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Chapter 2: An Introduction to the Medicare Program

Introduction and Goals of the Chapter

An Introduction to the Medicare Program

What is Medicare?

Medicare Enrollment and Eligibility

What Is Covered by Medicare?

What Is Not Covered by Medicare?

The Mechanics of Medicare

Chapter Summary

Introduction and Goals of the Chapter

This chapter presents an introduction to the Medicare program and is designed to prepare the SAS programmer for using Medicare administrative data. As stated in Chapter 1, the guiding principle of this book is that research questions about the Medicare program can only be answered with a solid understanding of the fundamentals of Medicare data. In turn, Medicare data can only be understood when the user achieves a solid grasp of the fundamentals of the Medicare program. Indeed, as is true with most types of administrative data, it is the requirements of the program that drive the content of the files. In that spirit, the goal of this chapter is to establish a foundation for understanding and using Medicare data by learning the basics of the administration of the Medicare program. We define Medicare, discuss enrollment, eligibility, and coverage, and provide a very simple sketch of how Medicare pays for services. We also briefly discuss how this information about Medicare influences the content of the data files we will use throughout the remainder of this book. Looking forward, we will build on the information presented in this chapter by discussing more specifics of Medicare data files, as well as how to request, obtain, and use these files. We will use the data in these files to address the research questions posed by our example project described in Chapter 1.

It is very important to note that Medicare coverage is extremely complex and subject to change over time. We do not attempt to cover every detail of the Medicare program in this text. You will encounter many questions throughout the course of your career using Medicare data that will require you to dig deeply through reference material. To that end, the intent of this chapter is to provide a foundation for understanding the Medicare program for your future work. My hope is that the reader finishes this chapter with a basic understanding of the Medicare program, including history, types of coverage, and administration. When confronted with more advanced research questions, the reader can then leverage this understanding in conjunction with available reference materials. Some of the most commonly used sources of information are CMS’s Research Data Assistance Center (ResDAC), CMS, and the Kaiser Family Foundation.1 In fact, these sources were heavily relied upon in the writing of this chapter!

An Introduction to the Medicare Program

What is Medicare?

Medicare is a health insurance program for people age 65 or older, those under age 65 with certain disabilities, and those of any age with permanent kidney failure. The Medicare program protects beneficiaries from financial risk by covering costs for potentially large and unaffordable medical expenses incurred by seeking medical care. Generally, in order to be eligible for Medicare, beneficiaries must have entered the United States legally, paid Federal Insurance Contributions Act (FICA) taxes for 40 or more quarters (or be the spouse of someone who has), and lived in the United States for 5 years.2 Medicare is a social insurance program operated by the Centers for Medicare & Medicaid Services (CMS), a federal government agency that is part of the Department of Health and Human Services. Medicare provides participants (called beneficiaries) with an array of health insurance coverage, regardless of income or medical history. Medicare provides four types of coverage (Part A, Part B, Part C, and Part D) that are described in detail below.

Started in 1965 (did you know that President Harry Truman was the first person to enroll in Medicare?), the Medicare program we know today (and will describe below), had its genesis in President Lyndon Johnson’s War on Poverty. Because Medicare is a social insurance program, enrollment criteria and benefits are defined by legal statute. This means that Medicare coverage can differ from commercial health insurance in some fundamental ways. It also means that Medicare has changed over the years in response to changes in statute, often to expand or improve coverage or to attempt to control costs. Here are just some examples of how legislation has influenced the administration of the Medicare program: 3

• In 1972, the Medicare program was expanded to include coverage for individuals with end-stage renal disease (ESRD) and some individuals under age 65 with long-term disabilities.

• In the same year, coverage was also expanded to include speech, chiropractic, and physical therapy services.

• In 1982, Medicare coverage was expanded to include hospice services for terminally ill individuals.

• In 1997, the Balanced Budget Act attempted to control Medicare spending through the creation of prospective payment systems (PPS) for certain types of services (though inpatient prospective payment was first implemented in 1983), and established the Medicare+Choice program.

• In 2001, Medicare initiated coverage for individuals with Lou Gehrig’s disease (ALS).

• In 2003, The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) established an outpatient prescription drug benefit that would take effect in 2006.

• In 2005, coverage was expanded to include a physical and preventive screening to new Medicare beneficiaries.

• In 2010, the Affordable Care Act (more commonly known as “health reform legislation”) initiated sweeping measures to control costs, most of which will take effect by 2014. For example, the law provides increased funding to combat waste, fraud, and abuse, takes measures to attempt to improve the quality of care provided to beneficiaries, and establishes free annual wellness visits for Medicare beneficiaries.

Medicare Enrollment and Eligibility

At the time of this writing, Medicare provided health insurance to about 47 million Americans.4 Most people think of Medicare as insuring the elderly, and that is certainly true; the majority of Medicare beneficiaries (about 39 million of them) are eligible for Medicare insurance because they are aged 65 and over. However, Medicare also insures about 8 million beneficiaries who are permanently disabled (receiving Social Security Disability Insurance, or SSDI), have end stage renal disease (ESRD, a condition that requires dialysis), or ALS, regardless of their age. You may hear experts refer to beneficiaries aged 65 and older in general terms as “aged,” and those under age 65 as “disabled.”5

What Is Covered by Medicare?

Medicare benefits are divided and defined in four parts (Part A, Part B, Part C, and Part D). Each Part covers a different type of care or set of services. As we will see in subsequent chapters, not only are these Parts a way of describing coverage, but also a way of organizing the administrative data files we will use throughout this book. Understanding Medicare coverage (and limitations to that coverage) is essential to the proper utilization of Medicare claims data. For example, let’s say you were asked to study claims for blood received in a transfusion. Medicare Part A covers the blood received by a beneficiary in an inpatient hospital setting, but Medicare Part B covers the blood the same beneficiary may have received in a hospital outpatient setting. This means that the programmer may need to query more than one dataset to locate blood-related information in the claims data. As we will see, querying more than one type of claims data set is important in the identification of emergency department visits.

The specifics of Medicare coverage are subject to, and often do, change. As such, it is very helpful to be able to tap into reference materials that summarize Medicare benefits. As mentioned above, Medicare is a social insurance program and the final source of information on Medicare coverage is legal statute. However, many experts simply refer to summaries of the Medicare schedule of benefits that CMS provides to beneficiaries, including online publications such as Your Medicare Benefits6 and Medicare and You7. These publications were used as the foundation for some of the information presented below.

• Medicare Part A, also known as Hospital Insurance (HI), pays for care provided to beneficiaries in hospitals (including most inpatient care, inpatient rehabilitation facilities, and long-term care hospitals), coverage for short-term stays in skilled nursing facilities (SNFs), most post-acute care provided in home health agencies (HHAs), and hospice care services.

• Medicare Part B is also known as Supplemental Medical Insurance (SMI) because it provides coverage that is additional and supplemental to Medicare 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 that you want to study may not appear in Medicare administrative data or, at the least, may require searching multiple files. For example, Part D prescription drug data contains information for prescription drug fills. Prescription drugs administered during a hospital stay may not appear in the claims data at all. Additionally, services paid for by Medicare Part C may not appear in the administrative claims files because they are paid for by managed care providers.12

• Medicare pays for some services (e.g., home health agencies, hospice, hospital outpatient, skilled nursing, or acute inpatient hospitals) using what are called prospective payment systems (PPS). In very simple terms, a PPS reimburses providers using a fixed amount derived from a predetermined classification system.13 We will discuss payment systems more in Chapter 8.

• As a social insurance program, Medicare coverage is provided regardless of medical history. Therefore, if you are used to working with commercial healthcare claims data, you will likely notice some unique characteristics of the Medicare population, such as a higher prevalence of chronic conditions.

• The administrative data we use for research purposes are updated on a regular basis, but only with claims that have been received and adjudicated and deemed final action. As such, the files we use at any given time do not contain all final action claims submitted and paid up to the date of extraction of the data. It is common practice to wait at least three months for paid claims to appear in the claims files maintained by CMS. For example, a request for claims for the full calendar year 2014 is best made on or after April 1, 2015.

• Depending on what you are studying, care must be taken to determine the correct composition of your study population. For instance, our example research project will study only those beneficiaries continuously enrolled in fee-for-service Medicare during a defined timeframe. Other studies may wish to focus on beneficiaries entitled to Medicare based on being disabled. We will see in Chapter 6 that we can use enrollment data to determine a beneficiary’s reason for entitlement and define our study population.

Chapter Summary

In this chapter, we set a foundation for programming with SAS and Medicare administrative data by examining the following:

• Understanding the Medicare program and the particulars of Medicare coverage is absolutely essential to successfully programming with Medicare administrative data.

• Medicare is a social insurance program that provides beneficiaries with an array of health insurance coverage, regardless of income or medical history.

• The majority of Medicare beneficiaries are eligible for Medicare insurance because they are aged 65 and over. However, Medicare also insures beneficiaries who are permanently disabled (receiving Social Security Disability Insurance or SSDI), have ESRD, or have ALS.

• Medicare benefits are divided and defined in four parts: Part A (Hospital Insurance), Part B (Supplemental Medical Insurance), Part C (Medicare Advantage), and Part D (outpatient prescription drug coverage). Each Part covers a different type of care or set of services. These Parts are a way of describing coverage, but also a way of organizing the way we think about the administrative data files we will use throughout this book.

• Like other health insurance plans, Medicare does not cover every possible medical service or procedure.

• The primary purpose of Medicare payment 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.

1 See: www.resdac.org, www.cms.gov, www.medicare.gov, and www.kff.org.

2 Medicare eligibility is more complicated than the simple presentation above. For more information, see federal resources such as http://www.medicare.gov/publications/pubs/pdf/11306.pdf.

3 See the Medicare timeline at http://kff.org/medicare/video/the-story-of-medicare-a-timeline/.

4 Information provided in this paragraph, and more, can be found throughout the KFF Medicare Primer (April 2010) (http://www.kff.org/medicare/7615.cfm).

5 Although we will not discuss Medicaid in this text, some beneficiaries are eligible for and enrolled in both Medicare and Medicaid. These beneficiaries are referred to as Medicare-Medicaid Enrollees, or MMEs.

6 Your Medicare Benefits can be found at http://www.medicare.gov/publications/pubs/pdf/10116.pdf.

7 Medicare and You can be found at http://www.medicare.gov/publications/pubs/pdf/10050.pdf.

8 We mention below that medication provided in institutional settings (like during a hospital stay) may be covered by Medicare, but does not necessarily appear in the administrative claims data files used for research purposes.

9 The reader should check the Medicare benefits schedule for the most up-to-date information.

10 See CMS’s Medicare Coverage of Skilled Nursing Facility Care booklet, page 17, available at http://www.medicare.gov/Pubs/pdf/10153.pdf.

11 Medicare claim forms include the CMS-1500 for physician or professional billing and the UB-04 (also known as the CMS-1450) for institutional or technical billing.

12 For more information, see ResDAC’s article at http://www.resdac.org/resconnect/articles/114.

13 Source: CMS’s Prospective Payment Systems-General Information website available at https://www.cms.gov/ProspMedicareFeeSvcPmtGen/.

SAS Programming with Medicare Administrative Data

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