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When a Capitated Payment Arrangement Makes Sense

Written by Brian Werfel on . Posted in Medicare, Member-Only, Reimbursement, Talking Medicare.

Question

We operate a mid-sized ambulance services in the Midwest. Recently, one of our local hospitals entered into an agreement to become part of a large health system. We are increasingly being asked to transport patients from this local hospital to an affiliated facility in the neighboring city. These patients are being transported for consultations, medical tests, etc., and then being transported back to the local hospital. These transports become the financial responsibility of the health system, which has resulted in our monthly invoices to the hospital increasing nearly ten-fold over the past year. Recently, the hospital approached us with a proposal to move to a capitated payment arrangement. Are these arrangements permissible? And, if so, are there any “dos” and “don’ts” we should know about?

Answer

As the AAA’s Medicare Consultant, I am probably asked this question, or some variation of this question, several times a month. To me, these questions are a natural reaction by our industry to one of the larger tectonic shifts in health care over the past decade, namely the increasing footprint of national and regional hospital health care systems. According to the American Hospital Association, approximately 65% of hospitals nationwide were part of a larger health system in 2016. This is up from 51% in 1995. As these health systems have grown larger, ambulance providers are increasingly looking for alternatives to the traditional fee-for-service payment models.

Broadly defined, a “capitated payment” arrangement is any arrangement where the facility pays the ambulance provider a set amount to cover all or a portion of the transportation costs it incurs during a period of time, without regard to the specific volume of transports. A simple example would be a flat monthly fee for all transportation costs.

There is nothing in federal law that prohibits the use of capitated payment arrangements. The HHS Office of the Inspector General has signed off on capitated payment arrangements in numerous contexts, including the compensation paid to insurers under the Medicare Advantage Program (Medicare Part C). In fact, it could be argued that the Medicare Ambulance Fee Schedule includes some principles of capitation, e.g., it does not reimburse ambulance providers separately for certain ancillary services.

Therefore, capitated payment arrangements are something ambulance services can consider offering to their facility counterparties. However, you should aware that the normal prohibitions under the federal anti-kickback statute continue to apply. To the extent the OIG has a concern related to capitated payment arrangements, that concern would be that the capitated payment amount is used as a means of disguising an otherwise impermissible discount being offered to a potential referral source. In other words, the capitated payment must be structured in a way that avoids any improper remuneration to a potential referral source.

The arrangements do offer several advantages to both the ambulance provider and the facility. For the ambulance provider, the primary advantage is a stable, steady source of cash. However, there are other advantages, including the administrative benefits associated with submitting a simple monthly invoice, rather than a detailed invoice listing numerous transports. Many providers also find that a flat rate reduces tensions with the facilities, as they don’t have to engage in negotiations over why a particular transport is being billed to the facility. For the facility, the primary benefit is that it fixes their costs for transport during each measuring period. An ancillary benefit is that it offers a measure of insurance against unforeseen events (e.g., an MRI machine at hospital breaks down for an extended period of time, and as a result, the hospital is forced to incur the costs of sending patients to an affiliated facility for testing). Generally speaking, as the total volume of services rises, the benefits to moving away from a fee-for-service model also increases.

As noted above, capitated payment arrangements come in many forms, ranging from relatively simple to mind-numbingly complex. However, all arrangements share certain common features. The first is an estimate of the volume of services the facility would be purchasing from the ambulance service during any particular measuring period (hereinafter referred to as the “volume benchmark”). To the extent you are currently the facility’s vendor, this could be calculated based on past volume. This is then multiplied by the “price” of each service to arrive at the amount of the capitated payment. For example, if past history indicates that a facility pays for an average of 100 ambulance transports per month, and the parties agree to a rate of $200 per trip, then the monthly payment would be $20,000 per month. This monthly rate would stay the same regardless of whether the facility ends up responsible for 20 trips in the next month, or 200.

This brings us to one of the key features to a properly structured capitation agreement, i.e., both parties should have some degree of “risk” under the arrangement. In the example listed above, the facility runs the risk that the actual volume of services it would have otherwise been responsible for is less than the estimated 100. If so, it would have essentially paid more than $200 per transport. The ambulance provider bears the opposite risk, i.e., if the number of transports the facility would have paid for ends up being more than 100, it ends up receiving less than $200 per transport. As long as both parties bear risk, the arrangement is permissible.

If, however, one party bears no actual risk under the arrangement (e.g., because the monthly payment is based on an unreasonably low volume benchmark), the OIG could see the arrangement as a disguised way of rewarding the facility for other referrals. Thus, the key to any capitated arrangement is a good-faith estimate of the number of services involved. Please note that there is nothing wrong within incorporating language to adjust the monthly payment if the actual volume over any period of time is radically different than the volume benchmark. For example, I frequently include language that calls for the monthly payment to be recalculated if the actual volume is 20% more or less than the volume benchmark over any calendar quarter. These adjustments can be made prospectively (i.e., they only apply to future monthly payments) or they can be paid retroactively. To the extent you want to include an adjustment mechanism, the guiding principle is that any adjustment should be for the purpose of better estimating the volume benchmark.

Capitated payment arrangements may not be appropriate for all ambulance providers. However, as fee-for-service becomes an increasingly smaller portion of your facility partners’ operations, it may make sense to consider these arrangements.

Have an issue you would like to see discussed in a future Talking Medicare blog? Please write to me at bwerfel@aol.com.

A Preliminary Estimate of 2017 Medicare Rates

Written by Brian Werfel on . Posted in Finance, Medicare, Member-Only, Talking Medicare.

 On July 15, 2016, the Bureau of Labor Statistics released its monthly report on inflation.  This release includes the change in the Consumer Price Index for all urban consumers (CPI-U) for June 2016.  As a result, it is now possible to make a preliminary estimate of the Ambulance Inflation Factor (AIF) for calendar year 2017.  The AIF is main factor that determines the increase (or decrease) in Medicare’s payment for ambulance services.

Calculating the 2017 AIF

 The AIF is calculated by measuring the increase in the consumer price index for all urban consumers (CPI-U) for the 12-month period ending with June of the previous year.  For 2017, this means the 12-month period ending on June 30, 2016.  Starting in calendar year 2011, the change in the CPI-U is reduced by a so-called “productivity adjustment”, which is equal to the 10-year moving average of changes in the economy-wide private nonfarm business multi-factor productivity index (MFP).  The resulting AIF is then applied to the conversion factor used to calculate Medicare payments under the Ambulance Fee Schedule.

The formula used to calculate the change in the CPI-U is limited to positive increases.  Therefore, even if the change in the CPI-U was negative over a 12-month period (a rarity in the post-war era), the change in the CPI-U cannot be negative.  However, when the MFP reduction is applied, the statute does permit a negative AIF for any calendar year.  That is precisely what occurred in 2016, where the change in the CPI-U was 0.1% and the MFP was 0.5%.  As a result, the industry saw an overall reduction in its Medicare rates of 0.4%.

Fortunately, it seems unlikely that we will see a negative AIF in 2017.  For the 12-month period ending in June 2016, the Bureau of Labor Statistics (BLS) currently calculates the change in the CPI-U to be exactly 1.00%.

CMS has yet to release its estimate for the MFP in calendar year 2017.  However, assuming CMS’ projections for the MFP are similar to last year’s projections, the 2017 MFP is likely to be in the 0.5% range.

Therefore, at this time, my best guess is that the 2017 Ambulance Inflation Factor will be a positive 0.5%.

Please note that this estimate assumes the Bureau of Labor Statistics does not subsequently revise its inflation estimates.  Please note further that this projection is based on the MFP being similar to last year.  To the extent either of these numbers changes in the coming months (up or down), my estimate of the 2017 AIF would need to be adjusted accordingly.  Ultimately, the 2017 AIF will be finalized by CMS by Transmittal, which typically occurs in the early part of the 4th quarter.

Impact on the Medicare Ambulance Fee Schedule

 Assuming all other factors remained the same, calculating your 2017 Medicare rates would be a relatively simple exercise, i.e., you would simply add 0.5% to your 2016 rates.  However, as part of its 2017 Physician Fee Schedule Proposed Rule (issued on July 15, 2016), CMS proposed extensive changes to the GPCIs.   These changes can be viewed by going to the Physician Fee Schedule page on the CMS website and clicking the link for the “CY 2017 PFS Proposed Rule GPCI Public Use Files” (located in the Downloads section).  You would then need to open the file for “CY 2017 Proposed Addendum E.”

If the PE GPCI in your area is proposed to increase, you can expect your 2017 Medicare rates to increase by slightly more than 0.5%.  If the PE GPCI in your area is proposed to decrease, you can expect your 2017 Medicare rates to increase by slightly less than 0.5%.

If you are looking for a more precise calculation of your rates, you will need to use the following formulas:

Ground Ambulance Services

Medicare Allowable = (UBR x .7 x GPCI) + (UBR x .3)

Air Ambulance Services

Medicare Allowable = (UBR x .5 x GPCI) + (UBR x .5)

 In this formula, the “UBR” stands for the unadjusted base rate for each HCPCS code.   These are calculated by multiplying the national conversation factor by the relative value unit assigned to each base rate.  To save some time, estimates for the 2017 unadjusted base rates are reproduced below:

Base Rate (HCPCS Code)

 2017 Unadjusted Base Rate
BLS non-Emergency (A0428)                     $221.84
BLS emergency (A0429)                     $354.95
ALS non-emergency (A0426)                     $266.21
ALS emergency (A0427)                     $421.51
ALS-2 (A0433)                     $610.08
Specialty Care Transport (A0434)                     $721.00
Paramedic Intercept (A0432)                     $388.23
Fixed Wing (A0430)                     $3,010.52
Rotary Wing (A0431)                     $3,500.17

 

Plugging these UBRs into the above formulas will result in adjusted base rates for each level of ground and air ambulance service.  The final step would be to apply the current adjustments for urban (2%), rural (3%) and super-rural (22.6% over the corresponding rural rate).

2017 Projected Rates for Mileage:

At this time, I am estimating the following rates for Medicare mileage:

Base Rate (HCPCS Code) 2017 Unadjusted Base Rate
Ground Mileage – Urban                     $7.28
Ground Mileage – Rural Miles 1 – 17                     $11.02
Ground Mileage – Rural Miles 18+                     $7.35
Fixed Wing Mileage – Urban                     $8.54
Fixed Wing Mileage – Rural                     $12.81
Rotary Wing Mileage – Urban                     $22.79
Rotary Wing Mileage – Rural

 

                     $34.19

Please keep in mind that a number of assumptions went into these projections.  The Bureau of Labor Statistics can revise its inflation figures in the coming months.  CMS may announce an MFP projection that differs from what we expect.  CMS may also announce that it is electing not to finalize its proposed changes to the GPCI (highly unlikely).   If any of these assumptions was to change, these projections would need to be revised.  Therefore, I would suggest that you view these as rough estimates at best.  The AAA will update members as more information becomes available in the coming months. 

Have an issue you would like to see discussed in a future Talking Medicare blog?  Please write to me at bwerfel@aol.com.

AAA 2016 State Medicaid Ambulance Rate Survey Results Released

Written by Brian Werfel on . Posted in Medicaid, Reimbursement, Talking Medicare.

Just Released!

View the AAA 2016 State Medicaid Rate Survey Results

Normally this blog focuses on an area of Medicare reimbursement or compliance.  However, this month I want to talk about Medicare’s companion program, Medicaid.

When you talk to ambulance providers around the country about their State’s Medicaid Program, a universal truth emerges: no one believes their Medicaid Program fairly reimburses them for their services.  This statement is not particularly controversial.  The Government Accountability Office has on several occasions looked at the relationship between our industry’s costs and Medicare’s payment, and has consistently determined that Medicare fails to adequately reimburse us for our costs.  Given that Medicaid payments are usually some fraction of what Medicare pays, there is really no debate that our industry loses money transporting Medicaid patients.

What I find more interesting is the sheer number of people that are convinced – – and I mean absolutely convinced – – that their state has the lowest Medicaid rates in the country.  Call it a reverse Lake Wobegon effect.  Of course, not everyone can be right.  Only one state can have the lowest ambulance rates (answer below).  Conversely, only one state can hold the honor of having the highest rates.  But how to settle these questions?

Well, the AAA has the answer.  On behalf of the AAA, I am pleased to announce the release of the American Ambulance Association’s 2016 State Medicaid Rate Survey.  This survey sets forth the fee-for-service Medicaid rates for all 50 states.  For each state, the Survey lists the rate paid for each of the following procedure codes:

  • A0428 – BLS Non-Emergency
  • A0429 – BLS Emergency
  • A0426 – ALS Non-Emergency
  • A0427 – ALS Emergency
  • A0433 – ALS-2
  • A0434 – SCT
  • A0225 – Neonate Transport
  • A0998 – Treatment, No Transport
  • A0425 – Mileage
  • A0422 – Oxygen
  • A0382/A0398 – BLS/ALS Routine Disposable Supplies
  • A0420 – Wait Time
  • A0424 – Extra Attendant

While I can promise that we have taken steps to verify the information on this Survey, neither the AAA nor myself can guarantee its accuracy.  The rates set out in this survey are based on publicly available information provided by the various State Medicaid agencies, and may not reflect changes to a state’s reimbursement policy that have not been made publicly available.  They will also reflect any emergency budgetary measures or other temporary reductions imposed by a state.  That said, our goal is to make this as accurate as possible.  Therefore, if you believe the rates for your state are inaccurate, I would ask you to please email me at bwerfel@aol.com, and to provide me with updated information.

I can feel some of you thinking at this point: “This is all fine and good, but how does this actually help me?”  Fair question.  At a minimum, it will probably make some of you feel better that your state is not actually the lowest.  Others may be fairly surprised to find that their state, which they believed to be at or near the bottom, is actually closer to the middle of the road.  Many of your states are expanding their managed Medicaid programs, and you find yourself trying to determine whether it makes sense to contract with the MCO (or its transportation broker).  Many of these transportation brokers service multiple states, and may be offering rates based on their rates offered by the State Medicaid agency in the state in which they are headquartered (I know it will come as a shock that many of the new MCOs seem unaware that coverage rules differ in each state).  We are also aware of instances in which a state association has used past rate surveys as part of a comprehensive strategy to lobby their state legislature for a rate increase, e.g., by demonstrating that the current rates paid by the state are far lower than the rates paid in neighboring states.

Regardless of whether (or how) you intend to use this Survey, I encourage all AAA members to check it out.

Answer: New Jersey has the lowest payment for both emergency and non-emergency transport, at a listed rate of $58.00, plus $1.50 per mile (for the first 15 miles, $2.00 for each mile thereafter).  For sake of comparison, a taxi from Newark Airport to midtown Manhattan (a distance of 17 miles) will typically run around $70.00 (plus tip).

 

Have an issue you would like to see discussed in a future Talking Medicare blog? Submit a question today!

 

 

Understanding the GAO’s Recent Report on Medicare Prepayment and Postpayment Reviews

Written by Brian Werfel on . Posted in Reimbursement, Talking Medicare.

On May 13, 2016, the Government Accountability Office (GAO) publicly released a report on the comparative effectiveness of the various audit programs used by the Centers for Medicare and Medicaid Services (CMS) and its various contractors. This report was requested by Senator Orrin Hatch, the Chairman of the Senate Finance Committee, who had asked the GAO to examine: (1) the differences between prepayment and postpayment reviews and the extent to which CMS contractors utilize each, (2) the extent to which contractors focus their reviews on particular types of claims, and (3) CMS’ cost per review, and the amount of improper payments identified by contractors for each dollar they are paid.

To briefly summarize the GAO’s findings:

  • The Recovery Audit Contractors (RACs) generally limited themselves to conducting postpayment reviews. The GAO attributed this to the fact that the RACs were paid contingency fees based on recovered overpayments, i.e., because prepayment reviews result in a claim never being paid in the first place, there is no “overpayment” to be recovered, and, therefore, no contingency fees to be paid. The GAO did note that from 2012 to 2014, CMS conducted a demonstration project in which the RACs conducted prepayment reviews (and were paid contingency fees based on the dollar amount of denied claims), which CMS considered to be a success.
  • The Medicare Administrative Contractors (MACs) generally limited themselves to conducting prepayment reviews.
  • Each contractor also tended to specialize in certain types of claims. For example, the GAO noted that during 2013 and 2014, the RACs tended to focus primarily on inpatient hospital claims. The GAO found that the MACs tended to focus on physician and durable medical equipment claims. Note: the GAO included claims for ambulance services within the larger category of “physician” claims.
  • The RACs identified a total of $4.5 billion in improper payments during 2013 and 2014. For their work, the RACs were paid contingency fees totaling $312 million, a return of approximately $14 in improper payments for every dollar paid to the RACs.
  • CMS lacked reliable data on the costs and effectiveness of its MACs program integrity reviews.

The GAO made two specific recommendations. First, it recommended that CMS seek legislation that would permit its RACs to conduct prepayment claims reviews. Second, it recommended that CMS develop written guidance on how its MACs should calculate the savings attributable to prepayment claims reviews. CMS disagreed with the first recommendation, believing it unnecessary in light of other programs intended to move CMS away from “pay and chase”, including prior authorization and enhanced provider enrollment screening. CMS agreed with the second recommendation.

Focus on the RACs

For the years 2013 – 2014, the GAO found that the RACs focused primarily on hospital inpatient claims. For example, the GAO found that 78% of the FY 2013 claims reviewed by the RACs were hospital inpatient claims. While this number declined to 47% in FY 2014, that decline was largely attributable to CMS, under its own authority and subsequent legislation, prohibiting the RACs from reviewing certain inpatient stays during the first part of FY 2014. If you look only at postpayment reviews, the numbers were even higher, 87% in FY 2013 and 64% in FY 2014.

So why were the RACs focused on hospital inpatient claims, largely to the exclusion of other types of claims? The GAO believes the answer lies in how the RACs are compensated for their work. Recall that the RACs are paid contingency fees (of between 9% – 17.5%) based on the amount of the recovered overpayments. Given this fee structure, the GAO believed it was logical for the RACs to focus on claims with higher average dollar amounts per claim. The following chart shows the average amount of the improper payment identified by the RACs on a per-claim basis:

As you can see, the average overpayment for an inpatient hospital claim was more than $3,000 in FY 2013, compared with slightly more than $300 for a physician (or ambulance) claim. Assuming a 10% contingency fee, this means the RAC could expect to receive $300 for each inpatient hospital claim it reviewed, compared with $30 for a physician claim. Given these financial incentives, the RACs decision to focus on inpatient hospital claims makes sense.

Focus on the MACs

In contrast to the RACs, the Medicare Administrative Contractors focused their program integrity activities almost exclusively on prepayment reviews. The following chart shows the breakdown of MAC reviews by provider type:

As you can see, the MAC largely focused on physician and DME claims, with physician claims (including ambulance claims) accounting for 49% of MAC reviews in FY 2013 and 55% of MAC reviews in FY 2014.

The efficacy of these reviews is unclear. This is largely due to the failure by CMS to collect consistent data on the savings from prepayment claims denials. At least 3 MACs failed to provide data on the specific funds they spent on prepayment and postpayment reviews. Instead, these MACs reported their costs as part of their broader claims processing activities. MAC also used different methods for calculating the savings from prepayment reviews. For example, 2 MACs used the billed amounts by providers to calculate total savings from denied claims, despite the Medicare allowables being significantly lower than the amounts normally billed by providers. 9 MACs used the total Medicare allowable, without differentiating between Medicare’s payment and the payments made by secondary insurers and/or patients. The remaining 5 MACs compared denied claims to similar claims that were paid to estimate what Medicare saved on claims denied as part of prepayment reviews.

Impact on Ambulance Providers and Suppliers

The key finding in this report is the GAO’s belief that prepayment reviews are generally more cost-effective in preventing improper Medicare payments. The GAO believes this is because prepayment reviews “limit the need to recover overpayments through the “pay and chase” process, which requires administrative resources and is not always successful.”

While the GAO and CMS are in agreement that Medicare should move away from postpayment reviews, they appear to disagree on how, exactly, to implement that transition. The GAO’s report makes clear its belief that CMS should devote greater resources to prepayment reviews, with the GAO specifically recommending that CMS seek legislative authority to empower its RACs to take a greater role in conducting prepayment reviews. By contrast, CMS appears to favor prior authorization programs.

Only time will tell which of these views gains prominence. In the meantime, ambulance providers and suppliers should expect to see the RACs take an increasing interest in our industry.

Have an issue you would like to see discussed in a future Talking Medicare blog? Submit your question!

Indian Health Service Issues Final Rule on Payments to Non-Contracted Providers

Written by Brian Werfel on . Posted in Government Affairs, Medicare, Member Advisories, Talking Medicare.

On March 21, 2016, the Indian Health Service (IHS), an agency with the Department of Health and Human Services, issued a final rule with comment period titled “Payment for Physician and Other Health Care Professional Services Purchased by Indian Health Programs and Medicare Charges Associated with Non-Hospital-Based Care.” This final rule will change the way the Indian Health Service pays for Purchased/Referred Care (PRC), formerly known as Contract Health Services (CHS). The provisions of this final rule will become effective on May 20, 2016.

Under current regulations, payment for PRC services is based on rates established by arms-length negotiations between the physician or other health care provider (including ambulance providers and suppliers) and the IHS, Tribe, Tribal Organization or urban Indian organizations (collectively referred to hereinafter as I/T/U programs). In the absence of an agreement, the health care provider is generally paid its full billed charges.

Provisions of Final Rule

The final rule amends the regulations at 42 C.F.R. 136.1 e. seq. to provide that payment for PRC services will now be based on Medicare payment methodologies. Specifically, payments would generally be set at the lowest of: (1) the amount provided for such service under the applicable Medicare fee schedule or Medicare waiver, (2) the amount negotiated with a specific provider or its agent, or the amount negotiated by a repricing agent, if applicable, or (3) the rate for such service paid by the health care provider’s or supplier’s “Most Favored Customer” (MFC). For these purposes, IHS has indicated that the MFC rate will be evidenced by commercial price lists or paid invoices and other related pricing and discount data.

While the previous paragraph sets forth the general rate-setting regime, a number of important exceptions will apply. First, any negotiated rate between the parties must be equal to or better than the provider’s or supplier’s MFC rate. The AAA is interpreting this requirement to require the provider or supplier to offer better (i.e. lower pricing) to the I/T/U program than it offers to any nongovernmental entities, including insurance plans. However, IHS indicated that this restriction would not apply to the extent the I/T/U program determines that the negotiated rate is otherwise fair and reasonable, and is otherwise in the best interests of the I/T/U (as determined by the I/T/U). Second, in the event that no agreement exists, and the Medicare Fee Schedule amount is greater than the provider’s or supplier’s MFC rate (i.e. the provider or supplier has voluntarily elected to accept a rate lower than the corresponding Medicare allowable from at least one nongovernmental entity), then the rate may not exceed the MFC rate, but may be lower than the MFC rate.

The final rule can be viewed in its entirety here.

The GAO Releases New Report on Claims Review Programs, Recommending Additional Prepayment Review Authority and Written Guidance on Calculating Savings from Prepayment Review

Written by Kathy Lester on . Posted in Government Affairs, Medicare, Member Advisories, Reimbursement, Talking Medicare.

On Friday, May 13, the Government Accountability Office (GAO) publicly released a new Medicare report entitled, “Claim Review Programs Could Be Improved with Additional Prepayment Reviews and Better Data,” which it shared with the Congress and the Centers for Medicare & Medicaid Services (CMS) in April. The report is addressed to the Senate Finance Committee Chairman Orrin Hatch (R-UT) in response to his request.

The Report examines:

1. The differences, if any, between prepayment and post-payment reviews, and the extent to which the contractors utilize these types of reviews;

2. The extent to which the Medicare claim review contractors focus their reviews on different types of claims; and

3. CMS’s cost per review and the amount of improper payments identified by the claim review contractors per dollar paid by CMS.

In compiling the Report, the GAO reviewed Administration documents, interviewed CMS officials, Recovery Auditors (RAs), and Medicare Administrative Contractors (MACs). The GAO also interviewed representatives from 10 Medicare provider/supplier organizations that have experienced claim reviews on both a pre- and post-payment review basis. The AAA worked the GAO by participating in a telephone interview and providing written comments.

The GAO examined three types of contractors – the RAs, the MACs, and the Supplemental Medicare Review Contractor (SMRC). These contractors are responsible for reviewing claims that are at high risk of improper payment and claims that pose the greatest financial risk to Medicare. Only MACs conduct both pre- and post-payment reviews. RAs and the SMRC conduct only post-payment reviews, but RAs did participate in a pre-payment review demonstration project. RAs are paid on a contingent basis from recovered overpayments. During the demonstration, RAs were paid contingency fees based on claim denial amounts.

In its review, the GAO found that few differences exist between pre- and post-payment reviews, but noted that pre-payment reviews “better protect Medicare funds.” The GAO found that CMS is not always able to collect overpayments from post-payment reviews and that post-payment reviews require more administrative resources than pre-payment reviews.

The provider/supplier organizations highlighted two issues that need to be resolved with regard to pre-payment review audits. First, they identified that the option to hold discussions with RAs before payment determinations are made in the context of post-payment reviews can be helpful. These discussions are not part of the pre-payment review process; nor are they part of the MAC process. CMS indicated that it is not practical to have such an option in these contexts because of the timing requirements.

Second, the providers/suppliers noted that pre-payment reviews create cash flow burdens, in light of the appeals process. When appealing a post-payment review, providers/suppliers retain their Medicare payments through the first two rounds of review. If the denial is overturned at a higher level, CMS must pay back the recovered amount with interest accrued. However, for pre-payment reviews, providers/suppliers do not receive payment and CMS does not provide interest on the dollars withheld if the provider/supplier wins on appeal.

MACs have traditionally relied upon post-payment review. MACs will also use post-payment reviews to analyze billing patterns to inform other review activities, such as future pre-payment reviews and educational outreach. CMS has encouraged MACs to perform extrapolation, especially for providers/suppliers that submit large volumes of low-dollar claims with high improper payment rates.

The SMRC reviews often include studies to develop sampling methodologies or other policies that could be rolled out more broadly in the future.

The GAO also found that different contractors focused on different claims during 2013 and 2014. RAs focused on inpatient claim reviews primarily. RAs have the discretion to select the claims they review and the GAO stated that “their focus on reviewing inpatient claims is consistent with the financial incentives associated with the contingency fees they receive, as inpatient claims generally have higher payment amounts compared to other claim types.” The GAO also found that RA claim reviews had higher average identified improper payment amounts per post-payment claim review relative to other claim types in 2013 and 2014. For the upcoming contracts, CMS has indicated that it will more closely monitor RAs to ensure that they are reviewing all types of claims. For DME claims in particular, CMS has increased the contingency fee percentage paid to the RAs for DME, home health agencies, and hospice claims.

In contracts, MAC claim reviews focused primarily on physician and DME claims. DME claims accounted for 29 percent of their reviews in 2013 and 26 percent in 2014, while representing 22 percent of total improper payments in fiscal year 2013 and 16 percent of improper payments in fiscal year 2014. DME claims also had the highest rates of improper payments in both years.

Physician claims is a broadly used term that includes labs, ambulances, and individual physician.

The SMRC focused its claim reviews on studies that CMS directs the contractor to conduct. In 2013, the SMRC reviews focused on outpatient and physician claims, but in 2014 the focus shifted to home health agency claims and certain DME suppliers.

The GAO concluded that both RAs and SMRC generated savings for CMS, but unreliable data prevented comparing these results to those of MACs. CMS paid the RAs an average of $158 per review; the RAs averaged $14 in identified improper payments per dollar paid by CMS in both 2013 and 2014. CMS paid the SMRC an average of $256 per review, and the SMRC averaged $7 in identified improper payments per dollar paid in 2013 and 2014. The higher SMRC costs related to the study costs and extrapolation.

CMS lacks reliable MAC cost and savings data. CMS does not collect reliable data on claim review funding and does not have consistent data on identified improper payments. While CMS has established ways to collect this information, some MACs are not reporting it. MACs also use different methods to calculate and report savings.

The GAO recommended that CMS take two actions:

• In order to better ensure proper Medicare payments and protect Medicare funds, CMS should seek legislative authority to allow the RAs to conduct prepayment claim reviews.

• In order to ensure that CMS has the information it needs to evaluate MAC effectiveness in preventing improper payments and to evaluate and compare contractor performance across its Medicare claim review program, CMS should provide the MACs with written guidance on how to accurately calculate and report savings from prepayment claim reviews.

CMS did not agree with the first recommendation, stating that it has a strategy to move away from “pay and chase” using different policies, such as prior authorization initiatives and enhanced provider enrollment screening. CMS concurred with the second recommendation.

CMS Releases Medicare Provider Utilization and Payment Data for CY 2014 for Ambulance Suppliers, Physicians and Other Part B Organizations

Written by Brian Werfel on . Posted in Government Affairs, Medicare, Member Advisories, Reimbursement, Talking Medicare.

On May 5, 2016, CMS publicly released the “Medicare Provider Utilization and Payment Data: Physician and Other Supplier Public Use File,” which provides information on the services and procedures provided to Medicare beneficiaries by ambulance suppliers, physicians and other healthcare provider groups.  The data file is based on calendar year 2014 data. This release follows on last year’s release of payment data for calendar year 2012.

The database lists all individual and organizations providers by National Provider Identifier (NPI), and provides information on utilization, total payments and submitted charges.  It can also be searched by Healthcare Common Procedure Coding System (HCPCS) code and place of service.

The Public Use File can be obtained here. Please note that you will need to download the desired file and then import it into an appropriate database or statistical software program.  CMS is indicating that Microsoft Excel is not sufficient for these purposes, and that importing it into Excel may result in an incomplete loading of data.

A number of news organizations have already created searchable databases that will allow you to search the CY 2012-2013 data by physician/organizational name, provider specialty, city, state, etc.  It is expected that these news organizations will be updating their websites to incorporate the CY 2014 data in the coming weeks. The searchable database created by the Wall Street Journal can be accessed here.

HHS Office of Civil Rights Announces Phase 2 HIPAA Audit Review Program

Written by Brian Werfel on . Posted in Medicaid, Medicare, Regulatory, Reimbursement, Talking Medicare.

On March 21, 2016, the Office for Civil Rights of the Department of Health and Human Services announced Phase 2 of its HIPAA Audit Program.  The Health Information Technology for Economic and Clinical Health Act (HITECH) required HHS to perform periodic audits of covered entities and business associates to assess their compliance with the HIPAA Privacy, Security and Breach Notification Rules.  These rules are enforced by the HHS Office for Civil Rights (OCR).

Background on Phase 1

In 2011, OCR implemented a pilot audit program to assess the controls and processes covered entities have adopted to meet their HIPAA obligations.  The pilot audit program was conducted in three phases.  OCR first developed a set of audit protocols that it would use to evaluate covered entities’ compliance.  This protocol was then tested using a limited number of audits.   The final step involved using the revised audit protocols on a larger number of covered entities.  Ultimately, 115 covered entities were selected for review, and all audits were concluded by December 31, 2012.

Phase 2

Phase 2 of the HIPAA Audit Program will focus on the policies and procedures adopted and employed by entities to meet the requirements of the Privacy, Security, and Breach Notification Rules.  OCR has indicated that these audits will be conducted primary through desk audits (i.e., document submissions), although by a limited number of on-site audits will also be conducted.

Unlike Phase 1, which focused exclusively on covered entities, OCR is indicating that Phase 2 will involve audits of both covered entities and their business associates.

As with the initial pilot audit program, Phase 2 will consist of several stages.  The first stage involves verification of a covered entity’s or business associate’s address and contact information.  A sample address verification letter can be viewed by clicking here.  OCR has indicated that emails will be sent to entities requesting accurate contact information for the entity.  OCR will then transmit a “pre-audit questionnaire” to the entity.  These questionnaires will be used to gather data about the size, type, and operations of potential auditees.  Based on this data, OCR will create potential audit subject pools.

Note: OCR has indicated that if an entity fails to respond to OCR’s request to validate its contact information and/or fails to return the pre-audit questionnaire, OCR will use publicly available information about the entity to create its audit subject pool.  As a result, an entity that fails to respond may still be selected for audit and/or compliance review.  OCR is specifically reminding entities to check their email “junk” or “spam” folders for any communications from OCR.

Once OCR has developed its audit subject pools, it will randomly select auditees from these pools.  Auditees will then be notified by OCR of their participation.  OCR has indicated that the first set of audits will focus on covered entities, with a subsequent round of audits focused on business associates.  These audits will focus on compliance with specific requirements of the Privacy, Security, or Breach Notification Rules.  Auditees will be notified of the scope of their audit in a document request letter.  Both of these rounds will be desk audits.  OCR indicated that all desk audits will be completed by the end of December 2016.

A third round of on-site audits will take place after the completion of the desk audits, and will examine a broader scope of requirements under HIPAA.  OCR further indicated that desk auditees may also be subject to on-site audits.

If an entity is selected for audit, OCR will notify them by email.  The email will introduce the OCR audit team, explain the audit process, and discuss OCR’s expectations in greater detail.  The email notification letter will also include initial requests for documentation.  OCR has indicated that it will expect entities to respond to these documentation requests within ten (10) business days.  Documents will be submitted through a new secure online portal.  Once received, OCR’s auditors will review the submitted information and inform the entity of its draft findings.  The entity will then have ten (10) business days to respond with written comments, if any.  OCR will then review the entity’s comments and issue a final audit report within thirty (30) business days.

OCR has indicated that the audits are primarily intended as a compliance improvement activity.  OCR will use aggregated data to better understand compliance with respect to particular aspects of the HIPAA rules.  The goal being to understand what types of technical assistance and/or corrective actions would be most helpful.  In other words, OCR is indicating that the goal of these audits is to improve its understanding of the state of compliance, and not to penalize specific companies for violations.  However, OCR indicated that should an audit reveal a serious compliance issue, OCR may initiate a further compliance review of the company.

OCR indicated that it will not post a list of the audited entities, nor will its findings be available in a format that would clearly identify the audited entity.  However, OCR noted that audit notification letters and other information regarding these audits may be discoverable under the Freedom of Information Act (FOIA).

Additional information from OCR regarding the Phase 2 HIPAA Audit Program can be obtained by clicking here.

Calculating Excess Mileage

Written by Brian Werfel on . Posted in Medicaid, Medicare, Reimbursement, Talking Medicare.

The American Ambulance Association receives many questions from members for our expert consultants. Starting in February 2016, we will share responses to common questions on our blog. Have a more complex question? Contact an AAA expert directly.
Medicare | Human Resources & Operations | Labor Relations

Ask An AAA Expert: Ambulance Service Needs Some Direction on Mileage

[dropcap1]Q:[/dropcap1] Our service operates in a large metropolitan area. Within the city limits is a major university medical center. This hospital operates the only Level 1 Trauma Center within 100 miles. It is also the only hospital to offer interventional cardiology services and certain other advanced services within a 50-mile radius. As a result, patients from outlying areas are frequently transferred to this hospital. As the medical center’s contracted ambulance provider, we are often asked to transport patients long distances back to their towns of origin, either to their residences or to a skilled nursing centers (SNF). There are approximately a half a dozen SNFs located within a short distance (approximately five miles) of the hospital. Can you help us determine whether all of the mileage for these long distance transports will be covered by Medicare? If all of the mileage is not covered, can you help us determine the portion of the mileage that would be covered?

[dropcap1]A:[/dropcap1] In this inaugural edition of Ask the Medicare Consultant, we tackle one of the more difficult aspects of Medicare billing: how to determine the number of covered miles for long-distance hospital discharges.

The starting point for answering this question is to recognize that Medicare’s coverage rules will differ depending upon whether the patient is: (1) being returned to his or her residence, (2) is being returned to an SNF where he or she previously resided, or (3) is being transported to an SNF for an initial admission.

Where the patient is being returned to a residence (or a SNF at which they were previously admitted as a resident), Medicare’s coverage rules are relatively straightforward. Section 10.3.1 of Chapter 10 of the Medicare Benefit Policy Manual provides that:

“Ambulance service from an institution to the beneficiary’s home is covered when the home is within the locality of such institution, or where the beneficiary’s home is outside the locality of such institution, but the institution, in relation to the home, is the nearest one with appropriate facilities.”

For these purposes “locality” means the area surrounding the hospital from which patients would normally travel to that hospital for medical care. See Section 10.3.5 of Chapter 10 of the Medicare Benefit Policy Manual. Therefore, to the extent the patient’s residence falls within the “catchment area” of the hospital, the Manual makes clear that all of the mileage back to the patient’s residence will be covered.

To the extent the patient’s residence falls outside the hospital’s catchment area, the test is whether that hospital was the nearest appropriate facility (in relation to the patient’s residence) for the treatment of the patient’s medical condition.

Consider a patient that went to his local hospital with a complaint of chest pain, and who was ultimately diagnosed with a major cardiac blockage requiring bypass surgery. The patient was then transferred to the university medical center for that surgery (the only facility offering interventional cardiology within a 50-mile radius). The patient is now ready to be discharged back to his residence, a distance of 45 miles.

In this instance, the patient’s residence falls outside the catchment area of the medical center. However, the medical center was the nearest appropriate facility for the treatment of the patient’s medical condition. Accordingly, all of the mileage to this patient’s residence would be covered.

Unfortunately, it can sometimes be difficult to apply this test in practice, because the patient’s medical condition does not always manifest itself while at home. For example, what if this cardiac patient did not reside in the area, but rather was in the area visiting a son or daughter? Let’s further assume that the patient actually resided a few hundred miles away, in another major urban center (e.g., Chicago).

The university medical center would clearly not be the nearest appropriate facility when measured in relation to the patient’s home. Therefore, at the onset, it is clear that there is some non-covered mileage. The question then becomes, “how many miles?”

The test indicates that the covered mileage is the mileage from the patient’s residence to the nearest appropriate facility for that treatment. For these purposes, let’s also assume that there is a hospital that offers interventional cardiology located 10 miles from the patient’s residence. Therefore, in this example, the first 10 miles would be covered, and the remaining mileage would be non-covered.

A good rule of thumb: if all of mileage from the patient’s residence to the university medical center would have been covered (whether or not the patient actually traveled to that facility by ambulance), then all of the mileage back to that residence will also be covered.

The test for discharges to a SNF for an initial admission is a bit more complicated. The starting point is Section 10.3 of Chapter 10 of the Medicare Benefit Policy Manual, which provides that “only mileage to the nearest appropriate facility equipped to treat the patient is covered.”

In the original question, it was indicated that there were a number of SNFs located within a short distance of the university medical center. For the purposes of convenience, let’s assume that the nearest SNF is located across the street from the hospital, the next closest is located one mile away, the next closest is located two miles away, etc.

Thus, if the patient is transported to the SNF across the street, the entire mileage would be covered.

If the patient was transported to the next closest SNF, we cannot determine whether all of the mileage is covered without first determining whether the closer SNF had a bed available on that date. Note: a facility is not considered an “appropriate facility” if it does not have an available bed at the time of the transport. In other words, if the closer SNF had a bed on that date, then only the mileage to that SNF would be covered. The extra mileage, approximately 9/10ths of a mile, would not be covered. If, however, that closer facility did not have a bed available at the time, then the SNF to which the patient was transported would be the “nearest appropriate facility,” and all of the mileage would be covered.

Now imagine that the patient was taken the SNF two miles from the hospital. To properly calculate the covered mileage, we would need to know whether: (1) the SNF across the street had a bed available and (2) whether the SNF 1 mile from the hospital had a bed available).

[quote_left]“Does CMS really expect me to call one or more SNFs on every hospital discharge?”[/quote_left]And so on and so on…

At this point, you are probably asking yourself, “How can I possibly know if each of these closer SNFs had a bed available on that date? Does CMS really expect me to call one or more SNFs on every hospital discharge?”

The short answer: Yes, a literal interpretation of the Medicare coverage rules would require you to make those phone calls.

It goes without saying that this sort of process would be burdensome. Depending on the actual miles traveled, it may not even be possible to identify each and every closer SNF. For example, the original question alludes to transports of 50 or more miles. There could be dozens of SNFs located within a shorter distance. Calling each and every one of them is simply impractical.

In a perfect world, the hospital staff would notify you at the time they schedule the call that the patient is being transported beyond the nearest appropriate facility. However, in order to notify you, the hospital would have to know whether the nearby SNFs had a bed available on that date. The only way they could know that information would be to have called themselves. But why would the hospital call? The hospital likely gave the patient a choice, i.e., you can do your rehab in a nearby SNF or you can elect to go to an SNF in your hometown where you can be closer to your friends and family. As you would expect, the patient then elected to go closer to home.

So what to do?

One solution used by a number of ambulance providers is to draw a circle around the hospital that incorporates a sufficient number of SNFs so that they can be reasonably confident that there would be an available bed on any given day. In the original example, let’s assume that is the six SNFs located within five miles of the hospital. These ambulance providers have elected not to question any mileage below this threshold. Instead, they will bill up to five miles for coverage without any questions. These providers then assume that anything over that five-mile threshold is going to be excess mileage, which will need to be billed to the patient.

Please note that I am not suggesting that the first five miles would always be covered. Rather, these providers are engaged in a cost/benefit analysis. They are balancing the chances of having some portion of those five miles disallowed during a Medicare audit against the time and effort involved in calling each of these SNFs.

Please also keep in mind that this mileage circle would vary based on the local geography. In some areas, you may need to go out to 10, 20, or even 30 miles before you can incorporate a sufficient number of SNFs so that you can be assured that at least one would have an available bed on any given date. Of course, the larger the circle, the greater the potential that you may end up billing for substantial amounts of non-covered mileage. Thus, the decision to adopt a mileage parameter is one that should be made in consultation with your legal advisors.

 

Have a Medicare billing question? Do you suspect other AAA members are struggling with the same issues? If so, please let us know.

 

Musings on 2014 Medicare Payment Data (Part 1)

Written by Brian Werfel on . Posted in Medicare, Reimbursement, Talking Medicare.

by Brian S. Werfel, AAA Medicare Consultant | Updated February 2, 2016

Every year, the Centers for Medicare and Medicaid Services (CMS) releases data on Medicare payments for the preceding year.The 2015 Physician/Supplier Procedure Master File (PSP Master File) was released in late November 2015.This report contains information on all Part B and DME claims processed through the Medicare Common Working File with 2014 dates of service.

The headline number is that Medicare spent $4.968 million on ambulance services in 2014.This represents a slight increase (0.67%) over the amounts spent on ambulance services in 2013.

Over the next few blog posts, I will be digging a bit deeper into these numbers to highlight a few long-term trends that I believe are noteworthy.

Increase in Medicare Ambulance Volume Trails Increase in Medicare Enrollment

The number of allowed ambulance services has grown steadily since 2007.Using data from the annual PSP Master Files, the number of allowed ambulance transports increased from approximately 17.5 million transports in 2007 to 20.8 million transports in 2014.The Office of the Inspector General and other government agencies have pointed to numbers like these as evidence that ambulance services face an increasing program integrity problem.

While a superficial analysis might suggest that this growth is problematic, I would argue that this growth must be viewed in its proper context.Over this same period of time, CMS Medicare Enrollment Reports show that the Medicare beneficiary population has grown from 44.1 million beneficiaries to approximately 54 million beneficiaries.All things being equal, one would expect the volume of ambulance transports to increase as the total beneficiary population increases.

When one compares the growth of ambulance volume to the growth of the Medicare population, a different narrative becomes apparent.As the chart on the right shows, with the exception of 2011, the increase in ambulance transports has consistently trailed the overall growth of the Medicare population since 2010.This reflects the fact that the earliest members of the Baby Boomer generation started to turn 65 in 2010.In other words, once you adjust for the increase in the Medicare population, ambulance transport volume has been essentially flat over the past 5 years.

Something to keep in mind the next time someone cites the increase in ambulance transports as proof that our industry has failed to adequately police itself.

Have an issue you would like to see discussed in a future Talking Medicare blog post? Please write to me at bwerfel@aol.com.

Question of a “Lifetime”

Written by Brian Werfel on . Posted in Medicaid, Medicare, Reimbursement, Talking Medicare.

“Does Medicare still accept a lifetime signature for ambulance claims?”

As the AAA’s Medicare Consultant, I am frequently contacted by members seeking guidance on some of the more complicated aspects of Medicare billing. By a wide margin, the most common question we get is whether Medicare contractors will accept a so-called “lifetime signature.” Unfortunately, there is no easy answer to this question.

The Medicare regulations at 42 C.F.R. §424.36 provide that the beneficiary’s signature is required in order to authorize a healthcare provider to submit a claim to Medicare. The regulation then provides for two exceptions to that general rule. The first states that the beneficiary’s signature is not required if the beneficiary has died. The second states that, if the beneficiary is physically or mentally incapable of signing for themselves, the healthcare provider may obtain an alternative signature on the beneficiary’s behalf from one of the following individuals:

  1. The beneficiary’s legal guardian;
  2. A relative or any other person who receives social security or other governmental benefits on the beneficiary’s behalf;
  3. A relative or other person who arranges for the beneficiary’s treatment or exercises other responsibility for his or her affairs;
  4. A representative of an agency or institution that did not furnish the services for which payment is being claimed, but which did furnish other healthcare services or assistance to the beneficiary; or
  5. A representative of a Part A provider or nonparticipating hospital claiming payment for its services may sign for the beneficiary if, after making reasonable efforts, it is unable to locate or obtain a signature one any of the other authorized individuals referenced above. Note: this option is not available to Part B ambulance suppliers.

This regulation provides guidance on who may sign in order to permit a healthcare provider to submit a claim to Medicare. However, it does not speak to when that signature must be obtained. To answer that question, you must look to a separate regulation, 42 C.F.R. §424.40. That regulation sets forth the situations under which a request for payment (i.e., a patient’s signature) may be effective for more than one claim. Subpart (d) provides that a signed request for payment retained in a Part B supplier’s file may be effective indefinitely. It is this provision that ambulance suppliers have historically relied upon as justification for the use of a lifetime signature.

To understand how these provisions were intended to interact, it is helpful to keep in mind that the signature requirement applies to all Medicare claims, not only ambulance claims. This includes claims for services that can be provided on a non-assigned basis (e.g., physician claims). For these types of claims, the beneficiary’s signature is required to effectuate the assignment of benefits from the beneficiary to the healthcare provider, without which the healthcare provider would be limited to billing the beneficiary directly for its services. In other words, the beneficiary signature requirement was intended to perform a necessary administrative function.

However, in 2007 and 2008, CMS revised the beneficiary signature requirement for ambulance providers and suppliers. As part of these changes, CMS indicated that the beneficiary’s signature on a claim (or other documentation) served as proof that the ambulance services were actually rendered to the beneficiary. In other words, CMS clarified its belief that the beneficiary signature requirement performed a program integrity function.

This shift in CMS’ understanding of the purpose behind the beneficiary signature had far-reaching implications on the validity of the lifetime signature. When understood as a simple assignment mechanism, the lifetime signature is relatively non-controversial. After all, if the patient was willing to consent today to the submission of a claim to Medicare, why shouldn’t they also be able to consent to any future services rendered by that same healthcare provider? However, a patient’s signature obtained today would not establish that any future transports actually took place.

It is this shift in CMS’ stated position regarding the underlying purpose of the beneficiary signature requirement that has led a number of Medicare contractors to no longer accept a lifetime signature for ambulance transports. These contractors argue that a signature obtained prior to the actual date of transport cannot prove that the transport was actually provided. Frankly, I find it difficult to argue with their logic.

The problem is that, while CMS has announced its new position on the purpose of the beneficiary’s signature, it has yet to revise its regulations to specifically exclude ambulance providers and suppliers from relying upon a lifetime signature.

At some point, CMS will be forced to reconcile this apparent contradiction. In the meantime, ambulance providers and suppliers are forced to operate in something of a grey area. Operationally, the lifetime signature makes life a lot easier for our crews and billing office. However, relying upon the lifetime signature puts us at risk of having claims denied as part of an audit. The recent implementation of a prior authorization process for repetitive patients (currently in 8 states and the District of Columbia) has brought this issue to the forefront, as many ambulance services previously relied upon a lifetime signature for their dialysis and other repetitive patients.

So What Should You Do?

As a best practice, I strongly recommend that ambulance providers and suppliers instruct their crewmembers to attempt to obtain the patient’s actual signature or a valid alternative at the time of transport. Doing so should limit the situations in which the lifetime signature might come into play.

The question then becomes how to handle those claims where, for whatever reason, the crew was unable to obtain the patient’s signature or a valid alternative at the time of transport. In these situations, submitting the claim based on a previously obtained lifetime signature is an option. You will need to make a business decision on whether that option is the right one for your organization.

Some factors you should consider in making that decision:

  1. Has your Medicare Administrative Contractor indicated that it will no longer accept a lifetime signature for ambulance claims?
  2. Are you located in one of the states (or DC) where the MAC is currently operating a prior authorization process for repetitive patients? Are you currently under any other type of prepayment review?
  3. If claims are denied for lack of a valid patient signature, are you comfortable with potentially having to appeal all the way up to an Administrative Law Judge?

Depending on how you answer these questions, you may decide that the risks associated with relying upon the lifetime signature are too great. If so, whenever the crew fails to satisfy the patient signature requirement at the time of transport, and assuming you are otherwise unable to satisfy the new alternative for ambulance transports, you will need to send the patient a signature request form (and hold the claim until that request is returned).

So back to the original question: Does Medicare accept a lifetime signature for ambulance transport?
Answer: it depends on who you ask.

AAA members, do you have an issue you would like to see discussed in a future Talking Medicare blog post? Please write to me at bwerfel@aol.com.

2016 AIF: A Step Backward

Written by Brian Werfel on . Posted in Medicaid, Medicare, Reimbursement, Talking Medicare.

By Brian S. Werfel, AAA Medicare Consultant | Updated November 25, 2015

Each year, the Centers for Medicare and Medicaid Services (CMS) determine the following year’s Ambulance Inflation Factor (AIF), a figure that has deep revenue implications for ambulance services of all sizes. CMS recently announced that the 2016 AIF will be a disappointing – 0.4%.

In this inaugural edition of the Talking Medicare blog, I explore the ins and outs of the AIF, including the impact of the Multi-Factor Productivity Index on our industry’s Medicare payments.

Background

First, some background. The Affordable Care Act revised the formula by which CMS calculates the annual adjustment to Medicare’s reimbursement rates for ambulance services. Prior to 2011, Medicare’s payment for ambulance services increased each year by an amount equal to the percentage increase in the consumer price index for all urban consumers (CPI-U) for the 12-month period ending in June of the previous year (i.e., for 2016, the 12-month period ending on June 30, 2015). Starting in 2011, the CPI-U increase is reduced by the so-called Multi-Factor Productivity Index (MFP).

What to Expect Next Year

For 2016, the change in the CPI-U was equal to 0.1%. In a transmittal issued November 17, 2015, CMS indicated that it estimates the MFP will be 0.5% next year. As a result, CMS calculated the Ambulance Inflation Factor (AIF) to be – 0.4% next year.

Yes, you read that correctly. Your Medicare reimbursement rates will decrease next year!

MFP’s Impact Over Time

The MFP represents a permanent reduction in the amounts paid by the Medicare Program for ambulance services. And, unlike other recent reimbursement hits our industry has faced, this reduction compounds itself over time.

What do I mean by that? Quite simply, I mean that the lower rates become part of the baseline against which the next year’s AIF is calculated. As a result, the gap between our industry’s costs of providing ambulance services and Medicare’s reimbursement for those services grows larger every year.

To give you a sense of the impact of MFP over time, this chart shows the payment of an ALS emergency transport in New York City over the past several years. In 2010, the Medicare allowable rate for this transport was $491.06. In 2016, the Medicare allowable rate for that same transport will be $517.02, an increase of 5.3%. However, without the MFP, the Medicare allowable would have been $544.22, or 10.8%. In other words, our Medicare increase would have been more than twice as much in the absence of the MFP.

Keep in mind that the AIF was created to ensure that Medicare reimbursement keeps pace with the increased costs of providing ambulance services to your community. By that yardstick, the current process for calculating the Ambulance Inflation Factor is clearly inadequate.

One of the key issues facing our industry is our ongoing fight for permanent Medicare ambulance relief. The recent AIF simply highlights the need for a better method of ensuring that Medicare’s payments keep pace with our costs.

Have an issue you would like to see discussed in a future blog post? Please write to bwerfel@aol.com.

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