Discuss the general differences between facility and non-facility rates. Discuss the MS-DRG system for hospital inpatient services. Include in your discussion the history of the MS-DRG system and the need for the updated system. There are two types of bills used in healthcare. Which type of bill is used for physician services? Which type of bill is used for hospital services? (Hint: your book is incorrect.)
Facility vs. Non-Facility Rates
The place of service can greatly affect reimbursement, depending on the type of service provided and the location. The reason being is that Medicare typically reimburses physicians based on a method called Relative Value Units (RVUs), which has three components: work, practice expense, and malpractice. Procedures that can be performed in either a facility or non-facility setting have different practice expense RVUs, depending on the place of service. Therefore, the practice expense is a major component in rate determination, because place of service is part of this practice expense component. The practice expense component includes rent/lease of space, supplies, equipment, and clinical and administrative staff expenses. In a general sense, facilities are hospitals, skilled nursing facilities, nursing homes, or any other place that bills for Medicare Part A. Some physicians work out of a hospital owned facility, meaning that they are employed by and work in a facility owned and billed for by a hospital, and those physicians would be billing based on the facility rates. When physicians provide a service in a facility such as a hospital, the total RVU is lower due to the fact that they do not incur the full practice expense associated with providing that service; such expenses are the cost of having full staff, equipment, space, or supply costs. Hence, Medicare reduces the payment based on the location of service. On the other hand, the most common non-facility location is the physician’s office when the practice is not organization-based. In the non-facility setting, the physician practice incurs the full expense of providing the service and is therefore reimbursed at a higher total RVU. When physicians provide services in a facility setting a CMS 1500 claim form must be submitted for those services, and the hospital or ASC submits a UB-92 or CMS 1500 claim form for the “facility fee.” Medicare then reimburses the physicians at the lower facility RVU rate and reimburses the facility (the hospital or ASC) for the space, staffing, and technical services it provided. However, when services are performed in a non-facility setting, such as medical office, and submit the same CMS 1500 claim form for the services provided, Medicare reimburses the physician based on the non-facility RVU.
In terms of RVUs, Medicare assigns the RVUs based on input from the AAOS and socioeconomic surveys on where the service is or should be performed. In some instances, both a facility and non-facility practice expense RVU factor may be assigned, but in other cases, such as a total knee replacement, only one practice expense RVU is applicable. With a total knee replacement, the facility and non-facility practice expense RVUs are exactly the same, meaning that Medicare will only reimburse this procedure in a facility setting.
The CMS-DRG classification system was the most widely utilized system for classifying acute care inpatients and measuring case mix. The implementation of MS-DRGs is a major change. CMS was then moved to MS-DRGs in response to recommendations by the Medicare Payment Advisory Commission (MedPAC). In a 2005 report, MedPAC recommended that the Medicare DRG system be revised to take into account severity of illness. The MS-DRGs would enable CMS to provide greater reimbursement to hospitals serving more severely ill patients. Hospitals treating less severely ill patients would receive reduced reimbursement. Using the previous DRG system and their...