Medicare advantage

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Business and Organization

  • Medicare advantage

Yee T. Chang MD

History of Medicare:

Original medicare is a fee for service program where the government pays health care providers directly for Part A (inpatient services) and Part B (outpatient) benefits. It was established in 1966 to address the medical needs of Americans over age 65 and to younger individuals with disabilities.

Medicare Advantage, or Part C benefits, are offered by private companies approved by Medicare. Medicare plans administered by private companies have been around since the 1970’s, Medicare Advantage was formalized in 2003 through the Medicare Modernization Act.

Segmental payment through 4 different programs:

Medicare Part A is an entitlement, which means that those who are eligible do not have to pay for it. This covers inpatient services at hospitals, nursing homes, home health and hospice care.

Medicare Part B is not an entitlement, which means those that are eligible must pay for it. Average premium is $100/ per month. The premium covers outpatient services such as doctor’s visits, durable medical equipment, physical therapy and mental health.

Medicare Part C (Medicare Advantage) covers both inpatient and outpatient services (C=A+B).

Medicare Part D, which is prescription drug coverage, is usually included in Part C programs. This was established in 2003, also as a result of the Medicare Modernization Act.

Payment structure of Original Medicare and Medicare Advantage:

Both Original Medicare and Medicare Advantage will contract with approved medical providers. These are medical doctors, osteopathic doctors, nurse practitioners and physician assistants. The way providers are paid differ between the two programs. Original Medicare is fee for service - each individual office visit must stand on its own and have supporting documentation in the medical record for that specific visit.

Medicare Advantage pays on a risk adjustment basis. This means more medically complex patients are paid higher premiums. To collect payment on a diagnosis - for example diabetes - the patient must be seen at least one time a year. It must be a face to face visit with one of the four types of providers listed above.

The Center for Medicare and Medicaid Services (CMS) has three risk adjustment structures for Medicare Advantage. All three share a common basic approach of assigning a risk score. The risk score represents the expected cost of the patient normalized to the expected average cost for the population:

1. Part C will assign a “risk score” for chronic diseases such as diabetes, heart disease, HIV infection. Acute catastrophic events such as a heart attacks, strokes or fractures are also assigned risk scores.

2. End stage renal disease will pay for dialysis, kidney transplant and post transplant care.

3. Prescription drug coverage.

Reimbursement rates are set by the federal government on a county-by-county basis using formulas established by CMS. The reimbursement rate is linked to the average cost of caring for Medicare beneficiaries who are enrolled in Part A and Part B in the county. The government has estimated that the typical Medicare Advantage plan collects 12-14 percent more for each member than the cost of caring for a person enrolled in traditional Medicare.

Role of Electronic Health Records:

Many EHR programs can be linked into Medicare formularies. This will avoid searching in a separate source on whether a particular drug is covered. It will also help patients avoid paying more for a non-formulary medications.

Medicare patients tend to be older than that of the general population, thus there are more recommend preventative measures. Examples include colon cancer screening, mammography, blood pressure check, vaccines, cholesterol and diabetes testing. A structured data entry system based on recommendations from the US Preventive Services Task Force can give providers and patients guidance on timely best practice.

Of particular challenge for providers who accept Medicare Advantage patients is collecting at a rate that is reflective of medical complexity. Computerized patient support tools have been designed to capture chronic diagnosis. To use the diabetes example above, the support tools are integrated into electronic health records such that all visits which address diabetes are flagged for billing. At audit only one occurrence per year is needed to justify payment, the single best record to justify diabetes risk adjustment is sent. A robust support tool will also send reminders to patients for chronic condition follow up.

Conceivably as EHR matures, outcome data can be pooled across multiple healthcare organization to generate information on best care practices in the Medicare population.


Yvonne Zhou, James Wang, Marianne Turley. Impact of Panel Support Tool Use on Quality Outcomes. Kaiser Permanent Northwest. July 2008