A colleague of mine called me recently. The reimbursement rates for PACE, or “Programs of All-inclusive Care for the Elderly” in Florida had dropped 20 percent suddenly. He asked if I knew why. 

To answer his question, let’s talk about “per member, per month” (PMPM) and prospective payments. In the 1980s, Medicare started paying for inpatient acute care based on the diagnosis of the patient. More importantly, the amount of payment for the coming fiscal period was fixed ahead of time. This concept replaced “cost reimbursement.” When hospitals were paid based on the costs they incurred, Medicare could end up paying more than they expected, and hospitals filed expensive and complicated appeals. 

Most of our individual insurance plans are prospective. They are also a rigid PMPM form of insurance. At the start of a plan year, you get a quote for your premium. If you like the rate and the coverage, you sign up. You pay your monthly premium. When the plan period is over, you can usually re-enroll at a slightly higher rate per month. If the rate goes up, you may shop around to find another insurance company. 

Medicare Advantage (MA) is a modified form of PMPM. As claims are submitted, rates are adjusted based on the diagnoses from the claims. Medicare allows “risk adjustments” that reflect a base cost and an adjustment factor based on the chronic diseases from which patients suffer.

COVID-19 has turned all this on its head. Patients either can’t or don’t get treatments that would normally drive costs. What my colleague saw in the PACE program was temporary falling utilization impacting the PMPM computations. Let’s make sure providers don’t get caught in the COVID-19 “doughnut hole.”

Programming Note:

Timothy Powell is a regular panelist on Talk Ten Tuesdays. Listen to his live reporting from the Talk Ten Tuesdays News Desk, Tuesdays at 10 a.m. EST.



Timothy Powell, CPA

Timothy Powell is a nationally recognized expert on regulatory matters, including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of the RACmonitor editorial board and a national correspondent for Monitor Mondays.

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