Medicare Payments Unfair to Providers Treating Vulnerable Patients

Medicare’s reimbursement methodology risks unfairly paying providers, hospitals, and Medicare Advantage plans who treat vulnerable populations.

In value-based payment models, Medicare uses risk assessments to determine reimbursement rates. A patient’s risk score includes their age, gender, the reason for Medicare eligibility, dual Medicaid enrollment, institutionalization in long-term care, and classic disease and condition codes found through claims data.

The higher a patient’s risk score, the more Medicare reimburses for their care.

But frailty, dementia, depression, and social factors are not among the conditions currently used in Medicare’s risk scoring methodology, according to a recent article in the Journal of the American Medical Association.

"While it's an unintended consequence of the current Medicare payment policy, those who are among the most vulnerable are less likely to get the care that they need," said Kenton Johnston, PhD, assistant professor of health management and policy at Saint Louis University College for Public Health and Social Justice and author of the article.

These conditions are some of the costliest, so excluding them when calculating reimbursement unfairly penalizes those who care for these patients.

Even after adjusting for Medicare’s standard reimbursement methodology, dementia was associated with an additional $2922, depression with an added $2470, and impaired function with $3121.

Adding diagnostic codes for frailty, dementia, depression and social factors into Medicare’s risk adjustment methodology would close this payment gap. But Medicare has not changed its risk assessment model for the past 15 years.  

Fraud and abuse are the main drivers of this resistance to change. Medicare worries that information on these factors is too open, so providers could easily game the system.

"That can be addressed through existing fraud procedures that Medicare already has in place. A clinician who codes a patient for those conditions when the patient does not have the conditions is committing Medicare fraud and can be penalized," Johnston argued.

Using proxy measures for frailty can help alleviate some concerns around subjective coding. Previously, activities of daily living had been used as an indicator of frailty. These measures can be challenging to understand for each patient.  But many claims-based measures have been validated as appropriate proxy measures. These measures include claims codes for medical services and equipment such as wheelchairs and oxygen supplies.

Standard codes also exist for patient’s social factors, but these can be more of a challenge to incorporate into claims data. Social determinants of health diagnostic codes, or Z codes, are standard diagnostic codes that indicate a patient’s income status, educational attainment, social isolation, and housing problems.

But these codes are used infrequently by providers. They are not reimbursable, and providers are not trained to screen, diagnose, or treat these social determinants of health.

Including these measures in Medicare’s risk assessment would promote using these codes more frequently and promote providers’ tackling patient’s social determinants of health, Johnston argued.

"It is unfair to clinicians, facilities, and plans that do treat patients with those conditions to not reimburse them fairly for their services,” he continued.

The unintended consequences of using the current Medicare risk assessment methodology create inequitable reimbursement for providers and payers caring for vulnerable populations.

"This disparity has already created an incentive for providers and plans to avoid treating Medicare beneficiaries with those conditions,” Johnston pointed out.

As the number of Medicare beneficiaries continues to grow, the current strategy to determine payment will only perpetuate the gaps in reimbursement. Medicare must consider expanding their methodology to include the most common and highest cost conditions many of their most vulnerable members suffer from if payers and providers are to continue providing care to these patients, industry experts agree.