Understanding Medicare Billing and Reimbursement Coding

A general understanding of Medicare billing and reimbursement can increase a healthcare whistleblower’s chances for success.

It is not a requirement for a whistleblower to be a Medicare billing or reimbursement expert to bring a successful qui tam case involving fraud committed against a government healthcare program.  However, knowledge of a defendant’s billing and reimbursement procedures can increase the whistleblower’s chances for success.

Many whistleblowers in the healthcare arena are aware that a fraud is occurring, but often lack the knowledge or evidence regarding the details of how the fraudulent claims are being submitted to and reimbursed by the government.  This is often the case if the whistleblower works in a clinical setting as opposed to a coding or billing department.

This blog is intended to provides a brief overview of some of the terms and concepts that are essential to understanding Medicare reimbursement.  These terms are often used by government attorneys, agents, and investigators during interviews and meetings with relators, so a basic familiarity with them can assist a whistleblower in effectively communicating to the government the necessary details of the fraud.

Medicare Parts A, B, C, and D

Medicare is a government health insurance program for individuals age 65 or older, certain disabled people, and people with End-Stage Renal Disease.  In general, individuals who are age 65 or older and receiving Social Security are eligible for Medicare Parts A and B.  Part A covers most medically-necessary inpatient hospital care, skilled nursing facility care, home healthcare, and hospice care.  Part B covers most medically necessary outpatient hospital care, doctors’ services, preventive care, durable medical equipment, laboratory tests, x-rays, mental health care, and certain home health and ambulance services.  Parts A and B are administered directly by the federal government.

Part C allows private health insurance companies to provide Medicare beneficiaries with private Medicare health plans known as Medicare Advantage plans. Medicare Part D provides outpatient prescription drug coverage and is provided through private insurance companies that have contracts with the government.

This overview of Medicare reimbursement mechanisms will focus mainly on Medicare Parts A and B.

Medicare Reimbursement Received by Healthcare Providers

Medicare pays for physician services under Part B according to the Medicare Fee Schedule (MFS).  Medicare reimburses other healthcare providers, such as acute inpatient hospitals, home health agencies, hospice, outpatient hospitals, inpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities, through mechanisms known as Prospective Payment Systems (PPS). PPS reimbursements are made based on a predetermined, fixed amount.  The payment amount for a service is determined based on the classification system of that service.  For example, inpatient hospital services are reimbursed on the basis of diagnosis-related groups (DRGs), and outpatient hospital services are reimbursed on the basis of Ambulatory Payment Classifications (APCs).

Inpatient Prospective Payment System and Diagnosis-Related Groups (DRGs)

Hospitals are reimbursed for the technical component of inpatient services on a DRG basis under the Medicare Inpatient Prospective Payment System (IPPS).  The purpose of the DRG system is to develop classifications which identify the products that patients receive.  Patients within each classification are clinically similar and are predicted to use the same level of medical resources.  Therefore, all hospital cases within a certain DRG are reimbursed at the same fixed rate.

The most current version of the DRG methodology is referred to as the MS-DRG system.  Under this system, procedure and diagnostic codes (and in some cases age, sex and demographics) determine the appropriate MS-DRG classification.   MS-DRG classification which indicate whether a patient presents with major complications and comorbidities (MCC);  with complications and comorbidities (CC); or without complications and comorbidities (without CC/MCC).  Complications and comorbidities typically increase the reimbursement rate for an MS-DRG.

Outpatient Prospective Payment System and Ambulatory Payment Classifications (APCs)

If a Medicare patient is treated as an outpatient rather than being admitted as an inpatient, the hospital will receive an APC payment for its technical component under the Outpatient Prospective Payment System (OPPS), instead of a DRG payment under the Inpatient Prospective Payment System (IPPS).  Procedure codes are grouped into Ambulatory Payment Classifications (APCs), and all outpatient services in each APC are reimbursed at the same rate.

The following chart provides examples of the methods of reimbursement to certain types of healthcare providers under Medicare Parts A and B:

The monetary damages that are at stake in a qui tam case will usually depend on the type of reimbursement mechanism that a provider has received.  Certain fraudulent claims may result in financial harm to the government under one type of reimbursement system, but may not cause the government monetary harm under another type of reimbursement systems.  This is why it is essential for a whistleblower to understand which reimbursement system is at play in his/her case to ensure the greatest opportunity for a successful outcome.