Medicare insurance is one of the most popular options for those who qualify, and the number of people using this insurance continues to grow as life expectancy continues to increase. Medicare policies come available with many different parts, including Part A, Part B, Part C, and Part D. Now, while Medicare holders are responsible for paying their premium payments and deductibles, Medicare must pay the hospitals and other healthcare facilities to reimburse them for the medical care they provide. You may think that the hospital simply sends Medicare a bill; however, the reimbursement process is actually much more intricate.

What Part of Medicare Provides Coverage for Hospital Treatment?

If you receive care as an inpatient in a hospital, Medicare Part A will help to provide coverage for care. Part A Medicare coverage is responsible for all inpatient care, which may include surgeries and their recovery, hospital stays due to illness or injury, certain tests and procedures, and more.

As far as out-of-pocket costs, you will be responsible for paying your deductible, coinsurance payments if your hospital stay is beyond 60 days, and for any care that is not deemed medically necessary. However, the remainder of the costs will be covered by your Medicare plan. When a patient uses Medicare as their primary insurance company, the hospital is required to choose appropriate and accurate diagnoses that apply to the patient so that they can bill for the associated care.

How Does Medicare Insurance Pay Hospitals?

Medicare payment systems have evolved over the past few decades, but they continue to use a pay-per-service payment model. This is known as the Inpatient Prospective Payment System, or IPPS. This system is based on diagnosis-related groups (DRGs). A DRG assignment is made based on a patient’s primary diagnosis and any secondary diagnoses that they have during a hospital stay. These diagnoses can be added as needed throughout a stay as long as they are appropriate for the care being received.

The DRGs assigned to a specific patient can be affected by up to 25 procedures per hospital visit, and all diagnoses and procedures combine to create a set of DRGs tailored to the specific patient. In addition to medical diagnoses, DRGs are also affected by gender and age. Each year, the list of current DRGs is reviewed to ensure they appropriately reflect the resources that are regularly being used in the hospital.

DRGs are also rated on severity. There are three levels of severity, which are assigned to secondary diagnoses. The highest level of severity is labeled Major Complication or Comorbidity, the next level is known as Complication or Comorbidity, and the lowest severity level is known as Non-Complication. The lowest level has little impact on illness severity and uses minimal hospital resources. On the other hand, Major Complication DRGs often use many resources, may contribute significantly to illness and disease, and often accrue higher costs for appropriate care.

Medicare charges based on the IPPS and assigned DRGs. Each DRG has two standardized payment rates: one for operating costs and another for capital-related costs. These costs are determined by the patient’s condition and the average cost of care for those certain procedures. Each DRG and procedure are assigned a specific cost of care, and this cost is then standardized for Medicare coverage reimbursement.

This type of payment system is approved by the hospitals and allows Medicare to pay a simple flat rate depending on the specific medical issues a patient presents with and the care they require. In addition, In some cases, Medicare may provide increased or decreased payment to some hospitals based on a few factors. For example, hospitals that are teaching hospitals or those that treat a high proportion of low-income patients are eligible to receive increased payment. However, less reimbursement is provided to hospitals that have a high rate of readmission or when patients are transferred to another facility after only a short length of stay.

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