Health Care Financing and Reimbursement

Over the past 3 decades, numerous legislative, public policy, and insurance company–driven initiatives have been aimed at fundamentally altering the manner in which our nation’s health care is financed and delivered. But even though they appeared to be dramatic changes at the time—think back to managed care—those initiatives 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.

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 ACA placed the U.S. health care system on a different trajectory. One’s political views may well decide on whether that trajectory is 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 (the office or in the patient’s home vs. an acute 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 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, hospital readmissions, and so on.

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 and health care professionals to deliver care to patients. In this chapter, we focus primarily on reimbursement.

Full Utilization of Physician Assistants Will Ensure Patient Access to Care

Physician assistants 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 September 15 to 22, 2014, among 1544 adults age 18 years and older living in the United States, including an oversample of 680 adults who have seen a PA or have accompanied a loved one to see a PA in the past 12 months. For a complete methodology, including weighting variables, please contact the American Academy of Physician Assistants [AAPA].)

As policymakers, regulators, and private payers move forward with a number of 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 and increase the likelihood of positive clinical outcomes while being 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. Language that is 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 55 million people, is a health care program available for older individuals (older than 65 years), 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. Also known as Medicare+Choice plans, these plans often offer an enhanced benefit package such as eyeglasses coverage that are 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 and registered nurses. 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” the 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. 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 gives beneficiaries maximum flexibility in selecting physicians and other practitioners of choice. However, the patient’s out-of-pocket expenses 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, 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. This can be illustrated by a list of the typical fees assessed for the patient who fell off a ladder and needed medical care, as described in Case Study 8.1 .

Case Study 8.1

  • Patient: Paul Peterson, Anytown, USA

  • Practitioner: James Jones, MD, Anytown, USA

  • Medical problem: Patient was on a ladder changing a lightbulb. Patient fell and hurt his arm.

Services Provided Office Charge Medicare Fee Schedule
Office visit $105 $75

Although the fees the physician normally charges amounted to $105, Medicare’s approved fee schedule amounts allowed the physician to charge only $75 for the care received. The actual Medicare payment to the practice would be $60 ($75 × 80%), with the patient being responsible for the 20% (or $15) difference, assuming that the patient has paid his deductible and the physician participates with Medicare ( Table 8.1 ).


Medicare Policy for Physician Assistants

Copyright © 2012 by the American Academy of Physician Assistants. All rights reserved.

Setting Supervision Reimbursement Rate Services
Office or clinic when physician is not onsite State law 85% of physician’s fee schedule All services PA is legally authorized to provide that would have been covered if provided personally by a physician
Office or clinic when physician is onsite Physician must be in the suite of offices 100% of physician’s fee schedule Same as above. PAs may personally perform but are not authorized to supervise other personnel who perform diagnostic tests.
Home visit or house call State law 85% of physician’s fee schedule Same as above
SNF State law 85% of physician’s fee schedule Same as above except that only physicians may perform the comprehensive SNF visit
Hospital State law 85% of physician’s fee schedule Same as above. Medicare’s Conditions of Participation limit certain services as physician only such as supervising a cardiac rehabilitation unit.
First-assisting at surgery in all settings State law 85% of physician’s first-assist fee schedule Same as above
Federal rural health clinic State law Cost-based reimbursement Same as above
HMO or managed care contract (e.g., Medicare Advantage) State law Reimbursement is on capitation basis All services contracted for as part of an HMO contract

HMO, Health maintenance organization; PA, physician assistant; SNF, skilled nursing facility.

Using carrier guidelines for “incident to” services.

85% of 16% = 13.6% of primary surgeon’s fee.

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Aug 7, 2019 | Posted by in MEDICAL ASSISSTANT | Comments Off on Health Care Financing and Reimbursement
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