CBCS Reimbursement 2 — Questions and Answers
Question 1: What is the Medicare Physician Fee Schedule (MPFS)?
- A list of physicians who accept Medicare assignment
- A payment system used by Medicare to determine reimbursement for physician and outpatient services based on Resource-Based Relative Value Units (RBRVUs) (Correct answer)
- The maximum charge a physician can bill Medicare patients
- A schedule of approved diagnostic codes for Medicare billing
Correct answer: A payment system used by Medicare to determine reimbursement for physician and outpatient services based on Resource-Based Relative Value Units (RBRVUs)
The Medicare Physician Fee Schedule determines payment for physician services using a formula based on Relative Value Units (RVUs) for work, practice expense, and malpractice, multiplied by a conversion factor.
MPFS payment = (Work RVU × Work GPCI + Practice Expense RVU × PE GPCI + Malpractice RVU × MP GPCI) × Conversion Factor. GPCI = Geographic Practice Cost Index (adjusts for geographic cost differences). The conversion factor changes annually through the Medicare Physician Payment schedule. CMS publishes the MPFS annually. Physicians who accept 'assignment' agree to accept the Medicare-approved amount as payment in full.
Question 2: What is a prospective payment system (PPS)?
- A system where providers are paid retrospectively based on actual costs incurred
- A reimbursement method where predetermined fixed payments are made for services based on diagnosis or procedure categories (Correct answer)
- A system that pays providers a flat monthly fee per patient regardless of services
- A reimbursement structure based on the number of patients seen per day
Correct answer: A reimbursement method where predetermined fixed payments are made for services based on diagnosis or procedure categories
Under a prospective payment system, payment amounts are predetermined based on the patient's diagnosis or procedure category, encouraging efficiency and cost control.
Medicare uses PPS for most provider types. Hospital inpatient PPS uses Diagnosis-Related Groups (DRGs) — a fixed payment based on the principal diagnosis, procedures, comorbidities, age, and discharge disposition. Hospital Outpatient PPS uses Ambulatory Payment Classifications (APCs). Skilled Nursing Facility PPS uses Patient-Driven Payment Model (PDPM). PPS creates incentives for providers to be efficient. If treatment costs less than the PPS amount, the provider profits; if more, the provider absorbs the loss.
Question 3: What is a contractual adjustment in medical billing?
- A penalty assessed for late claim submission
- The difference between the provider's billed charge and the amount agreed upon in the payer contract (write-off) (Correct answer)
- An adjustment made to correct a coding error
- A supplemental payment for unusually complex cases
Correct answer: The difference between the provider's billed charge and the amount agreed upon in the payer contract (write-off)
A contractual adjustment is the amount written off because of an agreement between the provider and the payer. It represents the difference between the full charge and the contracted (allowed) rate.
When a provider is contracted with a payer, they agree to accept the payer's allowed amount as payment in full. The difference between the billed charge and the allowed amount is the contractual adjustment — it cannot be billed to the patient. For example: Billed $200, Allowed $120 = $80 contractual adjustment. After the adjustment, the remaining $120 is split: insurance pays $96 (80%), patient owes $24 (20% coinsurance). Proper posting of contractual adjustments is essential for accurate AR management.
Question 4: What does DRG stand for and how is it used in hospital billing?
- Diagnosis-Related Group — a classification system that determines fixed Medicare payment for inpatient hospital stays based on the patient's diagnosis and treatment (Correct answer)
- Diagnostic Revenue Generator — a billing code for hospital outpatient procedures
- Drug Reimbursement Guide — a formulary list for hospital pharmacy billing
- Discharge Resource Group — a classification used for post-acute care placement
Correct answer: Diagnosis-Related Group — a classification system that determines fixed Medicare payment for inpatient hospital stays based on the patient's diagnosis and treatment
DRG (Diagnosis-Related Group) is the classification system Medicare uses to determine fixed payment amounts for inpatient hospital stays. Each DRG has a relative weight that determines the payment amount.
DRGs were implemented by Medicare in 1983 as part of the Inpatient Prospective Payment System (IPPS). Hospital coders assign an MS-DRG (Medicare Severity-DRG) based on the principal diagnosis, secondary diagnoses (complications/comorbidities), procedures, discharge status, age, and sex. The base payment rate is multiplied by the DRG's relative weight and adjusted for geographic wage index, indirect medical education (IME), and disproportionate share hospital (DSH) adjustments. Accurate diagnosis and procedure coding directly impacts DRG assignment and hospital revenue.
Question 5: What is capitation in managed care reimbursement?
- A per-visit fee paid to specialists for each patient encounter
- A fixed monthly payment per enrolled member made to providers, regardless of the number of services provided (Correct answer)
- A bonus payment for achieving quality benchmarks
- A fee-for-service arrangement with a negotiated discount
Correct answer: A fixed monthly payment per enrolled member made to providers, regardless of the number of services provided
Capitation is a payment model where providers receive a fixed monthly payment per enrolled patient (per member per month — PMPM) regardless of how many services that patient uses.
Capitation shifts financial risk to the provider. If a patient uses fewer services, the provider profits from the capitated payment. If a patient requires extensive care, the provider may lose money. Capitation is common in HMO arrangements where the PCP is 'capitated' to manage all primary care. It incentivizes preventive care and efficient resource use. Billing departments must accurately track capitated patients (identify them at check-in) and understand that fee-for-service billing does NOT apply to capitated services.
Question 6: What is the purpose of the Medicare fee schedule's Geographic Practice Cost Index (GPCI)?
- To adjust payments based on the complexity of the patient's condition
- To adjust Medicare physician fee schedule payments to reflect the cost of providing services in different geographic areas (Correct answer)
- To determine a physician's specialty-specific payment rate
- To calculate the bonus payments for rural healthcare providers
Correct answer: To adjust Medicare physician fee schedule payments to reflect the cost of providing services in different geographic areas
The GPCI adjusts each component of the RVU (work, practice expense, malpractice) to account for geographic differences in costs, ensuring fair payment across different regions of the country.
CMS updates GPCIs every 3 years. There are three GPCI values for each locality: Work GPCI (reflects physician work relative costs), Practice Expense GPCI (reflects costs of office rent, staff wages), and Malpractice GPCI (reflects malpractice insurance costs). High-cost areas like Manhattan have higher GPCIs; rural areas have lower GPCIs. CMS sets a floor of 1.0 for work GPCI in many areas to support rural healthcare access. GPCIs are applied to each RVU component in the MPFS payment formula.
CBCS Reimbursement 2
What is the Medicare Physician Fee Schedule (MPFS)?