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How do hospitals bill Medicare?

Patients covered by Medicare do not tend to see the diagnostic codes that form the basis for government payment to hospitals. Here's how it works.

From care to codes

Medicare pays hospitals based on the health status of each patient. All of this starts with the notes that doctors and nurses write in a medical record, according to Diane Caradeuc, a former Medicare authority who oversaw billing matters.

Based on the information in the record, a medical coder, who tends to be a hospital employee or contractor, assigns a DRG or diagnosis-related group, for the conditions described in the medical record. Hundreds of DRGs describe conditions ranging from pink eye to stroke.

Translating codes to costs

The hospital then sends the codes based on the patient conditions to a Medicare contractor that uses complex formulas to pay hospitals for their work, Caradeuc said. The current company doing this work for California-based Medicare claims is called Palmetto GBA.

Checking for accuracy

The hospital claim information is also sent to zone program integrity contractors, or organizations that perform data analysis to identify billing irregularities, Caradeuc said.

The company that does this work related to California claims is SafeGuard Services. Such organizations can identify irregularities to a company and seek repayment. They also can share findings with the U.S. Department of Health and Human Services’ Office of Inspector General, which investigates cases for possible federal prosecution.

Another organization that looks at hospital bills for Medicare is a quality improvement organization. These organizations can conduct reviews of medical records to be sure they support hospitals’ requests for payment. Quality  improvement organizations have confidential communications with hospitals and tend to work with them to improve quality of care and billing accuracy.

The company that performs this service in California is called the Health Services Advisory Group. The Medicare program gives these organizations direction and focus, referred to as their “scope of work.” This year, the group says it will be working with hospitals to reduce certain infections, pressure ulcers and medication errors.

Who sees the information?

Medicare beneficiaries typically are not privy to the codes related to their care. Rather, they tend to get quarterly summaries of the services provided to them, such as an X-ray or a flu shot. Organizations that help patients navigate the Medicare system include California Health Advocates and the Center for Medicare Advocacy, which is based in Connecticut.

Patient billing data is available from Medicare to individuals and groups that have a “data use agreement.” California-specific data is also available through the Office of Statewide Health Planning and Development.

The data files are massive and require some programming skills to analyze.  Some researchers and organizations use this data to track incidents of patient harm or trends in the use of health care throughout the U.S.




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