Quote:It's the opposite, Medicare establishes the fee schedule each year in October and implements it January 1st, then most groups make their adjustments to their fee schedules for January implementation. 

 

Insurance contracts generally run 2 to 4 years and are based on some formula of a particular year of the Medicare fee schedule. For instance, Aetna will negotiate this year for a 3 year deal that pays 104% of the 2015 year Medicare fee schedule. Any new codes that are added by Medicare are addressed by contract language that spells out how Aetna will pay them, usually at a lower rate that the 104% they've agreed to for established codes. Contract rates aren't uaually affected by the annual Medicare changes except in which codes are new and which ones are no longer valid.

 

For anyone who cares, the Medicare Fee Schedule is comprised of procedure codes that identify the service performed by the provider. The procedure codes are linked to diagnosis codes that must be present for the procedure to meet "medical necessity." The codes are priced by what's called Relative Value Units, or RVUs. These RVUs are made up of 3 components: the work RVU, the expense RVU and the malpractice RVU. The RVU is mulitplied by a Geographic Adjustment Factor that exists to balance the differences in operating cost by region of the country. For instance, the GAF is higher in New York City than in Birmingham, Alabama because of thedifferences in the cost of living.

 

As JackCity was asking about cost, the answer for professional services (doctors and other clinicians) is that Medicare pays for each level of service based on the RVUs assigned to the service code the physician provides. Your doc sees you for a cold, bills Medicare a 99213 code for the office visit and Medicare pays $73.93 nationally for the service when provided outside a facility. The regional Medicare contractor who processes your claim then applies the GAF and you end up with a higher or lower amount based on where you are located. Where I work that number is $73.17. That's the results of all that math I described up above. 

 

Facilities have differing rates because their overhead is structured differently. Most hospital stays are paid using Diagnosis Related Groups (DRGs) to calculate the cost. As mentioned above, the reimbursement for a Gall Bladder surgery for a facility is the CMS calculation of the RVUs of that procedure and all the supportive and ancillary care that goes with it. The facility is paid a flat rate for the DRG and has to made due with that amount. Again, the amount paid is calculated by the government and then that number is used by the commercial plans for negotiation.