Beware: Proportion of Medicare Fee-for-Service Beneficiaries is Shrinking

The volume of Medicare beneficiaries has been slowing growing while the distribution of Medicare plans is quickly changing.

Medicare provides federal healthcare coverage for Americans 65 or older, or anyone with end-stage renal disease, regardless of age, as well as certain people with disabilities under the age of 65 who often also have Medicaid benefits (known as dual coverage). In 2020, a total of 18.4 percent of Americans were covered by Medicare.

There are several different components to Medicare benefits. The basic types of insurance plans are Medicare Part A and Medicare Part B. If you are a clinical documentation integrity (CDI) professional who works for a short-term acute-care hospital, then your CDI processes and workflows are likely designed to support payment under Medicare Part A, known as Medicare fee-for-service or traditional Medicare. This type of Medicare uses the Inpatient Prospective Payment System (IPPS) as the basis of reimbursement. The unit of reimbursement is the Medicare Severity-Diagnosis Related Group (MS-DRG). However, there are many different types of Medicare coverage.

It is important to understand the different types of Medicare coverage and their payment mechanisms to support the financial health of your healthcare organization. This article will discuss some of the lesser-known Medicare reimbursement methodologies that are growing in popularity among the Medicare beneficiary population, because they require a different CDI approach due to different reimbursement methodologies.

Medicare Part A is classified by the Centers for Medicare & Medicaid Services (CMS) as hospital insurance. It is the benefit used to cover inpatient hospitalization, inpatient skilled nursing services, hospice services, and some home health services. Most Medicare beneficiaries enroll in both Medicare Part A and Medicare Part B. Medicare Part B is medical insurance covering most outpatient services, including physician services, durable medical equipment, home health services, and many preventative services. When a Medicare Part A and Part B beneficiary receives hospital services, they are using their Medicare Part A benefit if they are an inpatient and using their Part B benefit if they are receiving emergency services, outpatient surgery, or observation services, even if they are occupying a bed in the hospital. Medicare Part B is administered through the Outpatient Prospective Payment System (OPPS).

Although both Medicare Parts A and B use ICD-10-CM diagnosis codes, the OPPS uses Current Procedural Terminology® (CPT) procedure codes instead of ICD-10-PCS codes. Medicare Part D is an outpatient prescription drug benefit administered through Medicare-approved private insurance companies.

Medicare Part C is the Medicare Advantage (MA) program. This is a benefit wherein Medicare-approved private insurance companies provide all the coverage of traditional Medicare Parts A and B, but may also provide additional benefits, like Medicare Part D, gym memberships, vision, dental, etc., to entice Medicare beneficiaries to enroll in their Medicare offerings. There are often more restrictions when accessing care under a MA plan, e.g., a network of providers, referrals for specialists, etc. The reimbursement methodology used for MA plans is the CMS Hierarchical Condition Categories (HCCs). Insurance companies that administer MA plans receive a monthly prospective payment based on the beneficiaries’ risk profile, as determined by annual claims data reported during the prior calendar year. Diagnosis and demographic data (age, sex, Medicaid enrollment, and disability status) reported each calendar year is used to calculate the beneficiary’s risk score using CMS-HCC methodology. Higher risk scores generate higher payments, because beneficiaries with higher risk scores are expected to have higher expenditures. Diagnoses used to generate the risk scores must:

• Appear on a claim from a hospital inpatient stay, a hospital outpatient visit, or a face-to-face visit with a physician or other healthcare professional (including real-time audio and video telehealth visits); and
• Be supported by evidence in the patient’s medical record.

As CDI leadership, it is no longer enough to know your organization’s payer mix; you should also know the proportion of each Medicare plan within the Medicare payer mix, as this can significantly impact organizational operating margins and the value of CDI efforts. As I’ve discussed in previous articles, implementation of the MS-DRG methodology really allowed the CDI profession to flourish, as efforts to maximize or obtain accurate revenue based on IPPS could be directly attributed to CDI efforts by measuring complications and comorbidities (CCs) and major CC (MCCs) capture. Because Medicare is the largest single purchaser of healthcare in the U.S., maximizing Medicare payments often translates into better financial health, at the hospital level. In 2020, private insurance accounted for 36 percent of U.S. healthcare expenditures, followed by Medicare at 23 percent and Medicaid at 18 percent.

The volume of Medicare beneficiaries has been slowing growing, going from 19.9 percent in 2015 to the current 23 percent in 2020, but the distribution of Medicare plans is also quickly changing.

Medicare Advantage plans are growing in popularity with Medicare beneficiaries. The MedPac report to Congress found that 39 percent of all Medicare beneficiaries and 43 percent of those with Part A and Part B coverage are enrolled in a MA plan. The Congressional Budget Office (CBO) projects that MA enrollment will continue on this trajectory, and account for 47 percent of all Medicare beneficiaries by 2029 (and 51 percent by 2030). Compare that to only 31 percent of Medicare beneficiaries currently enrolled in traditional Medicare; however, this number is a little misleading, because some of these beneficiaries may be assigned to other alternative payment models (e.g., Bundled Payments for Care Improvement), so billed MS-DRGs may not reflect the actual payment, skewing the relevance of Case Mix Index (CMI) measures. When it comes to Medicare spending, 34 percent of Medicare costs were paid to MA plans and only 19 percent were for fee-for-service inpatient hospital services – and the volume of inpatient services declined in 2019 by 1 percent, resulting in an average of 243 inpatient stays per 1,000 Medicare FFS beneficiaries. MedPac also found that “four major diagnostic categories accounted for over half of all Medicare FFS inpatient stays: circulatory, musculoskeletal, respiratory, and infectious disease, with the largest increase among admissions for infectious diseases like sepsis,” with admission rates for this category doubling since 2010. The landscape of healthcare is changing, and the tools in the CDI toolbox must expand to better accommodate changes in Medicare reimbursement methodologies. 

Although hospitals are still paid by MS-DRGs for these MA beneficiaries, we see the growth of CDI outside of the inpatient and hospital settings, especially with health systems that are self-insured because of the value that CDI professionals can provide those organizations with large MA populations. Additionally, even though a hospital may still be receiving MS-DRG payments, at least one study (Baker et al, 2016) “found that Medicare Advantage plans paid 5.6 percent less for hospital services than FFS Medicare did.” Medicare Advantage also poses a financial risk to hospitals, because as a managed care program, there are in-network and out-of-network providers and certain processes that must be followed beyond what is required for payment under Medicare Part A that can lead to more denials and higher administrative costs. Another consideration of why dependence on the FFS population is becoming increasingly risky is the MedPac finding that spending among this population “is concentrated among a small number of beneficiaries . . . in 2018, the costliest 5 percent of beneficiaries accounted for 43 percent of annual Medicare FFS spending” – including those beneficiaries who have multiple chronic conditions, dual eligibility, and are in the last year of life.

When it comes to MA plans, “higher enrollee risk scores result in higher payments to the plan.”  MedPac analysis found that higher diagnosis coding intensity resulted in MA risk scores that were more than 9 percent higher than scores for similar FFS beneficiaries. Although there is some overlap of diagnoses being classified as both CMS-HCCs and CCs or MCCs under the MS-DRG reimbursement system, CMS-HCCs are often associated with chronic conditions. In 2019, the 10 most common condition categories among MA beneficiaries were: vascular disease, diabetes with chronic complications, COPD, major depressive, bipolar, and paranoid disorders; heart failure; specified heart arrhythmias; morbid obesity; CKD 3; rheumatoid arthritis and inflammatory connective tissue disease; and diabetes without complications. MedPac attributed the increased volume of risk-adjusting diagnoses to the fact that “MA plans have a financial incentive to ensure that their providers record all possible diagnoses;” however, diagnoses can be just as impactful under MS-DRG. Likely, the disparity that MedPac is finding is due to those CDI professionals who understand CMS-HCC reimbursement methodology and have developed processes to support the reporting of relevant conditions. Examples of these types of workflows are cited by MedPac as “use of medical chart reviews to increase risk scores (a coding practices that does not exist in FFS)” and reliance on “health risk assessments.” 

CDI is not and should not be one-size-fits-all. It is of paramount importance that those running CDI departments at health systems understand the reimbursement mechanisms that impact the financial health of the organization. Medicare Advantage growth is also not equally distributed. MedPac data reveals that more than half of those eligible to enroll in a MA plan in Florida, Hawaii, and Oregon have done so. Additionally, enrollment varies by cities, with as many as 60 percent of Medicare beneficiaries enrolled in a MA plan in Miami, Florida; Pittsburgh, Pennsylvania; Rochester, New York; Grand Rapids, Michigan; Portland, Oregon; and El Paso, Texas.

In an ideal world, CDI departments would be staffed appropriately to focus on documentation integrity, but the reality is that there are not enough CDI professionals, and/or there may be budgetary limitations that cause CDI departments to prioritize their efforts. The default is often an inpatient CDI effort focused on MS-DRGs payors measured by CC/MCC capture and CMI, but that approach is quickly becoming obsolete – not only within the inpatient setting, as Medicare continues to shift to value-based reimbursement mechanisms, but also as CDI expands into other settings, and as the proportion of Medicare fee-for-service beneficiaries continues to shrink.