1. Medicare Payment Policies for Providers and Plans A Primer William Scanlon For The Alliance for Health Reform’s Medicare: A Primer March 11, 2011 1

2. Payment Objectives Assure beneficiary access Promote efficiency Accommodate/ promote quality 2

3. Medicare Payment Determination 3 AdministeredCompetitive PhysiciansMedicare Advantage Plans HospitalsPart D Drug Plans Skilled Nursing Facilities Home Health Rehab Hospitals Long-Stay Hospitals Durable Medical Equipment

4. Medicare Physician Fee Schedule Fees based on: – Resource Based Relative Value Scale (RBRVS) Values determined by Harvard study in 80’s/ Updated since by AMA’s Relative Value Scale Update Committee (RUC) Components—Work, Practice Expense, Malpractice 7000+ services Fee for a service = RVU i X Conversion Factor X Geographic Adjustor 4

5. Medicare Physician Fee Schedule Sustainable Growth Rate (SGR) Creates an incentive to control volume and intensity Sets annual spending target per beneficiary based on inflation, changes in law, and GDP SGR formula makes annual change in fees--- –Higher if prior year’s spending below target –Lower if prior year’s spending above target Projected reductions in fees due to SGR and their postponements since 2002 create pending 24.9 percent reduction 5

6. Medicare Prospective Payment (Hospitals, SNFs, Home Health) Payments based on administrative data –Cost reports –Itemized claims –Patient assessments –Research data Payment Model Payments updated annually –ACA productivity adjustment National Average Cost per Unit Casemix Adjustor Geographic Adjustor XX 6

7. Medicare Prospective Payment Payment UnitCasemix Adjustor HospitalsStayDiagnosis Related Group (DRG) Skilled Nursing FacilityDayResource Utilization Group (RUG) Home Health60 day EpisodeHome Health Resource Group (HHRG) Rehab HospitalsStayCasemix Group (CMG) Long-term-care HospitalsStayMedicare Severity Long- term-care Diagnosis Related Group (MS-LTC-DRG) 7

8. Competitively Determined Payments Medicare Advantage and Part D Plans –Plans bids determine monthly capitation –Bids compared to benchmarks MA benchmark—Traditional (FFS) spending with modifications Part D benchmark---Average of all plans’ bids –Plans with bids below benchmark Share difference with Medicare Offer lower or no beneficiary premiums and extra benefits –Plans with bids above benchmark Difference added to the beneficiary’s premiums 8

9. Medicare Advantage Payment Changes 2012 Benchmarks lowered –Range from 95-115% of FFS inversely related to area costs Share of bid/benchmark difference kept by plans Bonus payments for plans with higher quality scores 9

10. DME Bidding Movement away from fees based on 1980s charges Competition with exclusion Selected items and areas in 2011 with later expansion 10