BUSI 523 LU History of Medicare and Payment Systems Discussion Replies

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Lydia DjamoeTuesdayNov 14 at 6:29am

History of Medicare and Payment Systems

History of Medicare

The Medicare law was established on July 30, 1965, under President Lyndon Johnson who declared “No longer will older Americans be denied the healing miracle of modern medicine”. Over the years Medicare has given tens of millions of older Americans significant financial security and access to medical care (Oberlander, 2015). Medicare was established to provide healthcare for citizens 65 years and older. It was referred to as Original Medicare and was made up of Part A which provided insurance for hospital payments and Part B was insurance for physician and other provider’s payments. It was purely a fee-for-service (FFS) system covering services and conditions which has been expanded over the years to include the expansion to include certain nonphysician providers, including physical therapists and chiropractors. It also expanded coverage to the elderly with end-stage renal disease and the disabled (Carter Clement et al., 2017). There is Medicare Part C, created out of the Balanced Budget Act of 1997, which was later changed to Medicare + Choice (M + C) in 1999. Under this plan, CMS works with private and public organizations to provide traditional insurance and managed care to beneficiaries (Harrington, 2021).

History of Prospective Payment System (PPS)

In the past, providers were reimbursed by Medicare and other payers through retrospective cost-based reimbursement where the provider was paid interim reimbursement throughout the fiscal year (FY). The cost of healthcare reimbursement was very high until 1982 when Congress proposed the setting up of a prospective payment system to help in controlling costs. The New Jersey PPS model was adopted and the DRG system was made to hospital resources usage while keeping track of the quality of care being given to patients. PPs entered full force in 1983 as part of the Public Law 98-21. In this model, hospitals get reimbursed based on a patient’s assigned DRG upon admission and the diagnosis upon discharge (Harrington, 2021). In addition, the DRG system moved inpatient expenditures over the predetermined payment to the hospital rather than to Medicare. This reform shifted the financial risk associated with prolonged patient stays in hospitals, forcing them to deliver more efficient and cost-effective treatment (Anumula & Sanelli, 2012).

Current Payment Systems

According to the American Hospital Association, healthcare is moving from fee-from-service to value-based care and alternative payment models. Some current payment systems include the Inpatient Prospective Payment System (IPPS) which is designed for an acute care patient setting and is a single payment not include any other professional services (Harrington, 2021), Outpatient PPS is another program intended to control health care costs through a prospective bundled payment system (Anumula & Sanelli, 2012), Inpatient Rehabilitation Facility PPS uses information from a patient assessment instrument (IRF PAI) to classify patients into distinct groups based on clinical characteristics and expected resource needs. Separate payments are calculated for each group, including the application of case and facility-level adjustments (CMS.gov), Home Health PPS is payment made to Home Health agencies that provide services including speech-language pathology services to Medicare beneficiaries through Part A. All these payment systems work hand in hand to give beneficiaries coverage for health-related issues is likened to what the scripture states in Romans 12:4-5 “Each of us has one body with many parts. And the parts do not all have the same purpose. So also, we are many people. But in Christ, we are one body. And each part of the body belongs to all the other parts” (New International Reader’s Version, 2014). Just as the different parts of the body work for the common good of the body so these current payment systems work together for the good of beneficiaries’ health. 

Myeesha Jackson

plan that provides medical insurance to individuals needing medical care assistance. In 1965, the Medicare health insurance plans were established, providing many aged and disabled Americans with healthcare coverage. Individuals who reach certain ages can obtain medical insurance and assistance through the Medicare healthcare plan. On July 1, 1966, “Medicare went into effect. More than 19 million Americans aged 65 and older enrolled.” (Christian & Benish, 2023 para. 1) In 1972, Medicare extended to individuals under age 65 and allows individuals who suffer from disabilities and chronic illnesses access to Medicare. Through the years, Medicare has added several programs, such as prescription drug coverage, hospital plans, and managed care plans, such as Medicare Advantage plans. As recently as 2010, The Affordable Care Act also became the art of expanding Medicare, offering preventative coverage. Before Medicare’s introduction, many individuals over the age of 65 did not have any healthcare coverage. With access to the plan, Medicare has created healthcare for older adults and many more.

The prospective payment systems Medicare uses today are MD-DRGs and Diagnostic Related Group, which helped today’s reimbursement process. Prospective payment systems’ role is to control costs associated with healthcare. For example, according to Harrington et al., 2021, future payment systems, such as the DRG payment system, monitor the use of all hospital resources while simultaneously monitoring the patient’s care. DRG payment systems fees are fixed to ensure hospitals do not overcharge patients without reason. DRG uses its payment systems to determine a patient’s health cost while hospitalized categorically. DRG payment systems costs are preset, and the amounts charged to patients are predetermined.

Based on a patient’s diagnosis, the DRG prospective payment system bases its redetermination for coverage on a patient’s diagnosis condition and demographic features such as age, gender, and whether the patient’s medical treatment is of medical necessity to avoid unnecessary charges. The IPPS Inpatient Payment system also pays hospitals predetermined amounts under the Medicare MS- DRG payment system. Once hospital treatment is complete and a patient is discharged, the MS-DRG payment system determines the cause of the patient’s hospitalization. According to Davis et al., 2023 payment is determined by the average cost and resources needed to treat people in a particular DRG based on the patient’s diagnosis and predetermined factors. The rate that patients are billed is determined and calculated based on the wage index for the given area and the payment rates a hospital gets depending upon their area of practice. For example, in “Hospitals in Alaska and Hawaii, Medicare adjusts the non-labor portion of the DRG base payment amount because of the higher cost of living.” (Davis, 2023, pp. 1-13). Costs are calculated annually by Hospitals, insurers, and healthcare providers are given the annual cost to have readily available when billing. Suppose hospitals spend less than what is allocated for the DRG payment. In that case, the organization makes a profit from the treatment, and if the organization spends more on treatment than the DRG payment, the treatment loses profits. “The DRG payment system encourages hospitals to be more efficient and reduces their incentive to overtreat you. This has both benefits and drawbacks for patient care.” (Davis, 2023, pp. 1-13)

The DRG payment system is just one of the payment systems that allow providers to improve efficiency, reduce lengthy hospital stays, and lower the cost of treatment. These are all beneficial reasons behind the DRG payment system. The Bible teaches us to “Render to all dues; a tribute to whom tribute is due; custom to whom custom; fear to whom fear; honor to whom honor.” (King James Bible Online, 2023, Romans 13:7). The payment systems do just that as described in this verse. The DRG system pays what is due to providers who render care to patients and work diligently to predetermine costs to remain cost-effective and efficient to ensure that all individuals who seek care have reasonable care for reasonable pricing. The cost of healthcare is an ongoing feat that will continue to adjust how payments are processed. Prayerfully, processed payments will continue to be reasonably calculated and adjusted to fit the growing healthcare needs.