New directions for Medicare payment systems - Medicare Payment Systems: Moving Toward the Future

Health Care Financing Review, Winter, 1994 by Brigid Goody, Maria A. Friedman, William Sobaski

Most payers accept the methodology underlying the development of RBRVS and the developers' intent to describe resource use by a typical patient, regardless of payer. Nonetheless, non-Medicare payers are concerned about the absence or inadequacy of RVUs for some frequently used services not typically provided to the Medicare population, such as obstetrics/gynecology and pediatrics. Using data from several payers, the Urban Institute will fill RVU gaps for services not covered by Medicare and develop CFs by type of service, geographic area, and payer type. These CFs will provide information on how case-mix adjusted payments vary by geographic area and payer type. Both the physician and hospital components of this research project will be completed in 1995.

In addition to decisions about the appropriate patient classification system and relative weights (or values), the choice of a CF or payment rate is another issue facing any payer or group of payers adopting Medicare payment methodologies for both hospitals and physicians. The article by Kominski and Rice discusses this choice in the context of aff-payer systems. Two fundamental decisions must be made. First, an appropriate price level must be chosen. Second, a decision is needed about whether the current, substantial payment differentials among payers should be retained, reduced, or eliminated. Based upon an analysis of California hospital discharge data, the authors argue that a single set of payment rates should not be applied to all payers because resource use varies within DRGs. Consistent with a previous analysis by Thorpe (1987), the authors advocate the use of payer-specific weights and payer-specific CFs to adjust for differences in resource costs across payers.

Medicare Transaction System

In the past, the development and evaluation of Medicare payment methodologies were hindered in part by a fragmented claims processing system. Medicare currently has 79 contractors using 10 independent systems at 62 sites across the country. The article by Warren, Jackson, and Veiel describes the development of a new claims processing system, the Medicare Transaction System (MTS). MTS will consolidate all claims processing for both Part A and Part B services into one national, standard, integrated claims processing system.

Besides improving services to beneficiaries and providers by supporting a single point of information, the MIS will also facilitate the development and evaluation of payment policies by providing more timely, accurate, and uniform data. The integrated processing of claims for Part A and Part B services could simplify the development of bundled payment systems that help to align physician with hospital incentives. The development of a national provider and payer identification system will be especially helpful for evaluations by allowing the verification of the same provider in multiple health plans.

SUMMARY

The articles presented in this issue describe some recent or ongoing developments in the creation, implementation, and refinement of Medicare payment methodologies. The adoption of Medicare payment systems by non-Medicare payers is also described. Overall, the articles underscore Medicare's major contributions to how hospitals, physicians, and nursing homes are paid in the United States. The extensive adoption and adaptation of PPS and the MFS by non-Medicare payers nationwide indicates the systems' general flexibility and their credibility among various private insurers and States. In addition, the high adoption rates of PPS and the MFS reinforce their utility as a platform for the development of new payment policies, such as all-payer systems under State health care reform. Similarly, Medicare-developed classification schemes, such as RUGS and severity DRGs, are leading the way toward more precise and equitable payment systems for more severely ill patients. The development of payment systems and their associated classification systems has been facilitated by HCFA's unique national patient data base. The development of the state-of-the-art MTS is expected to further facilitate the development and evaluation of payment policies.