provider must understand that this verbiage is used only to communicate the basic framework of the compensation and will not necessarily match Medicare’s payment system in every aspect. Identifying and understanding the differences allows the provider to more accurately predict collections, and support a more efficient and successful appeals process by increasing the ability to identify incorrectly processed claims.
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