Behind the Scenes: Medicare Coding Changes...

Starting January 1, 2010, Medicare implemented a dramatic change to how doctors, and specifically specialists, code your visit to their office, specifically referred to as E & M codes, or Evaluation and Management codes. Up till now, if your primary care doctor or internist referred you to a specialist, he would be required to send a letter requesting the consult and fax your medical chart with his notes to the specialist so he would have them to review when you were seen. After your visit, the specialist would send a letter to the referring doctor explaining his recommendation and plan for you, the patient. These higher level, or "consult codes", reimbursed the specialist a higher amount than the lower level "new patient codes". A patient who came to a specialist's office for a visit but who was not referred by another doctor, would be coded using a "new patient" code, (which has 4 levels), with the level of the visit being determined using multiple factors Medicare has developed. There is no communication required between the specialist and a 'new patient''s other doctors. He does not send his chart notes to any of the physician's you list on your information sheet. This only happens if a specific doctor has requested you see a specialist, usually of his own choosing.

So here is the change....Medicare is not accepting any more consult coded visits. All visits must be coded as a 'new patient visit'. Here is what this means to Medicare.....Medicare can get the same work out of the doctors but pay them less. As medical professionals, the majority of doctors will practice as trained, doing whatever necessitates the appropriate care required for their patients i.e. communicating to the referring physicians. The continued administrative costs associated with corresponding with each other and time required to process a consulting physicians notes will not change, in fact they continue to increase.

Here is what it means to you the patient....there will be doctors who forego communicating with the referring doctor because they are not getting paid for it. Already there are patients and families who are frustrated when they don't get answers. Think about the ramifications when confusion is built into the process because one doctor doesn't know what the other is doing (this already happens sometimes right?) With the elimination of the consult structure, which had been built into the Medicare reimbursement schedule, the incentive for some doctors to communicate with each other will be eliminated. Many of the costs associated with communication between doctors will continue to exist and actually increase. The fact they aren't being compensated for those costs will be enough to propagate practicing medicine in a shoddy way - reduced communication between referring physicians. Bottom line: the quality of healthcare we receive will continue to be eroded, little by little, and most people won't be able to connect the dots. (Where have I heard that before?) But because you are reading this blog, you will! :) Doesn't that make you feel better??

What's Medicare Got To Do With It? Part II

Following up from the last entry, you now understand how much doctors and hospitals get paid from insurance companies. To summarize, it is Medicare that sets the rate from which doctors are paid. If you are insured and if you are like most people, all you care about is that you, or your employer, can afford your monthly premium, and your plan has affordable co-pay and deductible amounts (the dollars you pay directly to your doctor or hospital). But it is crucial to become more consumer savvy about what actual health care, not just insurance, costs. Insurance companies and our politicians don't want you to know. And Medicare is driving the bus so to speak. So let's take a very brief walk down memory lane with respect to Medicare....

DRG's The Key to the Castle...

From 1964 to 1985, Medicare paid for procedures and office visits based on what was actually done. The activity was described, billed, and doctors and hospitals were paid accordingly. Insurance companies at that time used all kinds of resources to calculate payments to physicians: St. Paul's Medical Reimbursement Fee Schedule (1987), Resource Based Relative Value Scale (RBRVS) which is a standard methdology based on the principle that payments for physician services should correspond with the resource costs for providing those services. Commercial insurance at that time did not unilaterally tie their wagon to the Medicare rate, or what has been termed the "allowable" amount of payment. But in 1985, the implementation of DRG's (Diagnostic Related Groups), which uses diagnosis codes to link with a procedure, changed the landscape of how and what is paid for medical services.

In 2007, author Rick Mayes described DRGs as: "..Rather than simply reimbursing hospitals whatever costs they charged to treat Medicare patients, the new model paid hospitals a predetermined, set rate based on the patient's diagnosis.The most significant change in health policy since Medicare and Medicaid's passage in 1965 went virtually unnoticed by the general public. Nevertheless, the change was nothing short of revolutionary. For the first time, the federal government gained the upper hand in its financial relationship with the hospital industry. Medicare's new prospective payment system with DRGs triggered a shift in the balance of political and economic power between the providers of medical care (hospitals and physicians) and those who paid for it - power that providers had successfully accumulated for more than half a century."

When doctors did a surgery prior to the use of DRG's for the purposes of payment, he was paid 100% of the Medicare "allowable" rate listed for each procedure done. For example, complete sinus surgery requires multiple individual 'procedures' that can be performed at the same time. The surgeon, prior to DRG's, was paid 100% of each Medicare allowable or insurance listed price for every procedure associated with the sinus surgery. With the implementation of DRG's, however, the surgeon is paid 100% of the Medicare allowable (or insurance plan rate)for the first of the procedures, 50% of the rate for the second, and 25% of the rate for the third and subsequent procedures. This dramatically reduced what was then being paid out for procedures. For purposes of illustration only, see the table below:

A Sinus Surgery: Multiple Procedures

Septoplasty First Procedure...
Medicare Allowable payment $1500
Before DRGs 100% or 1500
After DRGs 100% or $1500

Nasal ethmoidectomy Second Procedure
Medicare Allowable $1200
Before DRGs 100% or $1200
After DRGs 50% or $600

Turbinate reduction Third Procedure
Medicare Allowable $500
Before DRGs $500
After DRGs 25% or $125

Total Paid to Surgeon
Before DRGs $3200
After DGRGs $2225

**It would be much easier to read if I could insert a table or chart, but the formatting of this blog site won't allow it. Sorry for the inconvenience.

Commercial insurance pay the same way as Medicare, applying the 100%, 50%, 25% reductions to multiple surgical services performed on the same day.


When you hear politicians say that reform is needed "because doctors get paid for how many procedures they do - the more they do, they more they are paid", it is important to understand how they are paid. With the introduction of DRG's back in the 80's, the more physicians do, the less they are paid.

With most businesses, the more you do (services) or the more you sell (products) the more you are paid. The philosophical argument that is embodied in the current health care reform debate is that medical services, or more specifically your doctor and or hospital, should not be paid based on how many patients or procedures he/she is willing to see or treat. Their base of payment should not be driven by quantity. They should be salaried and their payment based on quality standards. But the inherent problem is what will be required from physicians to practice the art and science of medicine in that type of environment - when quality measurements for the practice of medicine are being managed and implemented by the government.

What's Medicare Got To Do With It? Part I

Everything. Health care reform and Medicare are inextricable as our legislators attempt to construct or deconstruct how we as a nation are going to afford health care in the coming decades. Even if you are too young for Medicare benefits and currently have insurance, and yes, even if you don't have insurance at all, Medicare is key. It is key for a number of reasons, the most important being it is the pay schedule that private insurance companies use to tie what it pays to doctors and hospitals. Forget everything you have been told about private insurance 'negotiating' with doctors and hospitals about what to pay them. Commercial or private insurance has been using Medicare as a basis for payment for years. Typically they will pay 20 to 30% over current Medicare rates. I have currently seen this rate drop to 15% over Medicare. But never more than 30%. This is the range of 'negotiation', and unless there is a compelling reason given why an insurance company should pay a particular doctor or hospital more than what they are offering, they state the % of Medicare they are willing to pay and that is the end of the conversation. That 'compelling reason' may be that there is only one physician offering a particular service. That may get the doctor a percentage or two more than what was initially offered. But the take away is that doctors and hospitals aren't 'driving the bus' so to speak, on what they get paid - Medicare is.

As a government social program, Medicare has always been, as it should be, the lowest payor for health services. Most physicians regarded accepting Medicare patients as their responsibility to care for our country's aging population. The doctor's patients who had private insurance made up for the low payments of Medicare. But Medicare has been been reducing what they pay doctors and hosptials for the past twenty five years. Private or commercial insurance companies wised up, and tied their their wagon to Medicare. Subsequently, insurance companies have been able to steadily reduce their payments to doctors and hospitals over the past fifteen years.

It is for this reason I don't really understand how the public option will work in increasing competition among the private insurance industry, as our politicians so emphatically posture . Perhaps commercial insurance companies will have to lower what they are charging businesses/individuals for their plans since they will be competing with the public option. I understand that. But that is what we pay for insurance, not what is paid to our health care providers. There is no competition driving what is actually paid out for our health care services, ie what we pay the doctors. For medical practices struggling to stay in business, their payments from private insurance will continue to plummet because, as explained, they will continue to be paid based on Medicare and/or the so called public option. Because private medical offices, or self employed physicians have no control over what they are paid (no negotiating with the insurance companies) and their costs of doing business (rent, staff, technology, medical malpractice premiums) continue to rise, they will not be able to stay in business. Private medical offices, or self employed physicans will cease to exist and a single payor system will emerge. Insurance companies win in either scenario.