Article Item

ASRA Practice Management Lexicon

Aug 1, 2019

System

Medical Necessity Criteria

Local Coverage Determination

Bundled Payment

Value-based Contracts

One/Two-Sided Risk Contracts

Narrow Networks

Reference Pricing

Site-Neutral Payment

EBITDA

Net Revenue/Net Sales

Operating Income

Stark Law

Safe Harbor Provision

 


Medical Necessity Criteria

Definition

Criteria used to establish that health care provided is reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.

Explanation

Third party payers, including insurance companies and the government, establish criteria that must be met for a service or product to be considered reasonable and necessary. Elements generally include evidence that an intervention is expected to improve a patient’s condition, is consistent with nationally recognized standards, is appropriate for meeting the patient’s individual needs, is not primarily motivated by convenience, and is not more costly than equivalent services. There is no universal agreement on what constitutes medical necessity. Providers should consult with the payers they contract with to determine the specific criteria for each payer.

Example of Applicable Legislation/Regulation

Centers for Medicare & Medicaid Services issues national coverage determinations that specify whether interventions are considered reasonable and necessary.

Reference

Medicare Program Integrity Manual: chapter 3 - verifying potential errors and taking corrective actions. Centers for Medicare & Medicaid Services. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/pim83c03.pdf. Accessed January 4, 2019.

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Local Coverage Determination

Definition

Defined in the Social Security Act as a determination by a fiscal intermediary or a carrier under part A or part B, as applicable, respecting whether or not a particular item or service is covered on an intermediary- or carrier-wide basis under such parts, in accordance with section 1862(a)(1)(A).

Explanation

Each Medicare contractor is given the discretion to determine which services are reasonable, necessary, and covered under its policies. Contractors provide lists of local coverage determinations, including descriptions of covered services and required documentation. Centers for Medicare & Medicaid Services made significant changes to local coverage determinations in October 2018.

Example of Applicable Legislation/Regulation

Medicare

References

Local coverage determinations. Centers for Medicare & Medicaid Services. https://www.cms.gov/Medicare/Coverage/DeterminationProcess/LCDs.html. Accessed January 4, 2019.

Local coverage determinations (LCDs) by state index. Centers for Medicare & Medicaid Services. https://www.cms.gov/medicare-coverage-database/indexes/lcd-state-index.aspx. Accessed January 4, 2019.

Summary of significant changes to the Medicare Program Integrity Manual chapter 13 - local coverage determinations. Centers for Medicare & Medicaid Services. https://www.cms.gov/newsroom/fact-sheets/summary-significant-changes-medicare-program-integrity-manual-chapter-13-local-coverage. Accessed January 4, 2019.

Medicare Program Integrity Manual: chapter 13 - local coverage determinations. Centers for Medicare & Medicaid Services. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/pim83c13.pdf. Accessed January 4, 2019.

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Bundled Payment

Definition

Providers received a fixed payment, or bundle, for a specific episode of care delivered within a specified time-frame.

Explanation

An episode of care includes all health care provided for a specific procedure or event for a specified period of time. It includes all acute care, procedures, and post-acute care provided by all hospitals, health care professionals, rehabilitation facilities, skilled nursing facilities, and any other providers or facilities providing care. Providers receive a fixed payment. If the actual costs of providing care are less than the bundled payment, then providers keep the savings. If actual costs are higher than the bundled payment, then providers must cover those costs. Under some plans, payers reimburse each provider separately while keeping total reimbursement at the fixed rate. Under other plans, payers make a single payment to one provider or organization that subsequently pays all the other providers participating in care.

Example of Applicable Legislation/Regulation

Centers for Medicare & Medicaid services currently incorporates specific episodes of care in its bundled payment model.

References

BPCI advanced. Centers for Medicare & Medicaid Services. https://innovation.cms.gov/initiatives/bpci-advanced. Accessed January 4, 2019.

Bundled payments for care improvement (BPCI) initiative: general information. Centers for Medicare & Medicaid Services. https://innovation.cms.gov/initiatives/bundled-payments/. Accessed January 4, 2019.

Navathe AS, Troxel AB, Liao JM, et al. Cost of joint replacement using bundled payment models. JAMA Intern Med. 2017;177(2):214-222.

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Value-based Contracts

Definition

Providers are paid based on the quality of care delivered, as opposed to quantity of care under fee-for-service contracts.

Explanation

Under traditional fee-for service programs, providers bill and are paid for each service provided. Value-based programs, also known as pay-for-performance, link reimbursement to provider performance on quality measures. Each value-based program specifies the measures, scoring methodology, and payment reduction scale used in the program.

Example of Applicable Legislation/Regulation

Centers for Medicare & Medicaid Services offers the following value-based programs:

  • End-Stage Renal Disease Quality Incentive Program
  • Hospital Value-Based Purchasing Program
  • Hospital Readmission Reduction Program
  • Value Modifier Program (also called the Physician Value-Based Modifier or PVBM)
  • Hospital Acquired Conditions Reduction Program
  • Skilled Nursing Facility Value-Based Program
  • Home Health Value Based Program

References

What are the value-based programs? Centers for Medicare & Medicaid Services. https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/Value-Based-Programs.html. Accessed January 4, 2019.

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One/Two-Sided Risk Contracts

Definition

In one-sided risk models, also called upside risk models, providers share in cost savings resulting from efficient provision of care and lowered costs, but face no risk if costs are high. In two-sided risk contracts, providers take on part of the financial risk of high costs as well as the benefits of cost savings.

Explanation

Incorporation of alternative payment models is shifting financial risk away from payers and onto providers. Two-sided risk contracts incentivize providers to maximize efficiency in delivery of care in order to reduce financial risk incurred from high health care costs and to benefit from shared cost savings. The intent is to hold providers accountable for the cost and efficiency of health care delivery. If health care is provided at a cost below a payer-set threshold, the provider(s) receive a percentage of the savings. Providers are financially penalized for costs above the threshold.

Example of Applicable Legislation/Regulation

Centers for Medicare & Medicaid Services issued a new Final Rule in December 2018 for Accountable Care Organizations under the Medicare Shared Savings Program.

References

Final Rule Creates Pathways to Success for the Medicare Shared Savings Program. Centers for Medicare & Medicaid Services. https://www.cms.gov/newsroom/fact-sheets/final-rule-creates-pathways-success-medicare-shared-savings-program. Accessed January 4, 2019.

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Narrow Networks

Definition

Insurance plans that include a limited and restricted pool of covered physicians and facilities. Networks are generally considered narrow if they incorporate less than 25% to 30% of providers in a given area compared with up to 70% of providers in more traditional, broader networks.

Explanation

Many insurers incorporate health care provider networks to reduce premiums. Insurers negotiate lower fees with physicians and facilities in exchange for inclusion in the network. Patients who seek medical care from physicians and facilities outside the network face increased costs. Narrow networks include a smaller percentage of physicians and facilities in an area than traditional networks and generally negotiate lower fees which, in turn, allow for lower premiums. Consumers who select plans based on price may not be aware of how limited their in-network options may be.

Example of Applicable Legislation/Regulation

Many plans offered under the Affordable Care Act exchange market feature narrow networks. Some of these narrow networks are limited in specialty coverage. Insurance companies are required to provide directories of providers associated with each plan. Consumers must research the directories to ensure access to needed providers.

Many plans sold to seniors through the Medicare Advantage program incorporate narrow networks.

References

Dafny LS, Hendel I, Marone V, Ody C. Narrow networks on the health insurance marketplaces: prevalence, pricing, and the cost of network breadth. Health Aff (Millwood). 2017;36(9):1606-1614.

Polski D, Weiner J, Zhang Y. Narrow networks on the individual marketplace in 2017. LDI Issue Brief. 2017;21(8):1-6.

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Reference Pricing

Medical Definition

All items in a class of roughly equivalent products or services are reimbursed at a fixed price.

Business Definition

Setting a price of a product or service below a competitor’s price or offering high discounts from a company’s own prices. The competitor’s price or company’s initial price serves as the reference price. The lower price appears to be a good deal compared with the reference price.

Explanation

Patients or providers who agree to use standard services or products receive full reimbursement. Those who choose to use more expensive products or services pay the difference, or a percentage of the difference, between the reference price and the actual price of the product or service. Reference pricing incentivizes, but does not require, use of lower-cost alternatives for products and services (eg, generic medications vs newer expensive medications, performance of procedures in an ambulatory surgery center vs hospital).

Example of Applicable Legislation/Regulation

In 2016, the state of Montana implemented reference pricing in its contracts with hospitals for state employee health care (currently not city, county, or university employees). The state currently pays an average of 234% of Medicare rates for services.

References

Acosta A, Ciapponi A, Aaserud M, et al. Pharmaceutical policies: effects of reference pricing, other pricing, and purchasing policies. Cochrane Database Syst Rev. 2014(10):CD005979.

Galizzi MM, Ghislandi S, Miraldo M. Effects of reference pricing in pharmaceutical markets: a review. Pharmacoeconomics. 2011;29(1):17-33.

Lee JL, Fischer MA, Shrank WH, Polinski JM, Choudhry NK. A systematic review of reference pricing: implications for US prescription drug spending. Am J Manag Care. 2012;18(11):e429-437.

The Free Dictionary by Farlex. https://medical-dictionary.thefreedictionary.com/reference+pricing. Accessed January 4, 2019.

Reference Pricing in Health Insurance. Berkeley Center for Health Technology. https://bcht.berkeley.edu/sites/default/files/utah_reference_pricing_082916.pdf. Accessed January 4, 2019.

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Site-Neutral Payment

Definition

Reimbursement for a service at the same rate regardless of the location where the service is provided.

Explanation

Centers for Medicare & Medicaid Services (CMS) has historically reimbursed hospital outpatient departments and hospital off-campus facilities at higher rates than physicians’ offices for the same services. New rules approved by CMS will phase in site-neutral payments over a period of two years beginning in 2019. Services delivered at hospital off-campus outpatient departments will be capped at the Physician Fee Schedule-equivalent rate. Site-neutral rules passed by CMS in 2016 had grandfathered off-campus facilities that had started billing Medicare before November 2, 2015. Under the new rules, many previously grandfathered off-campus facilities will now face lower reimbursement.

Example of Applicable Legislation/Regulation

Medicare

References

Medicare Program: Changes to Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs. Federal Register. https://www.federalregister.gov/documents/2018/11/21/2018-24243/medicare-program-changes-to-hospital-outpatient-prospective-payment-and-ambulatory-surgical-center. Accessed January 4, 2019.

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EBITDA

Definition

Earnings Before Interest, Taxes, Depreciation, and Amortization

Explanation

EBITDA is a measure of a company’s cash flow. It represents the earnings of a company after deduction of production costs and operating expenses but before deduction of interest, taxes, depreciation, and amortization. It provides a measure of a company’s performance without consideration of financing, capital structure, accounting decisions, or the effect of different tax structures in different jurisdictions.

Example of Applicable Legislation/Regulation

National tax law: Beginning in 2018, companies may only deduct business-related interest expenses up to a maximum of 30% of EBITDA.

References

EBITDA: A clear look. Investopedia. https://www.investopedia.com/articles/06/ebitda.asp. Accessed January 4, 2019.

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA). Investing Answers. https://investinganswers.com/financial-dictionary/financial-statement-analysis/earnings-interest-tax-depreciation-and-amortizatio. Accessed January 4, 2019.

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Net Revenue/Net Sales

Definition

The total value of all goods sold or services rendered by a  business minus returned goods, undelivered goods, discounts, rebates, and commissions.

Explanation

Gross revenue refers to the total value of all goods sold or services rendered by a company. Net revenue/sales (the top line), as stated above, is gross revenue minus returned or undelivered goods, discounts, rebates, and commissions. Gross profit, or gross income, is net revenue minus all the costs involved in producing the goods. Net income, or net profit (the bottom line), is the amount remaining after deduction of all expenses, including taxes, interest, etc. Top and bottom line refer to where the values appear on an income statement.

Example of Applicable Legislation/Regulation

Required for financial statements of publicly held companies and for filing/calculation of applicable federal, state, and local taxes.

References

Accounting Terminology Guide. NYS Society of CPAs. https://www.nysscpa.org/professional-resources/accounting-terminology-guide#lettern. Accessed January 4, 2019.

Financial Statements (Explanation). Accounting Coach, LLC. https://www.accountingcoach.com/financial-statements/explanation/3. Accessed January 4, 2019.

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Operating Income

Definition

Gross income minus operating expenses.

Explanation

Gross income, or gross profit, is net revenue (see above) minus the costs of producing goods. Operating expenses refer to expenditures incurred through normal business operations including, but not limited to, rent, wages, marketing expenses, administrative expenses, insurance, and research and development. Operating expenses must be distinguished from capital expenses. Capital expenses refer to purchases intended as investments, including property, equipment, furniture, computers, and intellectual property.

Example of Applicable Legislation/Regulation

US tax law. Operating expenses are generally deductible for the tax year in which they are incurred. Deductions for capital expenses must be spread out over several years.

References

Operating Income. Investopedia. https://www.investopedia.com/terms/o/operatingincome.asp. Accessed January 4, 2019.

Operating Expense. Investopedia. https://www.investopedia.com/terms/o/operating_expense.asp. Accessed January 4, 2019.

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Stark Law

Definition

Complex set of federal regulations designed to prevent physician referrals of Medicare beneficiaries to facilities and services in which the physician or a family member of the physician has a financial interest.

Explanation

The original Stark Law was passed in 1989. Since then, additional Stark Laws have been passed and Centers for Medicare and Medicaid Services (CMS) has developed an extensive set of regulations. The overall intent is to prevent physicians from referring Medicare beneficiaries to organizations or facilities in which they or a family member have a financial interest. Stark Law covers a wide range of health care services. CMS allows for exceptions, but each exception has specific requirements. Providers who violate Stark Law are required to return all reimbursement collected from improper referrals plus penalties. Stark Law is a strict liability law, meaning the physician’s intent is irrelevant, and even accidental violations incur penalties.

Example of Applicable Legislation/Regulation

Set of federal regulations collectively known as Stark Law.

References

The federal Stark Law and Anti-Kickback Statute: keeping up with recent trends. American Bar Association. https://www.americanbar.org/content/dam/aba/events/health_law/2015_Meetings/DocLaw/Slides/02_panel_01.authcheckdam.pdf. Accessed January 4, 2019.

Rose RV, Kass JS. Legal implications of physician investment and ownership in health care enterprises. Continuum (Minneap Minn). 2016;22(5, Neuroimaging):1685-1690.

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Safe Harbor Provision

Definition

Federal regulations that describe payment and business practices that are not treated as offenses under the Anti-Kickback Statute despite being potential violations.

Explanation

In general, a safe harbor is a regulatory or legal provision that provides protection from penalties or liabilities related to violations of laws or regulations under specific conditions. Safe harbors are found in many areas of law for many different statutes and regulations. For the Anti-Kickback Statue, the safe harbor provisions specify practices that will not be treated as offences even if they technically violate the statute.

Example of Applicable Legislation/Regulation

Federal safe harbor regulations.

References

Medicare and state health care programs: permissive exclusions: 1001.952 exceptions. Electronic Code of Federal Regulations. https://www.ecfr.gov/cgi-bin/retrieveECFR?gp=1&SID=90f45f0c857144405b17a43c35600c16&ty=HTML&h=L&mc=true&r=SECTION&n=se42.5.1001_1952. Accessed January 4, 2019.

Safe harbor regulations. US Department of Health and Human Services Office of Inspector General. https://oig.hhs.gov/compliance/safe-harbor-regulations/index.asp. Accessed January 4, 2019.

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