The Right Choice for the
FM Physician Billing, Inc.
Financial Health of Your Practice!

The Right Choice for the Financial 
Health of Your Practice

Understanding How Medicare Works!

Medicare Part A

Part A Medicare covers inpatient services provided in a hospital, as well as follow-up care in a skilled nursing facility (SNF). It also covers hospice care, home health care, and inpatient care in a religious non-medical healthcare institution. Medicare Part A holds patients responsible for a deductible, an out-of-pocket expense by patients, before benefits are paid directly by Medicare. This deductible is applicable for each benefit period, loosely defined as the course of treatment for a single medical condition. After the deductible is met, Part A covers all services for the first 60 days, after which the patient is responsible for a set co-payment for each additional day. Inpatient stays longer than 90 days incur higher co-payments. and coverage for inpatient care longer than 90 days is limited on a lifetime basis.


Medicare reimburses hospitals according to Diagnosis Related Groups (DRGs). This means that a set amount is paid according to the patient’s condition as documented in the medical record. Inpatient medical coders and billers use diagnosis codes to determine the appropriate DRG code based on the ICD-9-CM codes assigned to an individual episode of care. All procedures performed during an inpatient episode are also coded, not for reimbursement purposes but assist the Medicare program in assigning appropriate rates to each DRG.


MCC–Major Complication/Comorbidity, which reflect the highest level of severity;

CC–Complication/Comorbidity, which is the next level of severity; and

Non-CC–Non-Complication/Comorbidity, which do not significantly affect severity of illness and resource use.

DRG - Diagnosis-Related Groups

MS-DRG - Medicare Severity Diagnosis Related Group

ICD-10 PCS - International Classification of Diseases-10th Edition-Procedure Coding System

Medicare Part B

The Medicare program with which most people are familiar is Part B. Medicare Part B provides reimbursement for physician services, services by other licensed healthcare providers (nurse practitioners, physical therapists, nutritionists, counselors, etc.), diagnostic laboratory and radiological tests, and procedures performed in the outpatient setting. For physical medical and surgical services, patients are responsible for 20 percent co-insurance. For mental health services, the co-insurance is currently 45 percent, though coverage is gradually being adjusted on an annual basis until it will match that of other medical services. Patients are responsible for an annual deductible before full Part B coverage begins.


Medicare Part B also pays for certain drugs delivered by a physician in the clinical setting, as well as durable medical equipment. The payment method Part B uses is the fee-for-service model. Medical billers and medical coders review the available documentation, and then they assign applicable Healthcare Common Procedure Coding System codes (HCPCS) and ICD-9-CM diagnosis codes. Each HCPCS code is assigned a dollar amount for reimbursement, and providers agree to accept that rate as payment in full. By law, providers cannot charge more than that amount for covered services. Healthcare providers who do not participate in the Medicare program are not allowed to charge more than 15 percent above the Medicare approved rate.

Medicare Part C

The Centers for Medicare and Medicaid Services (CMS) contracts with commercial health insurance carriers to administer what is commonly called Medicare Advantage. Medicare Part B beneficiaries are eligible to enroll in a Medicare Advantage plan that functions much as a health maintenance organization. These patients receive the full benefits of Medicare Part B coverage, but they may be limited to a set network of providers. If they obtain services outside their specified network, services may incur a higher co-payment or deductible on the patient’s part.


Medicare Advantage plans often offer services not normally covered by Medicare, such as dental care or gym memberships. They may also offer coverage for prescription medications not covered under Part B by bundling Part D coverage into their contracts.


Medicare Part D

Prescription drug coverage has been offered by Medicare Part D since 2006. CMS contracts with commercial third-party companies to provide prescription drug coverage, but there is no set standard of benefits as is the case with Parts A, B, or C. Part D contractors assemble formularies of covered drugs and can organized them by tiers. Tier I drugs may have no copay, while Tier III drugs impose a higher patient financial obligation than Tier II medications. Medical coding and billing for the Medicare Part D program is the profession of billers who work for pharmacies that serve outpatients.


Medications that are prescribed and administered in the inpatient setting are bundled into the payment for a particular DRG. Many drugs administered in the outpatient setting, such as local anesthesia, are bundled into the payment for a specific procedure under the Part B program, though Part B does pay for vaccinations, and for other pharmaceuticals such as steroid injections or chemotherapy. Part D covers medications that are usually self-administered by the patient.