Medicare Advantage - Part 1

Disclaimer: This article contains no legal advice. This article is presented for Training Purposes Only. Legal Questions regarding Medicare Advantage should be addressed by a health care attorney.

Medicare Advantage is also known as Medicare Part C. IT used to be called Medicare + Choice.  Medicare Advantage is Medicare that is provided by private health insurance companies. Medicare Advantage could be an HMO, PPO, POS or a Fee For Service Plan. The Medicare Advantage patient should not use their Medicare Part A or B Card. The Medicare Advantage patient should present their Commercial Insurance Medicare Advantage Insurance Card.

When the Medicare patient joins a Medicare Part C or Medicare Advantage Insurance Program, they are still in Medicare. To belong to Medicare Advantage, the patient MUST have Medicare Parts A and B. In addition to paying their basic Medicare premiums, the Medicare Advantage patient could pay the Commercial Insurance Company additional premiums if the insurance company offers other benefits that Medicare does not provide.  Some Medicare Advantage Plans are also offering Medicare Part D Prescription Drug Coverage as an additional benefit.  Per the AARP Medicare Advantage Explained 2008 Manual, "You pay all or most of the cost of services outside the network", So, the patient is made aware of their out of pocket expenses. These higher out of pocket expenses are in the form of higher premiums or higher co-payments depending on the type of program requested. Many Medicare Patients have chosen to join a Medicare HMO program offered by many commercial insurance companies. It must be understood that some HMOs prefer protection of strong State HMO laws, however, when contacting the HMO regulatory authorities, their responses are that they have no jurisdiction over a Medicare HMO, the documents make reference to contacting the regional Centers for Medicare and Medicaid Services regional offices.

If the Medicare patient has a Medigap policy, and joins a Medicare Advantage program, Medigap does not work. The Medicare patient is encouraged to terminate their Medigap coverage when joining a Medicare Advantage program. Medigap will not pay any deductibles, co-payments or other out of pocket expenses when a patient joins a Medicare Advantage plan.  Medicare Advantage patients may be required to stay in network for healthcare cost saving but for a higher premium the patient may be able to seek care from an out of network provider. The provider and Medical Biller may face a patient who may have retained their Medigap coverage in the belief that their out of pocket expenses will be paid by their Medigap carrier. 

Medicare patients have the freedom of choice to sign a private contract with a provider. When a patient signs a private contract with a provider, no Medicare payments are made by the insurance company.  The patient must pay all costs in accordance with the terms of the private contract. The provider must agree in writing not to bill Medicare or the Medicare Advantage insurance company for any services for a period of 2 years. This is similar to the requirements of Opting Out of Medicare requirements.

The provider has a requirement to warn the patient that they can be billed for their medical care and that their Medicare Supplemental Insurance (Medigap) policies may not pay benefits. The patient-provider contract must be very clear that the patient has the right to seek medical care from another provider who has not entered into private contracts and who are permitted to bill Medicare.

Medicare Advantage plans are required to provide coverage for the same services allowed under Medicare Parts A and B. The insurance company must pass on to the patient any cost-savings they obtained. Cost savings could be as a result of paying a provider less than allowed. This is because the Medicare Advantage Insurance Company is paid a set fee, by Medicare, to provide healthcare to the Medicare patient. This could be in the form of capitation payments.
Providers who make a freedom of choice decision to be contracted with the Medicare Advantage Insurance Company should have their payment amounts and other requirements addressed in the Contract. Contract terms and conditions should be negotiated through the services of a health care attorney.

Per the CMS Medicare Advantage Guide for Out of Network Payments, dated October 1, 2008, Medicare Advantage insurance companies are permitted to establish their own fee-schedules and balance-billing rules, which, in some cases, differ from Private Fee For Service (PFFS) payment rates and balance-billing rules. Although a non-network PFFS plan must reimburse all providers at least at the FFS payment rate, a provider treating an enrollee of a PFFS plan will need to carefully examine the fee-schedule and balance billing rules of a PFFS plan to decide if the terms and conditions of participation warrant a decision to treat and be "deemed" a contracting provider. A decision to treat a specific PFFS plan enrollee does not require the provider to treat other PFFS plan enrollees. See section 150 of Chapter 4 of the Medicare Managed Care Manual.

Per page 19 of the MA Payment Guide for Out of Network Payments 10/01/08 Update

Medicare allows physicians to balance bill up to 15% of the non-par Medicare Fee Schedule (MFS) if they do not participate and do not accept assignment. Par physicians cannot balance bill. The non-par MFS is 95% of the par MFS. Therefore the balance billing limit is an extra 9.25% of the par MFS. Medicare pays 80% of the non-par MFS. The beneficiary is responsible for 20% of the non-par MFS plus 100% of the balance-billing amount.

The balance billing that is allowed for durable medical equipment has no set limit. Medicare pays 80% of the MFS and the beneficiary is responsible for the other 20% plus 100% of the balance-billing amount.

Under Medicare, balance billing is not allowed for most other services including hospital, SNF, home health, and lab. However, the OPD coinsurance percentage can vary by procedure and be more than 20%.

Some states have balanced billing rules for Medicare patients that are more restrictive than Medicare's own rules. As of 2007, states with balance billing prohibitions or limits included Connecticut, Massachusetts, Minnesota, New York, Ohio, Pennsylvania, Rhode Island and Vermont. Of course after 2007, there could be additional states with their own limits.

Private fee for service plans can choose in their terms and conditions whether or not to allow balance billing. They can choose to allow all types of providers to balance bill up to 15%. Therefore, their balance billing can be more than that allowed by original Medicare and more than would otherwise be allowed under State law due to MA preemption authority.

Medicare Medical Savings Account (MSA) Plans became available in 2007. These Medicare plans are similar to Health Savings Account plans available outside of Medicare, and they have two parts. The first part is a Medicare Advantage Plan with a high deductible. As with usual deductible requirements, MSAs won't pay for covered costs until the patient has met the annual deductible, which can vary by insurance plan. The second part is a Medical Savings Account into which Medicare deposits money that the person with Medicare may use to pay health care costs. More info on MSAs can be found through CMS Publication 11206, which can be found at

The following are Medicare Payment guidelines per the CMS MA Payment Guide for Out of Network Payments 10/01/08 Update

Acute Care Hospital - Inpatient Services
These hospitals are paid a DRG amount using the Medicare prospective payment system (PPS) in all states except Maryland. Software called the Pricer is used to determine much of the payment for each discharge, and these payments vary by hospital. Payment is 80% of the excess of the cost of an admission over the sum of the DRG payment (including IME and DSH) and a threshold amount. The threshold amount changes each year. The cost of an admission is generally determined by multiplying the hospital's cost to charge ratio by its charge.

Hospital Outpatient
Services subject to outpatient PPS are paid by the APC methodology. Other services, such as lab, are usually paid on a fee schedule. Physician fees are paid on the physician fee schedule. Hospitals exempt from outpatient PPS include those in Maryland, Indian Health Service, and Critical Access Hospitals. The PPS services are priced using the outpatient code editor, and the outpatient Pricer.

Home Health
Payments are made on a PPS basis. The payment groups are called HHRG's. These payments cover episodes of care up to 60 days. Adjustments are made for short stays and for outliers. Durable medical equipment is excluded from PPS and is instead paid on a fee schedule.

Skilled Nursing Facilities
SNF is paid on PPS. A case-mix adjusted payment for varying numbers of days of SNF care is made using one of roughly 50 or so Resource Utilization Groups, Version III (RUG-III). The RUG is identified in the first 3 positions of the HIPPS code. There may be an add-on for AIDS patients.

Critical Access Hospitals
These are certain small hospitals with limited lengths of stay for acute patients.
The inpatient and outpatient services, as well as swing beds, for these hospitals are paid on a reasonable cost basis. Ambulance is also paid costs if it is the only supplier within a certain number of miles. CAH's are generally paid 101% of costs.

If a physician elects to reassign their claims to the CAH (election of method II), the CAH is paid an extra 15% of Medicare's portion of the physician fee schedule amount. This election can only be made for hospital outpatient physician services.

The MA plan must also pay 115% of the Medicare physician fee schedule for physicians who have reassigned outpatient hospital claims under method II. In this case the hospital bills the physician services on the same bill as the hospital services. The MA plan then does what the FI's do; it pays the facility part of the bill to the hospital based on 101% of costs; and it pays 115% of the physician fee schedule to the hospital. The plan does not make payments directly to the physician if payments for a given service were paid directly to the hospital under method II.

Physician Services
Physicians are paid using the lesser of billed charges, or the Medicare Physician Fee Schedule (MFS). A 10% bonus is paid if these services are furnished in a health professional shortage area (HPSA). An additional 5% PSA bonus is payable through at least 6/30/08 in areas designated by CMS as "physician scarcity areas".

The fee schedule for physicians that do not participate in Medicare is 95% of the par fee schedule. Medicare pays 80% of the fee schedule payment after the Part B deductible is met, and the beneficiary coinsurance is 20%. Certain vaccines and a small number of other services may not be subject to the deductible, the coinsurance, or both. Psychotherapy, unless the patient is an inpatient in a hospital, has 50% coinsurance. Medicare calculates its payment as 80% of 62.5% of the allowed charge. Anesthesiologists have a unique payment under the MFS, and payment depends on base and time units as well as the participation of CRNA's.

Payments for physical therapy, speech, language, and occupational therapy have different rules, and some years are subject to annual payment limits per beneficiary. For example, so far in 2008, mostly for non-hospital settings, there are limits for PT and speech/language therapy combined; and a separate limit for OT. However, patients may qualify for exceptions to these limits, at least until 6/30/08, depending on medical necessity.

Medicare usually pays as follows for non-physician practitioner independent billings:

Physician Assistants: 85% MFS
Nurse Practitioner: 85% MFS
Clinical Nurse Specialist: 85% MFS
Registered dietician: 85% MFS
Clinical Psychologist: 100% MFS
Clinical Social Worker: 75% MFS
Audiologist, Chiropractor, Podiatrist, Optometrist, and Dentist: 100% MFS
Assistant at surgery: If a physician is the assistant, payment is 16% MFS. If a physician assistant is the assistant, payment is 85% times 16% MFS.
Co-surgery: MFS increased by 25%; then split between 2 doctors. Each then paid 62.5% MFS.
Nurse midwife: 65% MFS

Plans must also provide the "Welcome to Medicare" benefit, if applicable, under the same circumstances as original Medicare.

See part 2 of this article in the April/May issue of BC Advantage.

Steven M. Verno, CMMC, CMMB, NREMT-P
Professor, Medical Coding and Billing Instruction, Florida Metropolitan University
Director of Reimbursement, Coding and Billing Training and Consultant, Emergency Medicine Specialists. Contact him at