Understanding Medicare reimbursement is extremely useful because, in general, reimbursement from private insurers is based in large part on the applicable Medicare reimbursement rates, so Medicare cost comparisons generally translate to private insurers as well. Medicare typically reimburses on a fee-for-service basis, which means that payment is made for services individually as opposed to a bundled group of services. Medicare fee-for-service payments generally utilize one of two reimbursement methods: Fee Schedules or Prospective Payment Systems.
This probably all sounds really complicated (because it is!), but basically all fee schedules and prospective payment systems serve the same purpose, and that is to set the reimbursement rates for services provided by different types of providers:
Separate Prospective Payment Systems (PPS) are used to reimburse acute inpatient hospital services, home health agencies, hospice, hospital outpatient services, inpatient phychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities. The Affordable Care Act also plans to change the way FQHC's are reimbursed by Medicare by transitioning FQHC's to a prospective payment system as of October 1, 2014.
The most significant point that we'd like to get across here without going into mind-numbing detail on Medicare reimbursement is that all of the different providers mentioned above bill under different reimbursement methodologies, which cause the varying costs of services provided by different types of providers. This is why emergency rooms are more expensive than urgent care centers, among other examples provided throughout Healthcare Whiz. The one distinction that is probably the most valuable to be aware of is the difference between the Medicare Physican Fee Schedule (MPFS), used to reimburse physicians and physician-owned practices, and the Hospital Outpatient Prospective Payment System (OPPS) used to reimburse hospital outpatient services. This is important because many of the same exact services that are provided by hospital outpatient departments are also provided by outpatient physician-owned practices at a significantly lower cost. Not to be redundant, but what we're saying is that the same service costs less simply because it's not provided by a hospital, and the price difference between the MPFS and the OPPS can be surprising. We always recommend utilizing your primary care and other treating physicians for advice when you are in need of a procedure, but in nonurgent situations, it is probably also sensible to shop around and compare prices.
Understanding the basics of Medicare reimbursement is useful because it allows us to compare costs between varying fee schedules and prospective payment systems, and these comparisons generally translate to private insurer costs as well. The most significant comparison is between the Medicare Physician Fee Schedule (MPFS) and the Outpatient Prospective Payment System (OPPS) because they cover many of the same services, but the MPFS is more affordable in the vast majority of cases. Thus, seeking care at a physician-owned practice as opposed to a hospital-owned practice can save patients money.
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