# Paying for Hospital Bills

Part I: Paying for Hospital Bills

This case study is on a 69-year old patient who has been hospitalized for permanent Cardiac
pacemaker procedures. Mr. Scott is admitted at Hillcrest Hospital in Cleveland. The total
Medicare-approved charges incurred are \$ 150,000. The values indicated in the table below are
based on services provided to Mr. Scott.
.Question 1: Calculating the operating payment that should be paid to the hospital (Medicare

Operating system = DRG relative weight x [(Labor related Large Urban Standardized Amount X
Core-Base Statistical Area CBSA wage index) + (Non-labor related National Large Urban
Standardized Amount x Cost of Living adjustment) x (1+ 1ndirect Medical Education+
Disproportionate Share Hospital).

Operating Payment= [(\$ 3,397.52 x0.9127) + (\$ 1, 476.97 x 1) x (1+
0.0744+0.1413)] x 4.1370 = \$ 20,256.70

Question 2: calculating the capital payment is as follows (Centers for Medicare and Medicaid,
2010);
Capital payment = [(DRG relative weight x Federal Capital Rate x Large Urban add on x
Geographic cost adjustment factor x cost of living Adjustment) x (1+ Indirect Medical
education+ Disproportionate Share Hospital)]

Capital payment= [(4.1370 x \$ 427.03 x 1.03 x1.3452 x1) x (1+

0.0744+0.1413) = \$ 4,614. 75

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Question 3: To know if the hospital is eligible for Medicare outlier payment, the following
steps should be followed;

1) Determine the Federal operating payment =\$ 20,256.70
2) Determine Federal Capital payment == \$ 4,614. 75
3) Determine the capital and operating cost as shown below
Operating cost = Billed charges x operating cost to change ratio
= \$ 76,000
Capital cost= Billed charges x Capital cost to charge ratio
=\$ 8,000
4) Determine the operating and capital outlier threshold
a) Operating CCR: Total CCR= Operating CCR/operating CCR+ Capital CCR= 0.9048
b) Capital CCR: Total CCR= Capital CCR/ operating CCR+ Capital CCR= 0.0952
c) Operating outlier Threshold = [ (fixed loss Threshhold x{labor related portion x
wage index} + Nonlabor related portion] x operating CCR to total CCR+ Federal
payment with IME AND DSH= \$ 32 514.40
d) Capital outlier threshold = Fixed Loss Threshold x Geographic Adj. Factor x Large
Urban Add on x Capita CCR to total CCR + Federal payment with IME AND DSH=
\$ 5,153.16
5) Determine if the Total costs are greater than threshold combined
If operating cost+capital cost is higher than the operating threshhod and capital threshold,
then calculate the capital outlier

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In this case; \$76000+\$8000=\$ 84,000 which is greater than \$ 5,153.16 +\$ 32 514.40= \$
37, 667. 60; therefore, the capital outlier = (Capital costs-capital outlier threshold) x
marginal cost factor.
= (\$8,000- \$ 5,153.16) x 0.8= \$ 2, 277.47
Therefore, hospital is eligible for Medicare outlier plan.
Question 4: Calculating the total payment for the hospital
Total payment= operating payment+ capital cost+ capital outlier
= \$ 20,256.70 + \$ 4,614. 75 + \$ 2, 277.47 = 27, 148. 8

Part II – Paying for Physician Services – Overview
The case study is about a 66-year old man (Mr. Roberts) who is a beneficiary of Medicare. The
patient was treated by Dr. Robinson. The values indicated in the table below are based on
services provided by Dr. Robinson.

Medicare physician payment is based primarily on three key factors namely; a) resource-based
relative value scale (RBRVS), b) the geographic cost index, and c) the conversion factor. The

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formula of calculating the Medicare allowable payment is indicated by the formula below
(Centers for Medicare and Medicaid, 2014).;

The Medicare reimburses 80% for participating doctor, whereas the patient pays the 20%
coinsurance.
Question 1: In this context, the first step is to calculate the Total RVU;
Total RVU= (27.45 x1.092) + (43.05 x1.743)+ (10.32 x0.543)=29.98+ 75.04+5.6=110.62
The Total RVU is multiplied with the conversion factor. The conversion factor is important as it
acts as the scaling factor of each adjusted RVU into dollar Medical physician payment. In this
case study, the conversion factor is set at \$64.43.
Therefore; the total Medicare allowable payment= 110.62 x 64.43 = \$7,127.50
Because Dr. Robinson is Medicare Participating physician, Medicare will reimburse 80% of the
total allowable payment which equals; 80% x\$ 7,127.50= 5,702.
Mr. Roberts will be responsible of paying the remaining 20% which is calculated as follows;
20% x\$ 7,127.50= \$1425.5.
Participating doctors refers to physicians who accept Medicare and will always take assignment.
These doctors are expected to submit medical claim (bill) to Medicare in order they can get

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reimbursement. Patient seeing a participating doctors are only responsible for paying only 20%
of coinsurance fee for Medicare-covered services (Centers for Medicare and Medicaid, 2014).
Question 2: If the Doctor is non-participating but elect an assignment, the doctors are required to
submit 95% Medicare approved medical claim to Medicare for all care cost Mr. Robert received.
This is equal to 95% x\$7,127.50= 6,771.10.
Mr. Robert will generally pay 20% of the 95% Medicare approved claim which is equal to 20% x
6,771.10= \$1,354.20
Medicare reimburses Doctor 80% of 95% Medicare approved payable fee which is 80% x
6,771.10 = 5, 416.90. .
Question 3: If Dr. Robinson is Medicare is non-participating and does not elect assignment, the
Doctor can charge the patient more than the Medicare allowable payment by 15% – which is
referred to as the limiting charge (Medicare Payment Advisory Commission, 2014). This is about
9.25% more than the fee schedule, which would total to \$7,786.8. In this case, Mr. Robertson
will pay the total amount \$7, 786.8 which will be reimbursed directly to the patient by Medicare.
The reimbursement done is 80% of 95% Medicare approved payable fee which is 80% x
6,771.10 = 5, 416.90. This indicates that the patient will have to foot for the extra \$2,369.9.

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References
Medicare Payment Advisory Commission. (2014). Medicare Payment Basics: Outpatient
Hospital Services Payment System.
Centers for Medicare and Medicaid. (2010). Hospital Outpatient Prospective Payment System.
The Medicare Learning Network Payment Systems Fact Sheet Series.
Medicare Payment Advisory Commission. (2014). Physician and Other Health Professionals
Payment System
Centers for Medicare and Medicaid. (2014). Medicare Physician Fee Schedule. The Medicare
Learning Network Payment Systems Fact Sheet Series.