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Chapter 24 Medicare












The United States government, unlike those of most other developed industrialized nations, has not to date designed a comprehensive program to make affordable health care available to all citizens. Instead, individuals finance health care themselves through employment-related group insurance plans supplemented by a variety of federal, state and local programs that augment insufficient coverage, cover beneficiaries of a certain age, or aid those without any other resources. Alternatively, those who can afford it insure themselves by purchasing individual health insurance plans, or form or join small groups.

Between 1960 and 1997, the national health expenditure rose from $26.9 billion to almost $1.1 trillion while the U.S. population swelled from 190 million persons to 278 million during the same period. The increase in expenditures may be attributed to many factors including the dramatically improved and correspondingly more expensive health care technology as well as a burgeoning elderly population and a coincidental “baby boom.” Advanced technology and better attention to nutrition and lifestyle habits has produced greater longevity and birth rates; two areas of cost-intensive health care. To put these numbers in perspective, consider that the national health care expenditure for the period between 1960 and 1997, expressed as a percentage of the gross national product, nearly tripled, and in 1997 the per capita spending on health care was almost $4000.

Hospital and physician expenditures traditionally account for the majority of personal health care spending. However, in recent years the percentage of health care expenditures being spent on these services has been declining. Home health care growth also decelerated, as a result of actions from the public sector to rein in extraordinary growth in expenditures for those services. Prescription drugs grew at double‑digit rates during the last few years because of increases in number of new, higher‑priced drugs entering the marketplace, increased consumer demand induced by drug manufacturer advertising and an increase in the number of prescriptions filled.

The proportion of public funds expended on health care has been steadily increasing as well. In 1960, private expenditures on health care amounted to almost three-quarters of the total monies spent. By 1997, public monies paid for nearly one-half of the total spent on health care. In large part, the need to supplement private funding with public money is due to the skyrocketing cost of health care: it is simply less feasible to manage health care alone, and the government has responded with improved federal, state and local health care legislation and programs.

The largest government health care program is Medicare. In 1997, Medicare financed $214.6 billion in spending for health care, comprising nearly 15% of the nation’s health care dollar. The Medicare program emerged in 1965 as an effort to ensure certain vital health care services for people aged sixty-five and older. Known as Title XVIII of the Social Security Act, Medicare went into effect on January 1, 1966 and originally paid for hospital care, physician services, and certain limited related services for eligible beneficiaries. 42 U.S.C. 1395. Since its inception, the program has expanded significantly to include long-term disabled persons and those who require renal dialysis. The heart of the program reflects a social concern to cover health care for those most in need of it and the most expensive care required by that population.

Medicare is composed in two programs, known as Part A and Part B. Part A is called the “Hospital Insurance Program” and covers inpatient hospital, skilled nursing, home health care, and hospice services. Part B is called “Supplemental Medical Insurance” and it pays for physician services, outpatient hospital services, renal dialysis, speech and physical therapy, ambulatory surgery, home health services, durable medical equipment, rural health clinic services, comprehensive outpatient rehabilitation facility services and some diagnostic tests. There are some important differences in the manner by which each program is funded. Specifically, Part A is funded through payroll taxes assessed against employers, employees, and the self-employed, and by interest generated by the trust fund maintained by the federal government. Participation in Part B is voluntary, and only those who elect to contribute to this program by paying premiums are eligible for the extensive benefits provided thereunder.



As of this writing, the Medicare program covers over 37 million Americans and is administered by an extensive structure beginning with the Health Care Financing Administration of the Department of Health and Human Services. The Administration has ten regional offices, along with its Washington D.C. headquarters, that oversee the operation of Medicare. Many other public and quasi-public offices participate in the administrative functions. For example, the Office of Inspector General is responsible for overseeing the fraud and abuse prevention programs. Private entities are also involved in administering Medicare with the bulk of claim processing managed through Blue Cross or Blue Shield Associations.

A person eligible for retirement benefits under Social Security is eligible to receive Part A Medicare benefits automatically upon reaching age sixty-five. However, if a person eligible for Social Security benefits continues to work, Medicare benefits will only cover those expenses not otherwise covered under employment-related health insurance. Additionally, people who are eligible for Social Security benefits and permanently disabled or with permanent kidney failure may receive Hospital Insurance Medicare Part A benefits. Part B, the Supplemental Medical Insurance program, benefits accrue to persons who have voluntarily enrolled in the program and who pay the monthly premium. Persons eligible for Part A coverage are automatically enrolled in the Part B program unless they opt out. Eligibility for Part A coverage may be summarized as follows:

Premium‑free Medicare Part A (Hospital Insurance):

  • Aged 65 years or older; receiving or eligible for retirement benefits from Social Security or the Railroad Retirement Board; or
  • Aged under 65 and have received Social Security disability benefits for 24 months; or
  • Aged under 65 and have received Railroad Retirement disability benefits for the prescribed time and can satisfy the Social Security Act disability requirements; or
  • Formerly employed in Medicare-covered government employment; or
  • Aged under 65 and have end‑stage renal disease.


If a person does not qualify for premium-free coverage under any of the above criteria, Part A Medicare coverage may be available for purchase.



In general, Part A helps pay for care in hospitals and skilled nursing care facilities, and for home health and hospice care. Coverage under Part A is extensive, but requires co-payment by the beneficiary.

For hospital stays, Part A covers semi-private room, meals, general nursing and other hospital services and supplies, but not private duty nursing, a television or telephone, or a private room unless medically necessary. The covered beneficiary must pay a total of $768 for a hospital stay of 1‑60 days, $192 per day for days 61‑90 of a hospital stay, $384 per day for days 91‑150 of a hospital stay, and all costs for each day beyond 150 days.

For stays in a skilled nursing care facility, Part A pays for semi-private rooms, meals, skilled nursing and rehabilitative services, and other services and supplies. The beneficiary is required to pay nothing for the first 20 days, up to $95.50 per day for days 21‑100, and all costs beyond the 100th day in the benefit period.

For home health care, Part A pays for intermittent skilled nursing care, physical therapy, speech language pathology services, home health aide services, durable medical equipment (such

as wheelchairs, hospital beds, oxygen, and walkers) and supplies, and other services. The beneficiary is required to pay nothing for home health care services, but 20% of the approved cost amount for durable medical equipment. For relief of pain and symptoms related to supportive services for the management of a terminal illness, home care is provided. Part A also covers necessary inpatient care for the terminally ill, and a variety of services otherwise not covered by Medicare. The beneficiary is required to pay certain limited costs for outpatient drugs and inpatient respite care.

Medicare will help pay for blood if needed from a hospital or skilled nursing facility during a covered stay, however the beneficiary is required to pay for the first 3 pints.

Under Part B, certain supplemental benefits are provided to the eligible beneficiary. Part B helps to pay for doctors’ services, inpatient and outpatient medical and surgical services and supplies, physical, occupational and speech therapy, diagnostic tests, and durable medical equipment. Again, the beneficiary is required to make certain contributions as well. The beneficiary must pay an annual $100 deductible, 20% of approved amount after the deductible, except in the outpatient setting, 50% for most outpatient mental health services, 20% of first $1,500 for all physical therapy services, and 20% of first $1,500 for all occupational therapy services, and all charges thereafter. However, hospital outpatient therapy services do not count towards limit. Part B pays outright for clinical laboratory services such as blood tests, urinalysis,

and more.

For home health care, if the beneficiary does not have Part A, Part B will help pay for intermittent skilled care, home health aide services, durable medical equipment and supplies, and other services. The beneficiary must pay nothing for the services, but 20% of approved cost amount for durable medical equipment.

Part B helps to pay for outpatient hospital services, such as services for the diagnosis or treatment of an illness or injury. The beneficiary is required to pay no less than 20% of the Medicare payment amount after the deductible. Similar to Part A coverage, under Part B the beneficiary must pay for the first 3 pints of blood, but must also pay 20% of the approved amount for additional pints after the premium.

Part B also helps pay for x‑rays, speech language pathology services, artificial limbs and eyes, arm, leg, back, and neck braces, and kidney dialysis and kidney transplants. Under limited circumstances Part B will help pay for heart, lung, and liver transplants in a Medicare‑approved facility. Part B helps pay for very limited outpatient drugs, emergency care, limited chiropractic services, and certain medical supplies such as ostomy bags, surgical dressings, splints, and casts. Part B helps pay for breast prostheses following a mastectomy, limited ambulance services, and the services of practitioners such as clinical psychologists, clinical social workers, and nurse practitioners. Finally, Part B helps pay for one pair of eyeglasses after cataract surgery with an intraocular lens.


Recently, the Medicare program has established “Medicare Preventive Services” which are added benefits designed to keep beneficiaries healthy. Under this program, covered services include one mammogram screening per year for female beneficiaries age 40 and older. These women must pay 20% of the Medicare approved amount with no Part B deductible. Additionally, eligible beneficiaries are entitled to one Pap smear, and a breast and pelvic examination every three years, or once per year if the beneficiary is at high risk for cervical or vaginal cancer, or is of child bearing age and have had an abnormal Pap Smear in the preceeding three years. Eligible female Medicare beneficiaries make no coinsurance payments and have no Part B deductible for the Pap smear and clinical laboratory charge. But, for doctor services and all other exams, the beneficiary is responsible for 20% of the Medicare approved cost amount with no Part B deductible.

All Medicare beneficiaries aged 50 years and older are eligible for colorectal cancer screening including a fecal occult blood test once every year, a flexible sigmoidoscopy once every four years, and a colonoscopy once every two years if the beneficiary is at high risk for colon cancer. Doctors can substitute a barium enema for the sigmoidoscopy or colonoscopy. It is worth noting that there is no age limit for having a colonoscopy, probably because of the high mortality rate associated with colon cancer. There is no coinsurance or Part B deductible required for the fecal occult blood test. For all tests, the beneficiary is responsible for 20% of the Medicare approved amount after the annual Part B deductible.

The preventive services program cover diabetes monitoring for all Medicare beneficiaries with diabetes whether using insulin or not. The program helps pay for glucose monitors, test strips, lancets, and self‑management training. The eligible beneficiary must pay for 20% of the Medicare approved cost amount after the annual Part B deductible.

The preventive services program covers bone mass measurement for certain beneficiaries at risk for losing bone mass. Once again, the beneficiary must pay for 20% of the Medicare approved amount after the annual Part B deductible.

Finally, the preventive services program pays for certain vaccinations, including a flu shot once per year, a pneumococcal vaccination, and a hepatitis B vaccination for those beneficiaries who are at high or intermediate risk for hepatitis. For hepatitis B vaccination, the beneficiary is required to pay 20% of the Medicare approved cost amount after the Part B deductible.



Certain services are not paid for by Medicare and are excluded specifically by the statute and its implementing regulations. In general, excluded services can be categorized in one of three ways:

  1. Those services that, even though they are medical in nature, fall outside the scope of the primary hospital and physician focus of the Medicare program;
  2. Those services for which the beneficiary is not financially liable or which are covered by another payment source; and
  3. Those services deemed by Medicare to be of questionable or purely elective medical value. These are services described by the regulations as “not reasonably necessary for the diagnosis or treatment if illness or injury or to improve the functioning of a malformed body part.”


In general, all services must be reasonable and necessary in order to be reimbursed by Medicare. Intermediaries and carriers are then forced to determine in their review of charges submitted for reimbursement whether each item qualifies. These reviews are in a sense de novo, because the treating physician’s medical opinion is not given strict deference. The necessity of each item is reviewed by considering the physician’s determination along with all other pertinent medical information.

Needless to say, the medical necessity exclusion has produced great dispute among beneficiaries and the many intermediary parties involved in health care, and the agency responsible for reimbursing claims. If a patient receives services that are later determined not to be medically “reasonable and necessary,” Medicare may still pay for the services if the services were rendered by a provider, practitioner, or supplier that accepted assignment from the beneficiary and neither the beneficiary or the provider knew or could have known that the services would not be covered. The program holds the service provider to a slightly higher duty of care given their expertise. If the provider knew or should have known that the service was likely excluded from coverage, then Medicare will not pay for the services. However, if the beneficiary paid for the services and seeks reimbursement from Medicare, the program will pay the beneficiary and recover from the provider.


In order for a hospital or other health care institution to receive payment from Medicare, they must have in place a participation agreement and satisfy certain conditions for participation. Part A providers must sign a contract known as a “provider agreement,” while Part B providers do not have to establish a contractual relationship although they may have to meet other eligibility requirements.

Under the program, a “provider of services” includes hospitals, rural primary care hospitals, skilled nursing facilities, home health care agencies, and hospice programs. Providers that wish to enter into Medicare provider agreements must meet various requirements of ownership and disclosure, and must promise not to charge beneficiaries for items or services covered by Medicare except for charges for permitted deductibles, coinsurance, and copayments or for items and services that the beneficiary requests or that are more expensive than those covered by Medicare. Providers in compliance with Medicare regulations must also promise:

  1. To refund any money incorrectly collected from beneficiaries or others;
  2. To disclose the hiring of any person who was employed in the previous year in a responsible position by a carrier or intermediary;
  3. To maintain an agreement with a PRO to perform required utilization and quality review;
  4. To furnish, in the case of hospitals or rural primary care hospitals, directly or by arrangement, all items and services for which the beneficiary is entitled to have payment made by Medicare, except for professional services otherwise covered by Medicare;
  5. To comply, in the case of hospitals or rural primary care hospitals, with the EMTALA emergency treatment (anti-dumping) requirements of 42 U.S.C.A. 1395dd, and to maintain documentation of compliance;
  6. To participate, in the case of hospitals, in the CHAMPUS, CHAMPVA, and Veteran’s Administration Programs;
  7. To provide beneficiaries, in the case of hospitals, at or about the time of admission, with the Important Message from Medicare, informing them of their rights as Medicare patients;
  8. To make available to patients, in the case of hospitals and rural primary care hospitals, the Medicare directory of participating physicians for the area; to identify appropriate participating physicians as alternatives when a referral is made to a nonparticipating physician; and to post conspicuously a notice as to whether or not the hospital participates in Medicaid;
  9. To accept, in the case of hospitals or skilled nursing care facilities, as payment in full payments made by Medicare, HMOs or CMPs for their members where the payments are made at Medicare levels;
  10. To supply, in the case of HHAs, ostomy care supplies to beneficiaries who require them;.
  11. To comply with the advanced directives requirements of OBRA 1990;
  12. To comply with the requirements of the Medicare as Secondary Payer program, including identifying and billing primary insurers and refunding funds collected from primary payers to Medicare; and
  13. To not condition admission on prepayment of charges for services, and not evict or threaten to evict a patient for non-payment of copayments or deductibles.


In order to participate in the Medicare program hospitals, psychiatric hospitals, and skilled nursing facilities must also meet certain elaborate requirements set out relevant provisions of the Code of Federal Regulations. 42 C.F.R. part 42; C.F.R. 482.60-482.62; and 42 C.F.R. 483.1-483.80.



Medicare incorporates a prospective payment system modeled on the diagnosis-related prospective payment system originally implemented by the New Jersey state regulations for controlling health care costs. A diagnosis-related system pays hospitals based on a predetermined rate instead of one calculated retrospectively according to reported costs. The system pays hospitals for inpatient care on a flat rate per-case basis so that efficient hospitals are rewarded for managing costs effectively. Meanwhile, inefficient hospitals are encouraged to be more efficient. Rates are determined on a national aggregate basis, but the rate is adjusted for variations in labor costs, which vary dramatically throughout the country, and to accomplish various public policy objectives by supporting medical education or subsidizing rural hospitals.

The prospective payment system covers most routine operating costs associated with patient care, such as room and board, common nursing services, ancillary services such as radiology or laboratory services, special care unit operating costs, and malpractice insurance costs. The prospective payment system does not cover capital costs, direct and indirect medical education costs, bad debts from past Medicare beneficiaries, administrative costs such as photocopying and mail services, and organ acquisition costs.





Although most inpatient hospital services are covered under the diagnostic-related prospective payment system, individualized reimbursement remains an integral part of Medicare coverage. Reimbursement is especially important in instances of protracted long-term care because of the difficulty in calculating costs associated with these diagnosis’. Long-term care institutions that utilize reimbursement mechanisms more often than the prospective payment system include psychiatric hospitals, rehabilitative hospitals, children’s hospitals, long-term care hospitals, nursing homes, and cancer hospitals.

In general, Medicare reimburses for all medically necessary and reasonable costs. The Medicare statute defines such costs as “the cost actually incurred [by providers], excluding therefrom any part of incurred costs found to be unnecessary in the efficient delivery of needed health services, [which] shall be determined in accordance with regulations establishing the method or methods to be used.” Medicare will not bear the cost of caring for non-covered patients, although the regulations require that both direct and indirect costs of providers are considered. Cost-based reimbursement is calculated by identifying a provider’s allowable costs, then apportioning those costs among Medicare beneficiaries and other patients.

Under Part B, payment can be made either to the beneficiary or directly to the service provider, if the beneficiary has assigned their rights to receive payment from Medicare to the provider. Providers who accept payment on an assigned basis have agreed to accept the reasonable charge allowed by medicare as payment in full for the item or service. Even then, the provider may only bill the beneficiary for the allowable deductible and coinsurance amounts. A few states essentially require that physicians accept assignment from Medicare beneficiaries by prohibiting “balance billing:” a practice whereby the beneficiary is billed for all costs not reimbursed by Medicare. In most states, providers are not required to accept an assignment of benefits. Instead the patient must pay their bills and then seek submit a claim for reimbursement from Medicare.

In general, when you Medicare covered services are rendered by a provider, the provider sends the bill (claim) to a private insurance company that contracts with Medicare. These companies are called the “Fiscal Intermediary” (for Part A services) or the “Medicare Carrier” (for Part B services). After the claim is processed, the beneficiary receives a “Medicare Summary Notice,” or an “Explanation of Medicare Benefits” for Part B services, or a “Medicare Benefits Notice” for Part A services.



Medicaid is a joint Federal and State program that provides payment for some medical costs for certain individuals who are older, have low incomes and limited assets, or are disabled. In general, most health care costs are covered if an individual is eligible for both Medicare and Medicaid. Medicaid recipients may also receive benefits such as nursing home care and outpatient prescription drugs.

In Nevada, health care is provided to the categorically needy indigent through the Medicaid statutes. Under Nevada law, every county must provide care, support and relief to residents who are poor, indigent, incompetent, or incapacitated by age, disease or accident, when those persons are not supported or relieved by their relatives or guardians, by their own means, or by state hospitals, or other state, federal or private institutions or agencies.