FUNDAMENTALS OF MEDICARE INTRO

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1 FUNDAMENTALS OF MEDICARE INTRO Barry D. Alexander, Esq.* Nelson Mullins Riley & Scarborough, LLP 4140 ParkLake Ave., GlenLake One, 2 nd Floor Raleigh, NC barry.alexander@nelsonmullins.com James F. Flynn, Esq.* Bricker & Eckler 100 South Third Street Columbus OH jflynn@bricker.com *Special thanks to Ross E. Sallade & Lindsey Lonergan (Nelson Mullins), and the numerous contributors to this outline over the years including J.D. Epstein (Vinson & Elkins), Len Homer (Ober Kaler Grimes & Shriver) & Tom Coons (Ober Kaler Grimes & Shriver). This outline continues to be an evolving product of those who practice in the Medicare reimbursement arena with passion and commitment to the Medicare program's history and its future. INTRODUCTION TO MEDICARE PROGRAM OVERVIEW The Medicare program is a federally funded social health insurance program providing universal hospital coverage for Americans 65 years of age or older, as well as the long term disabled, individuals requiring renal dialysis and others who buy into the program regardless of age. The Medicare program arose under 1965 amendments to the Social Security Act adding Title XVIII (Medicare) and Title XIX (Medicaid)(Pub. L. No. 8987). Medicare Basics. The Medicare program consists of four parts: Part A (hospital insurance); Part B (supplementary insurance); Part C (Medicare Advantage); and Part D (Prescription drug benefit). Part A - Medicare Part A covers inpatient hospital and critical access hospital (CAH) care, post-hospital skilled nursing facility (SNF) care, some home health services and hospice care. Medicare Part A is financed through the federal Hospital Insurance (HI) Trust Fund which is funded through payroll tax contributions from workers and employers.

2 Part B - Medicare Part B covers physicians services, outpatient hospital department care, laboratory services, some home health care, physical and occupational therapy, and covered durable medical equipment (DME) and supplies. Medicare Part B, also known as Supplementary Medical Insurance (SMI), is a voluntary program. Medicare Part B is financed through the SMI Trust Fund which is funded by individual premiums and general tax revenues. Part C - The MedicareAdvantage or MA program offers Medicare beneficiaries a choice of coverage options (Part C was formerly known as Medicare+Choice or M+C ). Beneficiaries who have Medicare Part A and Part B coverage may elect to receive such coverage through the original Medicare plan or through a Medicareapproved private managed care or fee-for-service plan for a monthly premium. At a minimum every MA plan must provide beneficiaries with all of the items and services offered by Parts A and B with limited exceptions. Payments to MA organizations are financed through the HI and SMI Trust Funds. Part D - The Medicare Prescription Drug, Improvement and Modernization Act of 2003 established a voluntary outpatient prescription drug benefit for Part A eligible or Part B enrolled beneficiaries became operational in Part D covered drugs include Medicaid-covered prescription drugs, biologicals, and vaccines. The Part D benefit, which is provided through prescription drug plans (PDPs) and MA plans that offer drug coverage, is financed through a separate account in the SMI Trust Fund and administered by CMS. Supplemental Policies (Medigap). Beneficiaries have the option of purchasing supplemental health insurance coverage from private commercial insurers. Known as Medigap or Medicare SELECT, these policies typically offer a range of coverage options for Medicare excluded services and help defray the cost of coinsurance and deductibles for Medicare beneficiaries. Medigap policies are available only to beneficiaries who are covered under original (Part A and Part B) Medicare. Private Contracts. Medicare permits the use of private contracts between physicians, certain practitioners, and Medicare beneficiaries wherein the parties agree that no claims for reimbursement will be submitted to Medicare. Physicians and practitioners entering into such contracts must file an affidavit with the U.S. Department of Health and Human Services ( HHS ) affirming that, for two (2) years from the date of the affidavit, they will not submit any claims to Medicare for items or services provided for any Medicare beneficiary, nor receive payment from Medicare, either directly, or indirectly for items or services provided to any beneficiary. The beneficiary must acknowledge in writing his or her unlimited personal liability for the cost of medical care rendered under the contract. A private contract also may not be executed if the beneficiary is experiencing an emergency or urgent health care situation. The Medicare Secondary Payor Rule. Medicare does not pay for services for which Medicare is not the primary payor. As a result, Medicare payment for any items or services that may be covered under other health insurance plans or policies such as 2

3 workers compensation, liability insurance or employer health benefit plans is prohibited. Under such circumstances, Medicare s liability for payment is secondary to that of the other health insurance plan(s). Medicare Funding. Part A Funding. Federal funding for Part A services is derived solely from the Hospital Insurance ( HI ) Trust Fund. That fund is largely created from payroll taxes. Beneficiaries also contribute out-of-pocket to the cost of their own medical care under Part A through the payment of deductibles and coinsurance. Part B Funding. Federal funding for Part B services is derived solely from the Supplementary Medical Insurance ( SMI ) Trust Fund which is generated from general tax revenues and earned interest income. Beneficiaries contribute out-of-pocket for the care they receive under Part B in the form of monthly premium payments, deductibles and co-insurance. Part C Funding. Federal funding for Part C services is derived from both the HI Trust Fund and SMI Trust Fund. Payments from the Medicare program, however, are made to the private third party payors who enroll the Medicare beneficiaries in their managed care products. A beneficiary s contribution to the third party payor varies from payor to payor and is highly dependent upon the number of extra benefits they elect to receive. Payments arise in the form of monthly premiums, deductibles, and co-insurance amounts. Part D Funding. The new prescription drug plan is funded federally from the SMI Trust Fund. On a beneficiary level, the new drug plan will be voluntary and therefore funded from beneficiary monthly premiums and the payment of deductibles and co-payments. The monthly premiums will vary by plan. The monthly premium amount is in addition to that paid under Medicare Part B. Medigap Funding. Medigap is a wholly voluntary and is not federally funded. PROGRAM ADMINISTRATION General. Parts A, B and D of the Medicare program are administered by the federal government through HHS, primarily under the Secretary of Health and Human Services ( Secretary ), and through the Centers for Medicare and Medicaid Services ( CMS ) (formerly known as the Health Care Financing Administration or HCFA ). The Social Security Administration ( SSA ) administered the Medicare programs until 1977 when the Health Care Financing Administration (HCFA) took over the daily operation of the programs. The name of the agency was formally changed to the Centers for Medicare & Medicaid Services or CMS on June 14, The U.S. Congress is responsible for the development of statutes that frame all four parts of the Medicare program. The U.S. Treasury is responsible for management of the funds in both the 3

4 HI and SMI Trust Funds. A Board of Trustees oversees the financial operations of the HI and SMI trust funds. The Secretary of the Treasury is the managing trustee. The Board of Trustees reports to Congress on the financial and actuarial status of the Medicare trust funds. HHS has overall responsibility for administration of the Medicare program and development of regulations implementing the statutes passed by Congress. CMS has the day-to-day responsibility for administering the Medicare program. CMS s central office is located in Baltimore, Maryland, but it has 10 so called regional offices around the United States. Whereas the central office is responsible for development of National Policy guidelines, the regional offices are more focused upon implementing those policies. CMS Regional Offices are often the first point-of-contact for beneficiaries, providers, state and local governments, and the general public. Medicare Contractors. Provider/supplier enrollment and claims payment/appeals are carried out by private insurance companies under contract with CMS, including: Medicare Administrative Contractors ( MACs ) and Part D prescription drug plans ( PDPs ). Prior to the development of MACs, administration of Parts A and B of the Medicare program were carried out by Fiscal Intermediaries ( FIs ), Medicare Carriers, the National Supplier Clearinghouse ( NSC ), and Durable Medical Equipment Regional Carriers ( DMERCs ). Beginning in 2006, administration of the Medicare program is being simplified from FIs, Medicare Carriers, NSC, and DMERCs into MACs. Generally, MACs will overlap with regions previously occupied by FIs, Carriers and DMERCs. The transition from Fiscal Intermediaries, Carriers, NSC, and DMERCs will be transitioned in and is expected to be completed in MACs will cover 15 distinct regions and those replacing DMERCS will cover 4 distinct regions. MACs will be chosen on a competitive basis. Fiscal Intermediaries handle enrollment and claims payment/appeals. Although FIs are generally associated with Part A reimbursement, they are also responsible for payment for the Part B services furnished by the Part A providers for which they served as intermediary, such as hospital outpatient services and certain other institutional services. Again, FIs will be replaced by MACs. 42 C.F.R Carriers. Supplier enrollment and claims payment/appeals were previously carried out by private insurance companies under contract with CMS known as Part B Carriers. Carriers will be replaced by MACs. National Supplier Clearinghouse and Durable Medical Equipment Regional Carriers. The National Supplier Clearinghouse ( NSC ) is a specialized contractor that is responsible for DMEPOS supplier enrollment. Until implementation of the MACs, DME claims are processed and paid by Durable Medical Equipment Regional Carriers (or DMERCs ). Pricing and coding efforts, data analysis, and rate setting functions for DMEPOS suppliers are the responsibility of the Statistical Analysis Durable Medical Equipment Regional Carrier, or SADMERC. State Agencies (usually State Health Departments under agreements with CMS) identify, survey, and inspect provider and supplier facilities or institutions wishing to participate in the 4

5 Medicare program. In consultation with CMS, these agencies then certify the facilities that are qualified. Quality Improvement Organizations. CMS contracts with quality improvement organizations ( QIOs ) composed of health care professionals who audit the utilization, quality, appropriateness and necessity of the medical care that is provided to program beneficiaries by physicians, providers, suppliers and MedicareAdvantage plans. QIOs also serve to educate health care professionals about quality of care issues. Similarly, the states may provide for the review of Medicaid services through a contract with a peer review organization ( PRO ). However, the review activities performed by the PRO cannot be inconsistent with Medicare QIO review activities. The states also must provide a description of whether and to what extent the PRO determinations will be considered conclusive for Medicaid payment purposes. HHS Office of Inspector General. The HHS Office of Inspector General (OIG) is responsible for the audit and evaluation of the Medicare and Medicaid programs. As the enforcement arm of HHS, the OIG conducts criminal and civil investigations into Medicare/Medicaid fraud and abuse and works in cooperation with the U.S. Department of Justice, the Federal Bureau of Investigation and state and local law enforcement agencies. Administrative sanctions, including permanent exclusion from the Medicare and Medicaid programs, may be imposed by the OIG against hospitals, doctors, health care professionals and health care facilities that violate Medicare/Medicaid law. SOURCES OF MEDICARE LAW. See Addendum A to this outline. MEDICARE ENROLLMENT Provider and Supplier Enrollment. To enroll in the Medicare program a provider or supplier must complete the necessary CMS 855 forms. Those include the following: 855A - To enroll in Part A, a provider entity completes the CMS Form 855A and submits it to the MAC for their given region 855B To enroll in Part B, a supplier entity completes the CMS Form 855B and submits it to the MAC for their given region 855I Individuals enrolling in Medicare complete CMS Form 855I and submit it to the MAC for their given region 855S DMEPOS suppliers are required to complete CMS Form 855S and submit it to the NSC 855R Individuals wishing to legally reassign benefits to another are required to complete CMS Form 855R and submit it to the MAC The CMS Provider/Supplier Enrollment home page can be found at: CMS 855 Forms are also utilized to modify information currently on file with CMS. Changes of ownership and other previously supplied information must be reported within either 30 or 90 days depending upon the type of information. 5

6 Participating Physician and Supplier Program. The Medicare participating physician/supplier program offers incentives for becoming a participating physician/supplier, such as: Payment at a higher reimbursement rate under the fee schedule (nonparticipating physicians are paid at 95% of the fee schedule). 42 C.F.R (b). Opportunity to elect electronic claims transmission. Inclusion in directory of participating physicians. Participating physicians accept Medicare payment on all claims as payment in full (with the exception of applicable deductible and copayment amounts) on an annual basis. MEDICARE LINGO Beneficiary. Is the Medicare term to describe an individual enrolled in the Medicare program. With private payors outside the world of Medicare, these individuals are frequently referred to as enrollees. Provider vs. Supplier. The terms provider and supplier have distinct and express meanings in the world of Medicare regulations and reimbursement. While the terms are specifically Medicare defined terms, you may run into their usage in the private payor world as well. However, these terms may or may not carry the same meaning with private payors. Specifically, a provider is defined to include: hospitals, critical access hospitals ( CAHs ), skilled nursing facilities (SNFs), comprehensive outpatient rehabilitation facilities ( CORFs ), home health agencies ( HHAs ), hospice providers, rehabilitation agencies, public health agencies, certified clinics furnishing outpatient therapy services, and community mental health centers furnishing partial hospitalization services. By contrast, the term supplier includes physicians, DMEPOS suppliers, IDTFs, physicians assistants and an entity other than a provider. Advanced Beneficiary Notice (ABN) vs. Notice of Non-Coverage. In general, ABNs and Notices of Non-Coverage are two ways providers and suppliers can notify beneficiaries that an item or service is not covered by the Medicare program. ABN is what providers and suppliers are required to give beneficiaries when they believe that Medicare will not cover their services or items and the person has no reason to know that Medicare will not cover the items or services. An ABN must: be in writing; be provided before items/services provided; conform to certain requirements; inform beneficiary why coverage is not anticipated and extent of the anticipated charge A Notice of Non-Coverage is specific to hospital inpatients and is provided when medical care furnished to a beneficiary is not covered by the Medicare program. Typically, the medical care is not covered because (i) it is not medically necessary, (ii) it is not delivered in the most appropriate setting, or (iii) is custodial in nature. 6

7 If ABNs and/or Notices of Non-Coverage are provided in advance of the provision of items or services, the provider/supplier can bill the beneficiary directly for that item or service furnished. If not, the beneficiary is not required to pay for the item or service furnished. Assignment vs. Reassignment. Are two terms describing who receives payment for items, services, or supplies furnished to beneficiaries. Assignment relates to a patient assigning his or her right to medical benefits (i.e., payment) to providers and suppliers. Physician/suppliers can refuse to accept assignment on case by case basis, but if a Participation Agreement is signed, physician/supplier must take assignment in 100% of cases. Reassignment permits provider/supplier to redirect payment to another person or entity. When a physician/supplier accepts assignment of a beneficiary s claim ( furnishes services on an assignment-related basis ), the physician/supplier agrees not to charge the beneficiary more than the applicable deductible and coinsurance amount based upon the approved charge amount for the services, and to accept these payments and the applicable Medicare payment as payment in full for the services. Prohibition Against Reassignment. The Medicare statute generally prohibits payment of benefits to any party other than a beneficiary or the physician, practitioner, or supplier that actually furnished the items or services. 42 U.S.C.A. 1395u(b)(6); 42 C.F.R ; Medicare Claims Processing Manual, Ch. 1, (CMS Pub ). Exceptions To The Prohibition: Part A: The reassignment exceptions under Part A include the following: Payment to a government agency or entity Payment under assignment established by court order Payment to an agent See, 42 C.F.R Part B: The reassignment exceptions under Part B include the following: Payment To Employer. Medicare Claims Processing Manual, Ch. 1, (CMS Pub ); 42 C.F.R (b)(1). Payment For Services Furnished Under A Contractual Arrangement. Medicare Claims Processing Manual, Ch. 1, (CMS Pub ); 42 C.F.R (b)(2). PRACTICAL NOTE: In December 2006, the Program extended the application of the contractual arrangement exception to both employees and independent contractors. 71 Fed. Reg (December 1, 2006). Payment Pursuant To Court Order. 42 C.F.R (b)(4);

8 Payment To Billing And Collection Agents. Medicare Claims Processing Manual, Ch. 1, (CMS Pub ). 42 C.F.R (b)(5). PRACTICAL NOTE: The payment to billing and collection agent reassignment exceptions do not allow such agents to negotiate and/or convert Medicare funds unless, among other provisions, the agent s compensation is not related in any way to the dollar amounts billed or collected (as in no percentage of collection arrangements). Payment To Banks. Medicare Claims Processing Manual, Ch. 1, (CMS Pub ); Absent a court order, Medicare payments may be sent to a bank (or similar financial institution) for deposit in the physician s (or supplier s) account only if (1) the account is in the name of the physician or supplier only; (2) he bank may provide providing financing to the physician or supplier, but only if the bank states in writing in the loan agreement that it waives its right to offset; and (3) the physician has sole control of the account and bank is subject to only physician s instructions regarding the account. PRACTICAL NOTE: Under this exception, the physician may give the bank standing orders to transfer funds from physician s account to another account in the same or another bank. Reassignment To University-Affiliated Medical Faculty Practice Plan. Medicare Claims Processing Manual, Ch. 1, (CMS Pub ); 42 C.F.R (c) Reassignment To Managed Care Organizations (MCOs). Medicare Claims Processing Manual, Ch. 1, (CMS Pub ). Locum Tenens vs. Reciprocal Billing Arrangements. Medicare Claims Processing Manual, Ch. 1, (CMS Pub ). CMS instructions recognize the practice of providing physician coverage, on a time-limited basis (no longer than 60 days), through independent contractors (locum tenens physicians) and paid on the basis of time by the billing physician or group. The instructions allow the regular physician to bill for those services. CMS instructions also permit the patient s regular physician to bill in his/her own name for covered visit services furnished by a substitute physician arranged for by the regular physician on an occasional and reciprocal basis (subject to certain additional requirements and limitations). A physician may have reciprocal arrangements with more than one physician. The reassignment includes incident to services performed by staff of the substitute physician and by staff of the regular physician. 8