Hospitals enrolled in the 340B drug discount program may no longer be eligible after the pandemic shifted their payer mix, according to a Wednesday letter the American Hospital Association sent to HHS Secretary Xavier Becerra.
Depleted patient volumes and canceled elective surgeries lowered the proportion of hospital patients who are Medicaid and Medicare SSI patients in 2020, according to AHA. When hospitals file their Medicare cost reports reflecting those changes, they may no longer meet the criteria for the program and lose access.
AHA wants HHS to waive certain eligibility requirements for hospitals in the program to allow them continued access during the public health emergency, according to the letter.
Throughout the pandemic HHS has issued a number of regulatory flexibilities to help providers, and the hospital lobby is asking it to do so again by waiving the current eligibility requirements for the 340B drug discount program before providers experiencing a temporary shift in payer mix are kicked out.
The program requires drug companies to give discounts on outpatient drugs to providers serving a large share of low-income patients, particularly those in rural areas.
The discounts can range from 25% to 50% of the cost of the drugs, according to HRSA, which operates the program.
But many of those patients did not seek care last year, hampering hospitals’ finances and altering the mix of payers.
Hospitals currently qualify for the program based on their volume of inpatient Medicaid and Medicare SSI patients, reported through their most recently filed Medicare cost reports.
“Losing access to 340B discounted drugs and program savings could jeopardize the ability of these hospitals to provide critical services for their communities, which would be particularly catastrophic at a time when they remain on the front lines of the ongoing pandemic,” AHA said in its letter.
This latest issue comes after several years of clashes over the 340B program.
Last year, a federal appeals court sided against the hospital lobby, ruling that HHS’ significant rate cut for some 340B drugs could remain in place. HHS made the reimbursement cut arguing that the hospitals already received steep discounts for the drugs and could be incentivized to overuse them.
At the time, AHA said it was weighing its options over whether to appeal to the Supreme Court.
To head off other issues, HRSA finalized a rule late last year that created a dispute resolution process for when hospitals believed they were overcharged for 340B drugs. The drug manufacturers have a similar mechanism to raise concerns about whether hospitals received duplicate discounts.
Doctors and health systems with a significant portion of risk-based contracts weathered the pandemic better than their peers still fully tethered to fee-for-service payment. Lower healthcare utilization translated into record profits, just as it did for insurers.
We’re now seeing an increasing number of health systems asking again whether they should enter the health plan business—levels of interest we haven’t seen since the “rush to risk” in the immediate aftermath of the passage of the Affordable Care Act a decade ago.
The discussions feel appreciably different this time around (which is a good thing, since many systems who launched plans in the prior wave had trouble growing and sustaining them). First, systems are approaching the market this time with a focus on Medicare Advantage, having seen that growing a base of covered lives with their networks is much easier than starting with the commercial market, where large insurers, particularly incumbent Blues plans, dominate the market, and many employers are still reticent to limit choice.
But foremost, there is new appreciation for the scale needed for a health plan to compete. In 2010, many executives set a goal of 100K covered lives as a target for sustainability; today, a plan with three times that number is considered small. Now many leaders posit that regional insurers need a plan to get to half a million lives, or more. (Somehow this doesn’t seem to hold for insurance startups: see the recent public offerings of Clover Health and Alignment Health, who have just 57K and 82K lives, respectively, nationwide.)
We’re watching for a coming wave of health system consolidation to gain the financial footing and geographic footprint needed to compete in the Medicare Advantage market, and would expect traditional payers to respond with regional consolidation of their own.
If you’re looking for an issue that can unite a heavily divided Congress, it seems nearly all Senators can get behind delaying payment cuts to providers during a pandemic. On Thursday the Senate voted 90-2 to pause the 2 percent sequester cuts to Medicare payment slated to go into effect on April 1.
The bill is expected to be passed by the House and signed into law by President Biden, delaying the cuts through the coronavirus public emergency. While hospitals, many of whom are still recovering from increased costs and volume loss during the pandemic, can breathe a sigh of relief,providers face an even larger 4 percent payment cut in the fall due to the PAYGO, or “pay as you go”, statute, which would trigger automatic payments cuts due to the deficit increases caused by the COVID relief bill.
We’d gamble that intense industry lobbying to delay the PAYGO cuts will prove successful—again, legislators will be reticent to dock provider payment as pandemic recovery continues. But eventually, in a more normal world, hospitals can expect policymakers to shift their focus from pandemic relief to cost control—and it will likely not prove possible to delay the inevitable reckoning over the high cost of our health system.
— At stake: scheduled payment reductions totalling $54 billion
Healthcare groups are applauding efforts being made in Congress to stop two different cuts to the Medicare budget — both of which are due to “sequestration” requirements — before it’s too late.
One cut, part of the normal budget process, is a 2% — or $18 billion — cut in the projected Medicare budget under a process known as “sequestration.” Sequestration allows for prespecified cuts in projected agency budget increases if Congress can’t agree on their own cuts. Medicare’s budget had been slated for a 2% sequester cut in fiscal year 2020; however, due to the pandemic and the accompanying increased healthcare needs, Congress passed a moratorium on the 2% cut. That moratorium is set to expire on April 1.
Another projected cut — this one for 4%, or $36 billion — will be triggered by the COVID relief bill, formally known as the American Rescue Plan Act. That legislation, which President Biden signed into law last Thursday, must conform to the PAYGO (pay-as-you-go) Act, which requires that any legislation that has a cost to it that is not otherwise offset must be offset by sequestration-style budget cuts to mandatory programs, including Medicare.
There are now several bills in Congress to address these pending cuts. H.R. 1868, co-sponsored by House Budget Committee chairman John Yarmuth (D-Ky.), House Ways & Means Committee chairman Richard Neal (D-Mass.), and House Energy & Commerce Committee chairman Frank Pallone Jr. (D-N.J.), among others, would get rid of the PAYGO Act requirement and extend the 2% Medicare sequester moratorium through the end of 2021.
Another bill, H.R. 315, introduced in January by Reps. Bradley Schneider (D-Ill.) and David McKinley (R-W.Va.), would extend the 2% sequester moratorium until the end of the public health emergency has been declared. In the Senate, S. 748, introduced Monday by senators Susan Collins (R-Maine) and Jeanne Shaheen (D-N.H.) would do the same.
“For many providers, the looming Medicare payment cuts would pose a further threat to their ability to stay afloat and serve communities during a time when they are most needed,” Shaheen said in a press release. “Congress should be doing everything in its power to prevent these cuts from taking effect during these challenging times, which is why I’m introducing this bipartisan legislation with Senator Collins. I urge the Senate to act at once to protect our health care providers and ensure they can continue their work on the frontlines of COVID-19.”
Not surprisingly, provider groups were happy about the actions in Congress. “MGMA [Medical Group Management Association] supports recent bipartisan, bicameral efforts to extend the 2% Medicare sequester moratorium for the duration of the COVID-19 public health emergency,” said Anders Gilberg, senior vice president for government affairs at MGMA, in a statement. “Without congressional action, the country’s medical groups will face a combined 6% sequester cut — a payment cut that is unsustainable given the financial hardships due to COVID-19 and keeping up with the cost of inflation.”
Leonard Marquez, senior director of government relations and legislative advocacy at the Association of American Medical Colleges, said in a statement that it was “critical” that Congress extend the 2% sequester moratorium “to help ensure hospitals, faculty physicians, and all providers have the necessary financial resources to continue providing quality care to COVID-19 and all patients ... While we are making progress against COVID-19, cutting provider payments in the middle of a pandemic could jeopardize the nation’s recovery.”
The American Medical Association (AMA) also urged Congress to prevent both the 2% and the 4% Medicare cuts. “We strongly oppose these arbitrary across-the-board Medicare cuts, and the predictably devastating impact they would have on many already distressed physician practices,” AMA executive vice president and CEO James Madara, MD, said in a letter sent to congressional leaders at the beginning of March.
“And, while Medicare spending on physician services partially recovered from the April low, it was still 12% less than expected by the end of June 2020,” he continued. “During the first half of 2020, the cumulative estimated reduction in Medicare physician spending associated with the pandemic was $9.4 billion (19%). Results from an earlier AMA-commissioned survey of 3,500 practicing physicians conducted from mid-July through August 2020 found that 81% of respondents were still experiencing lower revenue than before the pandemic.”
Not everyone is a fan of extending the 2% cut moratorium, however. “Bad idea,” said James Capretta, resident fellow at the American Enterprise Institute, a right-leaning think tank, at an event Tuesday on Medicare solvency sponsored by the Bipartisan Policy Center. “There’s plenty of give in the revenue streams of these systems that creating a precedent where we’re going to go back to the pre-sequester level — it’s better to move forward and if there are struggling systems out there, deal with it on an ad hoc basis rather than just across the board paying out a lot more money, which I don’t think is necessary.” He added, however, that he agreed with the bill to get rid of the 4% cut. “The bigger cut associated with PAYGO enforcement I think would be too much.”
A key Medicare advisory panel is calling for a 2% bump to Medicare payments for acute care hospitals for 2022 but no hike for physicians.
The report, released Monday from the Medicare Payment Advisory Commission (MedPAC)—which recommends payment policies to Congress—bases payment rate recommendations on data from 2019. However, the commission did factor in the pandemic when evaluating the payment rates and other policies in the report to Congress, including whether policies should be permanent or temporary.
“The financial stress on providers is unpredictable, although it has been alleviated to some extent by government assistance and rebounding service utilization levels,” the report said.
MedPAC recommended that targeted and temporary funding policies are the best way to help providers rather than a permanent hike for payments that gets increased over time.
“Overall, these recommendations would reduce Medicare spending while preserving beneficiaries’ access to high-quality care,” the report added.
MedPAC expects the effects of the pandemic, which have hurt provider finances due to a drop in healthcare use, to persist into 2021 but to be temporary.
It calls for a 2% update for inpatient and outpatient services for 2022, the same increase it recommended for 2021.
The latest report recommends no update for physicians and other professionals. The panel also does not want any hikes for four payment systems: ambulatory surgical centers, outpatient dialysis facilities, skilled nursing facilities and hospices.
MedPAC also recommends Congress reduce the aggregate hospice cap by 20% and that “ambulatory surgery centers be required to report cost data to [Centers for Medicare & Medicaid Services (CMS)],” the report said.
But it does call for long-term care hospitals to get a 2% increase and to reduce payments by 5% for home health and inpatient rehabilitation facilities.
The panel also explores the effects of any policies implemented under the COVID-19 public health emergency, which is likely to extend through 2021 and could continue into 2022.
For instance, CMS used the public health emergency to greatly expand the flexibility for providers to be reimbursed for telehealth services. Use of telehealth exploded during the pandemic after hesitancy among patients to go to the doctor’s office or hospital for care.
“Without legislative action, many of the changes will expire at the end of the [public health emergency],” the report said.
MedPAC recommends Congress temporarily continue some of the telehealth expansions for one to two years after the public health emergency ends. This will give lawmakers more time to gather evidence on the impact of telehealth on quality and Medicare spending.
“During this limited period, Medicare should temporarily pay for specified telehealth services provided to all beneficiaries regardless of their location, and it should continue to cover certain newly-covered telehealth services and certain audio-only telehealth services if there is potential for clinical benefit,” according to a release on the report.
After the public health emergency ends, Medicare should also return to paying the physician fee schedule’s facility rate for any telehealth services. This will ensure Medicare can collect data on the cost for providing the services.
“Providers should not be allowed to reduce or waive beneficiary cost-sharing for telehealth services after the [public health emergency],” the report said. “CMS should also implement other safeguards to protect the Medicare program and its beneficiaries from unnecessary spending and potential fraud related to telehealth.”
In their recent Health Affairs paper, Sungchul Park and coauthors examine rates of switching from Medicare Advantage (MA) to traditional Medicare by patient characteristics. MA plans are the private insurance alternative to traditional fee-for-service Medicare overseen by the Centers for Medicare and Medicaid Services. While enrollment in MA has doubled over the past decade, Park and coauthors find that the needs of certain enrollees are not being met by MA plans.
Park and coauthors report that rural enrollees switch from MA to traditional Medicare at an adjusted annual rate of 10.5 percent, significantly higher than metropolitan residents, who switch at a rate of 5.0 percent.
This phenomenon was more pronounced among those who required the use of costly services such as facility stays or hospitalizations, those who had poor self-reported health, and individuals who reported lower satisfaction with their access to care.
The payment gap was $63,000 for primary care doctors, $178,000 for medical specialists and $150,000 for surgeons.
Doctors who work for hospital outpatient facilities get much higher payments for their services from Medicare than doctors who practice independently, according to a new study.
The research, based on Medicare claims data from 2010-2016,found that the program’s payments for doctors’ work were, on average, $114,000 higher per doctor per year when billed by a hospital than when billed by a doctor’s independent practice.
Published in Health Services Research, results found that the amount Medicare would pay for outpatient care at doctors’ offices would have been 80% higher if the services had been billed by a hospital outpatient facility. In 2010, the average set of Medicare services independent doctors performed annually for patients was worth $141,000, but charging for the same group of services would have grossed $240,000 if a hospital outpatient facility billed for them.
The payment difference varied by specialty. The payment gap was $63,000 for primary care doctors, $178,000 for medical specialists and $150,000 for surgeons.
Moreover, the study found the differential grew over time. From 2010-2016, the average difference between hospital outpatient and private practice payments grew from 80% higher to 99% higher.
WHAT’S THE IMPACT?
The main reason for these large payment differences: facility fees. For each service a doctor performs, Medicare pays hospital outpatient facilities both a fee for the doctor’s work and a fee for the facility, whereas private practices receive only doctor fees.
Although the doctor fees are a bit lower in hospital outpatient locations, the facility fees more than make up for the difference, and the total payments to hospitals are reflected in higher doctor salaries and bonuses.
The Centers for Medicare and Medicaid Services has been trying to correct this imbalance for years with policies that would pay both sites the same amount. In 2015, the Bipartisan Budget Act authorized CMS to impose site-neutral payments but grandfathered existing hospital outpatient facilities. Later, CMS expanded the equal payments to other hospital outpatient facilities, but the American Hospital Association sued to overturn this regulation.
The groups filed for a petition for a rehearing, which was denied.
In February, the Supreme Court acknowledged the AHA’s request for judicial review. The government response was due by March 15, but on March 3, Norris Cochran, acting Secretary of Health and Human Service asked for an extension until April 14 to file the government’s response, according to court documents.
The significant difference between Medicare payments to hospital outpatient facilities and independent offices has encouraged hospitals and health systems to buy doctor practices, but the study noted that good research about this has been lacking up to now.
It found little evidence of a direct relationship linking the size of the pay gap between hospital outpatient facilities and independent offices, with hospitals buying doctor practices, in particular medical specialties. But it did find that doctors whose services had larger pay gaps were more likely to have a hospital buy their practice than doctors whose services had a smaller pay gap.
In an accompanying commentary, Dr. Michael Chernew of Harvard Medical School in Boston said the study had found that the ability of hospitals and employed doctors to earn more from Medicare had resulted in a greater amount of integration.
THE LARGER TREND
However, the authors pointed out that the Medicare payment difference is only one of many factors that have contributed to the huge increase in the share of doctors employed at hospitals over the past decade. For example, they found a higher probability of a doctor going to work for a hospital in highly concentrated hospital markets and rural areas.
Other studies, they said, have established that some health systems use integration with doctors’ offices as a bargaining chip with commercial health insurance plans. Also, some doctors may find that independent practice is less viable than it used to be for a variety of reasons.
It has also been suggested that many younger doctors prefer hospital employment to private practice because they crave economic security and work-life balance.
It’s been estimated that even the payments to hospitals vs. doctors could save CMS $11 billion over 10 years. But the paper illustrates that the payment disparities can also create broader market distortions because consolidation of hospitals and doctors’ offices has been shown to lead to higher prices overall.
The Medicare Act “prohibits Medicare payment for services that are not furnished within the United States,” according to the filing.
RemoteICU, a telemedicine provider group, is suing the Department of Health and Human Services and the Centers for Medicare and Medicaid Services for not reimbursing telehealth services provided by physicians who are located outside the United States, according to a federal lawsuit filed last week in Washington.
RICU wants reimbursement for telehealth services provided within the U.S., but not necessarily by a physician who lives within its borders.
The company employs physicians who live outside the country, but are U.S. board-certified critical-care specialists and licensed in one or more U.S. jurisdictions. With RICU’s telecommunications system, these physicians can provide critical-care services in U.S. hospital ICUs, the lawsuit said.
“Although RICU’s physicians live abroad, they serve as full-time, permanent staff members of the U.S. hospitals at which they serve patients,” the company said in the court filing.
“By employing U.S.-licensed intensivists who live overseas, RICU has enabled the American healthcare system to recapture talent that would otherwise be lost to it – and this has helped to alleviate the ongoing shortage of intensivists in American hospitals.“
However, after the company reached out to several officials from HHS and CMS, it was notified that Medicare could not reimburse the client hospitals for RICU’s services, because the Medicare Act “prohibits Medicare payment for services that are not furnished within the United States,” according to the filing.
The company is seeking a preliminary injunction to stop HHS and CMS from denying Medicare reimbursement for telehealth services on the basis of a provider’s physical location outside of the United States at the time of service.
WHAT’S THE IMPACT?
RICU claims that, by failing to reimburse for the critical care telehealth services provided by its physicians, HHS and CMS are causing “immediate harm both to RICU and to the public.”
It argues that it’s filling a gap in critical care that has been exacerbated by the pandemic.
“There remains [a] significant unmet need for critical care services, as desperately sick patients have overwhelmed ICU resources across the country,” RICU said in the court filing.
“In some cases, lack of adequate care can mean the difference between life or death. And one of the groups most at risk from death and serious illness due to COVID-19 is the elderly – the very same population that relies upon Medicare.”
Without reimbursement, RICU says that some of its current clients, as well as potential customers, will not be able to offer its services.
The company argues that this causes “significant, unrecoverable monetary damages” because tele-ICU providers that use physicians located within the U.S. are eligible for reimbursement and therefore have a competitive edge over RICU.
Further, it says that it has already begun losing business because of hospitals’ inability to receive Medicare reimbursement.
“The Critical Care Ban is causing irreparable harm to RICU, which is suffering ongoing financial and reputational harms that cannot be remedied in the future,” the court filing said.
“The balance of the equities favors an injunction, because Defendants have already admitted that there is a desperate medical need for the critical care that RICU would provide but for the Critical Care Ban.
“And, finally, preliminary injunction would be in the public interest because, across the United States, Americans stricken by the COVID-19 pandemic are in desperate need of critical care – a need that RICU can help meet. It is not hyperbole to say that the requested injunctive relief is in the public interest because it could save lives.”
Employers — including companies, state governments and universities — purchase health care on behalf of roughly 150 million Americans. The cost of that care has continued to climb for both businesses and their workers.
For many years, employers saw wasteful care as the primary driver of their rising costs. They made benefits changes like adding wellness programs and raising deductibles to reduce unnecessary care, but costs continued to rise. Now, driven by a combination of new research and changing market forces — especially hospital consolidation — more employers see prices as their primary problem.
By amassing and analyzing employers’ claims data in innovative ways, academics and researchers at organizations like the Health Care Cost Institute (HCCI) and RAND have helped illuminate for employers two key truths about the hospital-based health care they purchase:
1) PRICES VARY WIDELY FOR THE SAME SERVICES
Data show that providers charge private payers very different prices for the exact same services — even within the same geographic area.
For example, HCCI found the price of a C-section delivery in the San Francisco Bay Area varies between hospitals by as much as:$24,107
Data show that hospitals charge employers and private insurers, on average, roughly twice what they charge Medicare for the exact same services. A recent RAND study analyzed more than 3,000 hospitals’ prices and found the most expensive facility in the country charged employers:4.1xMedicare
Hospitals claim this price difference is necessary because public payers like Medicare do not pay enough. However, there is a wide gap between the amount hospitals lose on Medicare (around -9% for inpatient care) and the amount more they charge employers compared to Medicare (200% or more).
A small but growing group of companies, public employers (like state governments and universities) and unions is using new data and tactics to tackle these high prices. (Learn more about who’s leading this work, how and why by listening to our full podcast episode in the player above.)
Note that the employers leading this charge tend to be large and self-funded, meaning they shoulder the risk for the insurance they provide employees, giving them extra flexibility and motivation to purchase health care differently. The approaches they are taking include:
Some employers are implementing so-called tiered networks, where employees pay more if they want to continue seeing certain, more expensive providers. Others are trying to strongly steer employees to particular hospitals, sometimes know as centers of excellence, where employers have made special deals for particular services.
Purdue University, for example, covers travel and lodging and offers a $500 stipend to employees that get hip or knee replacements done at one Indiana hospital.
Negotiating New Deals
There is a movement among some employers to renegotiate hospital deals using Medicare rates as the baseline — since they are transparent and account for hospitals’ unique attributes like location and patient mix — as opposed to negotiating down from charges set by hospitals, which are seen by many as opaque and arbitrary. Other employers are pressuring their insurance carriers to renegotiate the contracts they have with hospitals.
In 2016, the Montana state employee health plan, led by Marilyn Bartlett, got all of the state’s hospitals to agree to a payment rate based on a multiple of Medicare. They saved more than $30 million in just three years. Bartlett is now advising other states trying to follow her playbook.
In 2020, several large Indiana employers urged insurance carrier Anthem to renegotiate their contract with Parkview Health, a hospital system RAND researchers identified as one of the most expensive in the country. After months of tense back-and-forth, the pair reached a five-year deal expected to save Anthem customers $700 million.
Legislating, Regulating, Litigating
Some employer coalitions are advocating for more intervention by policymakers to cap health care prices or at least make them more transparent. States like Colorado and Indiana have passed price transparency legislation, and new federal rules now require more hospital price transparency on a national level. Advocates expect strong industry opposition to stiffer measures, like price caps, which recently failed in the Montana legislature.
Other advocates are calling for more scrutiny by state and federal officials of hospital mergers and other anticompetitive practices. Some employers and unions have even resorted to suing hospitals like Sutter Health in California.
Employers face a few key barriers to purchasing health care in different and more efficient ways:
Hospitals tend to have much more market power than individual employers, and that power has grown in recent years, enabling them to raise prices. Even very large employers have geographically dispersed workforces, making it hard to exert much leverage over any given hospital. Some employers have tried forming purchasing coalitions to pool their buying power, but they face tricky organizational dynamics and laws that prohibit collusion.
Employers can attempt to lower prices by renegotiating contracts with hospitals or tailoring provider networks, but the work is complicated and rife with tradeoffs. Few employers are sophisticated enough, for example, to assess a provider’s quality or to structure hospital payments in new ways.Employers looking for insurers to help them have limited options, as that industry has also become highly consolidated.
Employers say they primarily provide benefits to recruit and retain happy and healthy employees. Many are reluctant to risk upsetting employees by cutting out expensive providers or redesigning benefits in other ways. A recent KFF survey found just 4% of employers had dropped a hospital in order to cut costs.
Employers play a unique role in the United States health care system, and in the lives of the 150 million Americans who get insurance through work. For years, critics have questioned the wisdom of an employer-based health care system, and massive job losses created by the pandemic have reinforced those doubts for many.
Assuming employers do continue to purchase insurance on behalf of millions of Americans, though, focusing on lowering the prices they pay is one promising path to lowering total costs. However, as noted above, hospitals have expressed concern over the financial pressures they may face under these new deals. Complex benefit design strategies, like narrow or tiered networks, also run the risk of harming employees, who may make suboptimal choices or experience cost surprises. Finally, these strategies do not necessarily address other drivers of high costs including drug prices and wasteful care.
The complexity of Medicare Advantage (MA) physician networks has been well-documented, but the payment regulations that underlie these plans remain opaque, even to experts. If an MA plan enrollee sees an out-of-network doctor, how much should she expect to pay?
The answer, like much of the American healthcare system, is complicated. We’ve consulted experts and scoured nearly inscrutable government documents to try to find it. In this post we try to explain what we’ve learned in a much more accessible way.
Medicare Advantage Basics
Medicare Advantage is the private insurance alternative to traditional Medicare (TM), comprised largely of HMO and PPO options. One-third of the 60+ million Americans covered by Medicare are enrolled in MA plans. These plans, subsidized by the government, are governed by Medicare rules, but, within certain limits, are able to set their own premiums, deductibles, and service payment schedules each year.
Critically, they also determine their own network extent, choosing which physicians are in- or out-of-network. Apart from cost sharing or deductibles, the cost of care from providers that are in-network is covered by the plan. However, if an enrollee seeks care from a provider who is outside of their plan’s network, what the cost is and who bears it is much more complex.
To understand the MA (and enrollee) payment-to-provider pipeline, we first need to understand the types of providers that exist within the Medicare system.
Participating providers, which constitute about 97% of all physicians in the U.S., accept Medicare Fee-For-Service (FFS) rates for full payment of their services. These are the rates paid by TM. These doctors are subject to the fee schedules and regulations established by Medicare and MA plans.
Non-participating providers(about 2% of practicing physicians) can accept FFS Medicare rates for full payment if they wish (a.k.a., “take assignment”), but they generally don’t do so. When they don’t take assignment on a particular case, these providers are not limited to charging FFS rates.
Opt-out providersdon’t accept Medicare FFS payment under any circumstances. These providers, constituting only 1% of practicing physicians, can set their own charges for services and require payment directly from the patient. (Many psychiatrists fall into this category: they make up 42% of all opt-out providers. This is particularly concerning in light of studies suggesting increased rates of anxiety and depression among adults as a result of the COVID-19 pandemic).
How Out-of-Network Doctors are Paid
So, if an MA beneficiary goes to see an out-of-network doctor, by whom does the doctor get paid and how much? At the most basic level, when a Medicare Advantage HMO member willingly seeks care from an out-of-network provider, the member assumes full liability for payment.That is, neither the HMO plan nor TM will pay for services when an MA member goes out-of-network.
The price that the provider can charge for these services, though, varies, and must be disclosed to the patient before any services are administered. If the provider is participating with Medicare (in the sense defined above), they charge the patient no more than the standard Medicare FFS rate for their services. Non-participating providers that do not take assignment on the claim are limited to charging the beneficiary 115% of the Medicare FFS amount, the “limiting charge.” (Some states further restrict this. In New York State, for instance, the maximum is 105% of Medicare FFS payment.) In these cases, the provider charges the patient directly, and they are responsible for the entire amount (See Figure 1.)
Alternatively, if the provider has opted-out of Medicare, there are no limits to what they can charge for their services.The provider and patient enter into a private contract; the patient agrees to pay the full amount, out of pocket, for all services.
MA PPO plans operate slightly differently. By nature of the PPO plan, there are built-in benefits covering visits to out-of-network physicians (usually at the expense of higher annual deductibles and co-insurance compared to HMO plans). Like with HMO enrollees, an out-of-network Medicare-participating physician will charge the PPO enrollee no more than the standard FFS rate for their services. The PPO plan will then reimburse the enrollee 100% of this rate, less coinsurance. (SeeFigure 2.)
In contrast, a non-participating physician that does not take assignment is limited to charging a PPO enrollee 115% of the Medicare FFS amount, which can be further limited by state regulations. In this case, the PPO enrollee is also reimbursed by their plan up to 100% (less coinsurance) of the FFS amount for their visit. Again, opt-out physicians are exempt from these regulations and must enter private contracts with patients.
There are two major caveats to these payment schemes (with many more nuanced and less-frequent exceptions detailed here). First, if a beneficiary seeks urgent or emergent care (as defined by Medicare) and the provider happens to be out-of-network for the MA plan (regardless of HMO/PPO status), the plan must cover the services at their established in-network emergency services rates.
The second caveat is in regard to the declared public health emergency due to COVID-19 (set to expire in April 2021, but likely to be extended). MA plans are currently required to cover all out-of-network services from providers that contract with Medicare (i.e., all but opt-out providers) and charge beneficiaries no more than the plan-established in-network rates for these services. This is being mandated by CMS to compensate for practice closures and other difficulties of finding in-network care as a result of the pandemic.
Outside of the pandemic and emergency situations, knowing how much you’ll need to pay for out-of-network services as a MA enrollee depends on a multitude of factors. Though the vast majority of American physicians contract with Medicare, the intersection of insurer-engineered physician networks and the complex MA payment system could lead to significant unexpected costs to the patient.