Medicare reimburses SCHs for operating costs associated with inpatient services provided to program beneficiaries at the greater of the federal payment rate applicable to the hospital i.e., the payment that the hospital would otherwise receive under the inpatient service prospective payment system ("PPS") or a rate set by the hospital. However, if the SCH's patient load exceeds certain thresholds, it may be necessary for the hospital to obtain a waiver from the Secretary of Health and Human Services before it can continue to receive payments. If this occurs, the hospital cannot charge more than the amount allowed by law for an inpatient service.
In addition to the above-described reimbursement method, Medicare pays SCHs 100 percent of their reasonable cost for operating expenses not subject to the PPS (such as salaries). The Secretary determines what costs are considered reasonable based on generally accepted accounting principles.
The reasonable cost requirement applies only to new programs that open for business after 3/31/93. It is important to note that although they are required to be reasonable, SCHs are not required to use all of their income to repay Medicare. Rather, they may retain some of its proceeds for other purposes. For example, if a SCH has net income after taxes of $1 million but owes $10 million in debt, it can retain $900,000 of the net income for debt repayment without affecting its Medicare reimbursements.
The Centers for Medicare and Medicaid Services (CMS) reimburses hospitals for the treatment they deliver to Medicare patients through a payment system known as the inpatient prospective payment system (IPPS). Every year, CMS modifies the IPPS payment rates for the next fiscal year (FY). It also has the authority to modify those rates annually after reviewing hospital financial data called "risk-adjusted patient accounting data." The agency uses this power primarily when a hospital's performance falls below that of other hospitals with similar levels of care.
Medicaid pays hospitals on a per diem basis for each admission. This means that the more a hospital admits individuals who are eligible for Medicaid, the more it will be paid. Eligible individuals or families may have many different types of coverage, including Medicare. In addition, some states require that all Medicaid recipients enroll in the program. So, if someone isn't eligible for Medicaid but receives health services from a Medicaid-funded facility, then the facility is being paid per diem for that person's stay.
Hospitals generally receive a fixed amount of money from either Medicare or Medicaid to cover their costs. These payments are known as lump sums or capitation payments. For example, a hospital might receive $1 million from Medicare to cover its costs for treating all Medicare patients during the period beginning January 1 and ending June 30. If the hospital treated fewer than five Medicare patients, it would not be paid.
The medical expenditures are subsequently reimbursed directly to the service provider by Medicare. Typically, the insured individual will not be required to pay the cost for medical treatment in advance and then make a claim for reimbursement. Medicare has agreed to pay providers the Medicare-approved reimbursement level for their services.
Medical treatments that are not considered reasonable and necessary for the diagnosis or treatment of an illness or injury can be denied coverage by your insurance company. For example, if you have hospital insurance but you visit an emergency room because you fell down some stairs and need stitches, your insurance company cannot be asked to pay for this expense. They can decide what amount is enough to cover your visit and any related tests or treatments.
However, if your insurance company fails to give you notice about limitations on coverage and doesn't tell you how to get additional information, you may be able to file a claim. For example, if you don't know you can't claim expenses for visits to emergency rooms, there's no way for your insurance company to notify you. Notice should also include information about where to send requests for reconsideration or appeals if you are denied part of your claim.
If you believe your insurance company is incorrectly denying claims, call them first before filing an appeal with the government. It may be possible to work out a deal where they will pay you part of the claim if you agree to let them deny it later if the condition worsens.
The patient pays all charges at the time of service and takes the receipt home to submit to their insurance company for reimbursement. If a patient is referred to another provider or admitted to the hospital, the insurer is billed based on the specialist physician's or hospital's participation. These bills are called "chargemaster" rates because they are the maximum amount that can be charged for services provided by these professionals.
Doctors can choose whether or not to participate in this fee-for-service system. If they do, they can charge whatever they want and collect it all. If they don't, they must file a fixed price statement with their state medical board setting forth their professional rate. This prevents them from charging excessive amounts for services rendered.
Hospitals also have choice about whether they will participate in this system. If they do, they can set their own fees which may be higher than what is listed on the chargemaster. If they don't, their only source of income is through Medicare and Medicaid which require that care be provided without charge to the patient. As you can see, hospitals have an incentive to raise their fees because more money means more profits. However, under federal law, hospitals can't charge more than what is listed on their chargemaster because patients have no way of knowing what other providers are charging.