Part A coverage. Part B covers all medically necessary professional services, be they in an inpatient, outpatient, or physician office setting, including visits to the physician, outpatient care, outpatient mental health care, diagnostic and clinical laboratory testing, and some preventative services, like flu and pneumonia vaccinations. In addition, Part B coverage includes durable medical equipment (DME). The vast majority of beneficiaries with Part A coverage also purchase Part B coverage. Taken together, Medicare Parts A and B are also known as “original fee-for-service (FFS),” “original Medicare,” or “traditional Medicare” coverage.
• Medicare Part C, also known as Medicare Advantage (MA) or managed care, provides Medicare beneficiaries with the option of enrolling in a private insurance plan as opposed to participating in traditional Medicare fee-for-service coverage. Private plans include health maintenance organizations (HMOs), preferred provider organizations (PPOs), private FFS plans, Special Needs Plans, and Medicare Medical Savings Account Plans. These MA plans receive payments from Medicare (and premium payments from members) to provide benefits provided by Medicare Part A (excluding hospice), Part B, and usually Part D. MA plans are required to use extra payments to provide additional benefits, like vision coverage. The number of MA enrollees and plan options has consistently increased since 2004. Beneficiaries have to be enrolled in Part A and B in order to join an MA plan. As noted in Chapter 1, MA claims may not appear in the administrative claims files provided by CMS because they are paid by private managed care insurance plans. Therefore, it is not uncommon for investigators to exclude MA beneficiaries from evaluations similar to our example research programming project.
• Medicare Part D is voluntary prescription drug coverage. In other words, a familiar way to think about Part D is that it helps pay for prescription drugs prescribed by doctors and filled at a pharmacy.8 The program is relatively new (it was launched in 2006) and helps pay for drugs through private plans, called standalone prescription drug plans (PDPs) and MA prescription drug plans (MA-PDPs).
What Is Not Covered by Medicare?
Like other health insurance plans, Medicare does not cover every possible medical service or procedure. In addition, Medicare may require beneficiaries to make certain cost-sharing payments, like deductibles and coinsurance. Finally, although Medicare may cover the service, Medicare may not be the primary payer for services provided to beneficiaries who carry additional health insurance coverage. Below are some examples of services with limited or no coverage under Medicare. As you will see, a proper understanding of coverage (and limitations) is vital to the accurate identification of services in the administrative data.
• Some services have limitations on coverage. For example, Medicare Part A stops paying for inpatient psychiatric care in a psychiatric hospital after 190 days (this is a lifetime limit)9, and a beneficiary can only be admitted to a skilled nursing facility after being discharged within the last 30 days from an inpatient hospital stay that lasted at least three days.10
• Other services are simply not covered. For example, Medicare does not cover long-term care services (care received in a nursing home, respite care, and adult day care) at all. Also, it does not cover cosmetic surgery, some preventative services (although this is changing with the Affordable Care Act), vision and dental care, and hearing aids.
• Medicare is a secondary payer for beneficiaries that have certain additional health insurance coverage. For example, if a beneficiary has been diagnosed with black lung disease and the beneficiary is covered under the Federal Black Lung Program and Medicare, the Federal Black Lung Program will pay for services related to the beneficiary’s black lung condition. In this case, Medicare is a secondary payer, meaning that it may cover the remainder of the claim not paid by the Federal Black Lung Program but is not responsible for the primary payment of the claim.
Some limited and uncovered services, as well as cost-sharing payments, can be covered by supplemental insurance. Specifically, beneficiaries can acquire supplemental coverage from several sources: Medigap insurance policies, insurance sponsored by their employers, MA plans, and, in some cases, Medicaid. Note that it is very possible that claims are not filed with Medicare for medical services paid for by the beneficiary out-of-pocket or by coverage other than Medicare. As we will see below, this means that the user of Medicare administrative data may not be able to account for all services a Medicare beneficiary receives.
The Mechanics of Medicare
Now that we better understand some of the basics of Medicare and Medicare coverage, we can discuss how covered beneficiaries receive services and how Medicare reimburses providers of those services.
You probably have or have had commercial health insurance of your own, and in some very basic ways it does not operate much differently than Medicare. When you go to the doctor for an examination, the physician that examines you submits a bill (called a claim) to your insurance company for reimbursement. This claim is usually submitted electronically and describes the services provided by the physician (in this case, let’s say a routine visit to the doctor for a checkup, called an evaluation and management examination) and the charges for those services. More specifically, the claim describes you (e.g., name, personal identifier, age, and sex), the provider of the service (e.g., name, provider identifier, and place of service), the date or dates of service, and details that describe the services performed, like procedure and diagnosis codes. When the insurance company receives the claim, it goes through an adjudication process whereby payment is determined. After you meet your requirements as a beneficiary by paying your deductible and coinsurance, your insurance company typically pays the remainder of the claim for eligible services (perhaps an amount adjusted to account for negotiated purchasing agreements) according to the terms of your coverage. Your health insurance company is able to pay these bills because it maintains a fund of money reserved for just such purposes. This fund is derived in part from the premium payments made by you and other beneficiaries (and, in the case of for-profit insurance companies, the accumulation of profit). These premium payments are determined statistically by actuaries and take into account the projected risk associated with the level of health of pools of covered beneficiaries.
Medicare operates in many of the same ways as commercial health insurance. When a Medicare beneficiary goes to the doctor for a checkup, the provider submits a bill to Medicare Part B (similarly, if a Medicare beneficiary goes to the hospital, the provider submits a bill to Medicare Part A). Most of this billing is done electronically. The claim form11 contains details like the beneficiary and provider identifiers, dates of service, place of service, the procedures performed, and the patient’s diagnosis. The claim submission will go to the provider’s regional Medicare Administrative Contractor (MAC) for adjudication, processing, and payment. Once claims are paid, they are considered final action claims. Final action Medicare claims are stored in files available to the research community as Medicare administrative data. As you may have already inferred, the administrative files that are created from final action claims and enrollment information are derived from systems that are used to administer the Medicare program. In other words, the primary purpose of these systems is not to create data for research, but to adjudicate and pay claims. This fact has implications for using the administrative data files and means that the user must understand the Medicare program. We will explore this topic in detail throughout the remainder of this book. For now, let’s end with some well-known examples of how particulars of the administration of the Medicare program influence the content of administrative data files.
• With about 47 million Medicare beneficiaries, we can expect the administrative data files we use to be quite large. As such, we will need to consider efficient programming techniques. Many of the exercises in later chapters address efficiency topics.
• Some services
