Health care financing and reimbursement

  • Learning outcomes

  • Discuss the concept of value-based reimbursement in health care and explain how it differs from fee-for-service billing.

  • Define Medicaid and Medicare and explain the differences between Medicare Parts A, B, C, and D.

  • Describe payment arrangements whereby physician assistant (PA) services are attributed to physicians for billing purposes and explain how these arrangements impede the ability to assess the impact of care delivered by PAs.

  • Describe new health care delivery models, including Accountable Care Organizations and the Patient-Centered Medical Home.

  • Explain the major components of the Merit-based Incentive Payment System (MIPS).


In the past, numerous legislative, public policy, and insurance company-driven initiatives were aimed at fundamentally altering the manner in which U.S. health care is financed and delivered. Although those initiatives may have appeared to be dramatic changes at the time—think back to managed care—the results turned out to be more comparable to marginal modifications to a health care system that seemed to be nearly unmanageable in terms of stemming the rapid increase in costs and an inability to deliver a uniformly high level of quality. In fact, the U.S. health care system remains on an unsustainable financial trajectory. The rate of spending continues to outpace inflation. Meanwhile, despite the amount of money expended, patient health outcomes in the United States often lag behind those of other countries that spend far less.

Comprehensive health care reform was enacted in March of 2010 when the Patient Protection and Affordable Care Act (PPACA) was signed into law. Depending on one’s point of view, passage of the Affordable Care Act (ACA) placed the U.S. health care system on a markedly different path. One’s political views may well determine whether that trajectory is considered positive or not. Either way, we appear to be entering an era of health system reform that attempts to usher in a structural change to health care financing unlike anything we’ve seen before.

The way in which physician assistants (PAs), physicians, and other health professionals will be reimbursed for the professional services they deliver is in the midst of unprecedented change. As practices, hospitals, and health systems begin to reinvent themselves and establish new practice and payment models, PAs must understand how they will adapt to a “new normal” in health care.

One of the essential concepts in health care today is value: value-based reimbursement, value-based purchasing, and a shift from fee-for-service to fee for value. Value in health care can have many different meanings depending on who and where you are in the health care system. In the reimbursement arena, value can be described as the health outcome achieved per the dollars allocated. ,

What is the concept behind value-based reimbursement or value-based payments? It deals with the providing of preventive care and intervention earlier in the disease process, delivering that care in lower cost settings (e.g., in the office or in the patient’s home vs. in an acute or urgent care setting) and having health professionals focus on improving both individual and population health. All this has to occur while at the same time reducing the number of avoidable emergency department visits and hospitalizations and reducing hospital readmissions.

The transition toward more innovative health care delivery system concepts such as population health, value-based reimbursement, and bundled and episodic payments continues. The pace of that transformation, however, has been slower than many expected. In fact, despite the efforts of the Medicare program and numerous commercial insurers to move the needle forward, many health care professionals remain substantially entrenched in the world of fee-for-service reimbursement.

The appropriate and efficient use of information technology and analytics will have to be in the forefront of a practice’s or hospital’s reimbursement or revenue cycle management activities in order to achieve success in a value-based payment environment. Increasingly, health professionals and health systems will need the ability to track quality performance metrics, patient outcomes, patient satisfaction, and hospital readmissions to truly understand value.

Financing often refers to the global manner in which we pay for health care. That includes entities, such as employers in the private sector or Medicare and Medicaid in the public sector, and individual consumers who pay for care either through subscribing to health insurance plans or by paying for care through out-of-pocket expenditures. Reimbursement represents the coverage policy and payments made to PAs, physicians, and other health care professionals to deliver care to patients. In this chapter, we focus primarily on reimbursement.

Full utilization of physician assistants will ensure improved patient access to care

PAs deliver quality medical and surgical services that would otherwise be provided by a physician. Numerous government and private sector research reports and studies have verified that the quality of care delivered by PAs is equal to that of physicians. In addition, patient satisfaction with care provided by PAs is equal to that of physicians. A survey conducted by Harris Poll in 2014 found that 93% of individuals surveyed who had seen a PA agreed that PAs are trusted health care providers. , (The online survey was conducted from September 15 to 22 in 2014, among 1544 adults age 18 years and older living in the United States, including an oversample of 680 adults who had seen a PA or had accompanied a loved one to see a PA in the past 12 months.)

As policy makers, regulators, and private payers move forward with programs and initiatives designed to improve quality, increase practice efficiencies, and produce better patient outcomes, it is essential that the concept of interdisciplinary, team-based care be at the forefront of the policies and programs. A high-performing, coordinated health care system recognizes the competency, skill set, and capacity of each health professional in order to enhance patient care quality, increase the likelihood of positive clinical outcomes, and be cost-effective with resource allocation.

Policies, rules, and regulations that artificially limit the participation and leadership of PAs in these teams only serve to reduce access and create unnecessary and harmful barriers to timely patient care. Quite simply, PAs should be authorized and incentivized to practice to the full extent of their education and expertise in all existing and future care models. Health care delivery and coverage programs that are physician-centric as opposed to provider neutral and policies that fail to acknowledge the capacity of PAs to practice medicine are counterproductive and will prevent the United States’ health care system from achieving the goals of improving quality, lowering costs, and increasing patient access to care.

Government-sponsored programs


Medicare, which provides coverage to more than 60 million people, is a health care program available for older individuals (65 years and older), people with disabilities who have received cash benefits under Social Security for at least 24 months, and those with permanent kidney failure (e.g., end-stage renal disease). The Medicare program is administered by the federal government and is funded through a combination of Medicare premiums, general fund revenues, and patient deductibles and copayments.

Medicare’s coverage is divided into four parts: A, B, C, and D. Medicare Part A pays for hospital facility, equipment, and supply costs; some inpatient care in a skilled nursing facility (SNF); home health care; and hospice care. Medicare Part B pays for professional services delivered by physicians, PAs, and other health care professionals; durable medical equipment; and other medical services and supplies not covered by Part A.

Medicare Part C is a coverage option available to Medicare-eligible beneficiaries that allows private health insurance companies to provide Medicare benefits. These Medicare private health plans, such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs), are known as Medicare Advantage Plans. These plans, which are available through commercial insurance companies that contract with Medicare, often offer an enhanced benefit package, such as vision, dental, or hearing aid coverage, that is not available with traditional fee-for-service Medicare. The trade-off is that, whereas Medicare Part C enrollees have certain plan restrictions and are required to receive their care from health care professionals who are in a particular health plan or network, those who choose the Medicare Part B fee-for-service option can receive care from any health care provider who accepts Medicare.

Medicare Part D is a prescription drug plan created by the Medicare Prescription Drug Improvement and Modernization Act of 2003 that covers certain costs related to prescription drugs. The program provides prescription drug coverage for both brand-name and generic drugs.

Our primary focus is on Medicare Parts A and B because those programs have the most direct impact on reimbursement for medical and surgical services provided by PAs and physicians.

Medicare Part A

Generally, Medicare Part A pays for costs associated with patient expenses incurred at hospitals, such as room and board, meals, and the care provided by licensed practical nurses, registered nurses, and other staff who do not bill the Medicare program. Part A can also help defray costs related to stays in hospice and nursing facilities and for home health care.

Administratively, payments to hospitals are made by intermediaries , who are under contract to the federal government to administer the Part A program in a particular state. These intermediaries are typically private insurance companies that have won competitive bids to administer the Part A program.

Medicare Part B

Medicare Part B pays for professional services delivered by PAs, physicians, and other professionals in hospitals, nursing homes, private offices, or a patient’s home. Part B also covers services provided “incident to” a physician’s care. Medicare also allows for services provided in the office setting by registered nurses and medical assistants, for example, to be billed “incident to” the PA. These ancillary services provided “incident to” the PA are billed under the PA’s name with payment at 85%. A more complete explanation of “incident to” billing can be found in the section titled “Incident to” Services in this chapter. As with Part A, Medicare contracts with private insurance companies to administer the Part B program on behalf of the federal government. The insurance companies that process claims and administer the Part B program are called Medicare administrative contractors (MACs).

Most Medicare beneficiaries receive services on what is commonly referred to as a “fee-for-service” basis. The value of the service is determined by the Medicare fee schedule. Fee-for-service Medicare (sometimes called Original Medicare) offers maximum flexibility in selecting physicians and other practitioners of choice. The patient’s out-of-pocket expenses, however, can be higher under the fee-for-service arrangement.

Medicare beneficiaries must satisfy an annual deductible before Medicare pays for any services they receive. (Some Medicare HMOs and managed care plans may waive the deductible payment.) After the deductible has been met, fee-for-service Medicare covers 80% of the fee schedule amount, and the patient is responsible for the remaining 20%, after meeting the deductible. Medicare’s fee schedule amount is generally less than the medical practice’s usual charge for the service.

For some time, PAs were covered for services delivered in offices or clinics, hospitals, and SNFs and for first assisting at surgery. Rates of reimbursement ranged from 65% to 85% of the physician fee schedule. In years past, however, services provided by PAs in nonrural health professional shortage area offices and clinics were covered only when billed under the “incident to” billing method, which required the constant onsite presence of the physician. In 1997 the Balanced Budget Act extended coverage to all practice settings at one uniform rate. As of January 1, 1998, Medicare pays the PA’s employer for medical and surgical services provided by the PA at 85% of the physician’s fee schedule in all practice settings. PAs may treat new Medicare beneficiaries or established patients with new medical problems when billing the service under their name and National Provider Identifier (NPI) number. The office bills at the full physician rate using the same Current Procedural Terminology codes that physicians use and Medicare will pay for the service at 85% based on use of the PA’s NPI number.

PAs participating in Medicare are required to accept assignment for their services. Similar to physicians, PAs have the option to opt out of Medicare. Traditionally, when PAs delivered care to Medicare beneficiaries, the PA had to have a relationship with a collaborating physician. When billing was submitted under the PA’s name and Medicare provider number, general supervision was required. General supervision meant that the physician and the PA had to have access to electronic (e.g., telephone) communication. In recognition of the increasingly important role PAs play in delivering care, however, the Centers for Medicare and Medicaid Services (CMS) suggested new language in the proposed 2020 Physician Fee Schedule rule to change the manner in which PAs work with physicians and other members of the health care team. If finalized, Medicare requirements will defer to state law in terms of how PAs work with physicians and eliminate its requirement for general supervision. If state law eliminates the legal requirement for a specific relationship between a PA, physician, or any other health care provider in order for a PA to practice to the full extent of their education, training, and experience, Medicare policy will align with state law. This represents a major policy shift by Medicare and will ensure that PAs are able to increase access to care for Medicare beneficiaries and all patients.

The PA’s employer can be a physician, physician group, hospital, nursing home, group practice, professional medical corporation, limited liability partnership, or limited liability company. In 2002 the Medicare program expanded the ability of PAs to have an ownership interest in a practice. Rules that became effective in April 2002 allow PAs to own up to 99% of a Medicare-approved corporation that is eligible to bill the Medicare program, if allowed by state law. See Table 9.1 for a breakdown of Medicare policy pertaining to PA reimbursement.

Table 9.1

Medicare Policy for PAs

Setting Supervisor Requirement Reimbursement Rate Services
Office/clinic; non-”incident to” visit State law 85% of Physician Fee Schedule All services a PA is legally authorized to provide that would have been covered if provided personally by a physician.
Physician-owned, Office/clinic; “incident to” visit Physician must be in the suite of offices 100% of Physician Fee Schedule Any service provided to an established patient of the practice and related to an ongoing condition for which a plan of care was established by a physician of the practice.
Home visit/house call (not home health services) State law 85% of Physician Fee Schedule All services a PA is legally authorized to provide that would have been covered if provided personally by a physician.
Home health State law 85% of Physician Fee Schedule PAs may provide face-to-face encounters before a home health order, but only a physician may order home health and sign the home health plan of care. PAs may provide care plan oversight for home health patients.
Skilled nursing facility State law 85% of Physician Fee Schedule Alternated required visits and any additional visits when medically necessary. Physician must perform comprehensive visit.
Hospital; nonshared visit service State law 85% of Physician Fee Schedule All services a PA is legally authorized to provide that would have been covered if provided personally by a physician.
Hospital; shared visit service State law 100% of the Physician Fee Schedule Any E/M service; no procedures, no critical care schedule.
First assisting at surgery in all settings State law 85% of physician first assist fee schedule All services a PA is legally authorized to provide that would have been covered if provided personally by a physician.
Federally certified rural health clinics State law Cost-based reimbursement All services a PA is legally authorized to provide that would have been covered if provided personally by a physician
HMO State law Reimbursement is on capitation basis All services contracted for as part of an HMO contract.

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Jun 15, 2021 | Posted by in MEDICAL ASSISSTANT | Comments Off on Health care financing and reimbursement

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