How Does Medicare Reimbursement Work?

Where does Medicare get its Money?
Medicare's money comes from Social Security and Medicare taxes (the FICA on your paycheck) which is in 2018 7.65% of your income that is withheld from your paycheck. Your employer has to match that, by also contributing 7.65%. If you are self employed than you wind up paying both, which is often called the ”self-employment tax" and thus that is 15% of your total income! These taxes apply only on the first $128,700 of income, and 7.65% is a lot of money to those earning less than that. By the way, of the 7.65% that you and your employer each pay, 6.2% goes to SS and 1.45% goes to fund Medicare. In 2013 a 0.9% Medicare surtax was added to any earnings over $200,000, although the employer does not have to match that surtax amount. For the truly curious see more here.

Medicare’s view of Mental vs. Physical Health?
Medicare sets the “allowed” rate at which we get paid. We can bill what we want, but they will only pay the allowed amount. Some years ago, Medicare actually had a “psychiatric reduction” which meant they only paid 50% of the low rate they allowed psychiatrists, psychologists and clinical social workers. This meant a mental health patient had to pay 50% of the allowed rate as a copay, while the maximum copay for any other provider was only 20%. It took more then a decade of work by the American Psychological Association and related organizations for psychiatrists and social workers to get Congress to address the discrimination against mental health vs. physical health treatment. In 2008 Congress implemented a program to gradually boost mental health providers’ rates to achieve “parity” (i.e., a 20% copay for outpatient and equivalent hospital benefits) with medical services. So you see the history of Medicare is not encouraging us mental health clinicians to participate in Medicare as providers. The implicit message for decades has been that mental health was worth less then medical services.

The only way Medicare can get more money is if Congress approves higher wage taxes and higher taxes for employers–which is not going to happen. Medicare needs to maintain PCPs in its system who threaten to drop out of Medicare unless their allowed rates periodically increase. So Medicare responds by reducing its payment to specialists (or weaker lobbies like mental health folk) to increase payments to generalists like PCPs who act as gate keepers to all other services. Psychologists, psychiatrists and clinical social workers are pretty much at the bottom of the pecking order and seem to get cut most. Professions with documented costs like equipment are allowed more money, thus this writer’s chiropractor, who has an ancient X-ray machine and fancy articulating tables, has a higher relative value placed on his expenses and gets paid more then a mental health professional who uses paper and pencil.

How does that affect us?
Well, many of still accepted Medicare, even thought their rates are low (lower that typical Medicaid rates in many states) and there was clear discrimination against mental health providers. However, things got even worse for us. Medicare started to reduce their allowed reimbursement rate for neuropsychological testing by 5% per year a while back, for unclear reasons in their formulae of how much it was valued. This didn't stop and after eight years it added up to a 40% reduction in our income! The consequences of this are evident when you try to find a psychiatrist accepting Medicare–we know of none in private practice taking it in southern Mass. Around 96% of all doctors participate in Medicare allowed rate, as Medicare is the biggest insurer out there. Of the 4% who don’t accept it (i.e., have dropped out as providers for Medicare), the majority appear to be mental health providers. Now you understand why.

The Effects on Mental Health
Imagine losing 40% of your business' gross income over eight years, but wait it gets even worse! The Congress failed to pass its omnibus (grand) budget due to Tea Party insurgency, remember the budget sequestration spending cuts in 2013? This has resulted in making permanent a further 2.5% reduction across the board (except for the military) in government spending. Like most health businesses we strive for a 2–3% profit, but when you lose 5% per year in gross income for eight years running–then losing another 2.5% that goes way beyond cutting into the bone. We lose money on Medicare and it's hard to attract someone to work with us, if they can make more money doing almost anything else. Recently the kid Rusty's Air Conditioning and Heating service sent over to fix our AC charged $30 more per hour then we are allowed to bill Medicare, and he wanted cash on the barrel head. We have to bill Medicare and wait to get 80% and then chase your secondary insurance for the remaining 20%, and to add insult to injury we have to hire a billing service that takes 7% of that income just to deal with the hassles of this billing.

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