Because Medicare treats so many people with so many medical conditions, an elaborate and often confusing system of payments has developed over the years. Everything a doctor does must be classified within one of the Medicare payment codes under the physician fee schedule. In addition to the treatment itself, costs of running a doctor’s office and expenses for buying liability insurance vary widely. This results in varied payments for different parts of the country.
According to Medical News Today: “Over one million providers of essential health services to Medicare patients are paid under the Medicare Physician Fee Schedule (MPFS). These include doctors, osteopathic physicians, nurse practitioners, physical therapists and other limited license practitioners.”
Medicare establishes what it deems to be a reasonable charge for each medical activity. If the doctor accepts “assignment,” he or she agrees that the Medicare payment amount will be the full charge. Medicare will pay 80 percent of that amount, and patients will pay the other 20 percent. Most doctors accept assignment, and will charge their patients no more than the Medicare fee. But if a doctor is “non-participating,” the charges can be higher than the Medicare fees.
The basic charge for a doctor’s work covers the time, the skills and the work required to care for a patient. The values for each thing a doctor does are reviewed by the American Medical Association and the fee schedule is updated on an annual basis. The fee schedule determines the cost of something as simple as an injection or as complex as a major surgery.
“Under the physician fee schedule, the unit of payment is generally the individual service, such as an office visit or a diagnostic procedure. These products, however, range from narrow services (an injection) to broader bundles of services associated with surgical procedures, which include the surgery and related pre-operative and post-operative visits. All services—surgical and non-surgical—are classified and reported to CMS according to the Healthcare Common Procedure Coding System (HCPCS), which contains codes for about 7,000 distinct services.”
Calculations are intricate. The system looks at the amount of time a doctor spends on carrying out a particular procedure or making a diagnosis or talking with a patient. Also calculated are the costs of running a physician practice and the cost of liability insurance, all reckoned across “different markets in the U.S. Then the total cost is multiplied by a standard dollar amount, called the fee schedule’s conversion factor ($33.98 in 2011), to arrive at the payment amount,” according to the Medicare Payment Advisory Commission (MedPAC).
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