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Medicare covers about 54 million Americans who are over 65 years old or disabled. The government-funded program offers two options:

Fee-For-Service: This is the standard coverage chosen by more than two-thirds of beneficiaries. They can visit any doctor they want and buy insurance policies to cover any gaps in what Medicare will pay for. Doctors bill Medicare for each service they provide.

Medicare Advantage: Nearly 16 million seniors have joined about 700 insurance plans that accept a set fee from Medicare for covering each patient in exchange for providing all medical care, from doctor visits to hospital services. The plans also provide extra benefits that are popular with the elderly, including gym memberships and eyeglasses and often are less expensive than standard Medicare. Monthly premiums average about $35.

Other terms

The Centers for Medicare and Medicaid Services: Referred to as CMS, this federal agency oversees Medicare and Medicaid, the government health plan for low income people. CMS is part of the Department of Health and Human Services.

Dual Eligibles: The term refers to people who are eligible both for Medicare and Medicaid because they have low incomes. These patients are generally considered the most costly to treat.

In-Home Health Assessments: Medicare Advantage plans tout these free “house calls” as a major health benefit. But the visits also can be profitable for the health plans when they uncover new diseases that raise a patient’s risk score— even if the health plan provides no added treatment. CMS officials proposed banning home visits for collecting risk data, but backed down. The industry said banning the house calls would cut its Medicare payments by some $3 billion a year.

Monitor, Evaluate, Assess/Address and Treat (MEAT): Doctors must document that they did all these things in order for a health plan to claim payment based on a patient’s illness. In other words, a health plan cannot just write down that a patient has a disease and seek extra payments from Medicare. The plan must also show that its doctors assessed and treated the condition. Still, federal officials in April backed off a proposed regulation that would have banned home health assessments which uncovered new diseases but didn’t lead to any more treatment.

Retrospective Chart Reviews: The risk-based payment system has spurred the growth of a medical information and data analysis industry that “mines” electronic patient medical files looking for evidence of unrecognized diseases that could boost risk scores and Medicare payments. CMS has proposed that health plans also report cases in which risk scores should be reduced, which would reduce overpayments.

Risk Score: Since 2004, CMS has paid Medicare Advantage plans based on a risk score that is supposed to assess the overall health of each patient. Medicare pays higher rates for sicker patients that are likely to require more costly medical services and less for healthy people. Medicare Advantage plans on average received about $9,900 per person in 2011.

Risk Adjustment Data Validation (RADV) audits: Health plans collect medical data used to calculate patient risk scores. But mistakes are common and trigger billions of dollars in “improper payments” every year, mostly overcharges. RADV audits are supposed to keep the industry honest. But CMS only does a few dozen audits a year and usually recoups minimal amounts.

Special Needs Plans: These are Medicare Advantage plans that enroll people with chronic diseases such as diabetes and take other steps to manage their care.

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