An Overview of Medicare Reimbursement Regulations for Advanced Practice Nurses

Michael A. Frakes; Tracylain Evans


Nurs Econ. 2006;24(2):59-65. 

In This Article

The federal government spent $271 billion on Medicare services in 2003, representing 13% of the federal budget. This compares with $57.9 billion and 9.8% of the federal budget in 1980 (Social Security Administration, 2005). Accordingly, the federal government has a significant interest in controlling health care costs and, via legislation, has a powerful forum from which to do so. The resultant cost control and fraud prevention efforts have created a complex regulatory structure that influences health care providers in both practice and patient care arenas. Advanced practice nurses are among the non-physician providers affected. Cost regulations also impact patients, insurers, and the government. An overview of that structure, issues related to regulatory development, and specific billing and practice decisions for APNs will be addressed.

Regulatory Structure

Third-party payers --- the government's Medicare and Medicaid programs, commercial insurers, self-insured institutions, and managed care organizations ---- generally cover health care costs. Medicare is the federal health insurance program for the elderly and disabled. Created as part of the Social Security Act of 1965, it is now the largest single health care payer entity. There are two Medicare programs: Part A, covering hospitalization, hospice, skilled nursing facilities, and some home health services; and Part B, which covers physician services, outpatient hospital services, laboratory charges, medical equipment, and other home health services. The Medicare programs are administered by the Center for Medicare and Medicaid Services (CMS) of the United States Department of Health and Human Services, which operates as an agent of the federal government and interprets Medicare laws, but it awards contracts on either regional or state basis to manage billing and reimbursement programs. The contracting agencies are termed intermediary agencies for Medicare Part A or carrier(s) for Part B. The states administer Medicaid programs for low-income families and children, pregnant women, the aged, blind, and disabled, and long-term care.

Historically, payers reimbursed hospitals for a percentage of their costs for providing services. This became financially unbearable and led to the implementation of prospective payment systems. One of the first of these federal payment reforms came in 1983, with the creation of diagnosis-related groups (DRGs) as "Prospective Payments for Medicare Inpatient Hospital Services" (Medicare Amendments, 1983). DRGs establish a priori uniform payments for each group based on diagnoses and procedures. These reimbursement caps offer incentives for hospitals to protect profits by minimizing costs, but also preclude the inclusion of expenses such as indigent care and residency programs in the overall cost of patient services (Grohar-Murray & DiCroce, 1997). Medicaid and private third-party payers frequently follow suit with Medicare reimbursement changes and regulations, and DRG-based or related reimbursement structures are now common.

Individual providers are reimbursed under the Current Procedural Terminology (CPT) codes, a uniform coding system for submitting medical claims developed by the American Medical Association in 1966. The system is revised annually to reflect changes in medical practice and technology. Reimbursement for a service represented by an individual CPT code is based on a relative value scale determined by work done, practice expense, and professional liability insurance cost, then multiplied by a geographic expense adjustment modifier (Richmond, Thompson, & Sullivan-Marx, 2000).

Nurse practitioners (NPs) and clinical nurse specialists (CNSs) are advanced practice nurses (APRNs). The number of licensed APRNs more than doubled between 1996 and 2000, and they are increasingly utilized as health care providers (Cooper, Getzen, McKee, & Lund, 2002). This utilization has been successful. Mundinger, Kane, and Lenz (2000) demonstrated comparable primary care patient outcomes between patients treated by physicians and nurse practitioners. Horrocks, Anderson, and Salisbury (2002) reviewed 34 papers and similarly found no patient care differences between physicians and nurse practitioners. This comparability of care ex tends to critical care settings, where Hoffman, Tasota, Zullo, Scharfenberg, and Donahoe (2005) found equivalent outcomes be tween patients with NPs or critical care fellows on their management team.

One practice difference be tween APRNs and physicians is that NPs less commonly provide services considered as high complexity CPT-coded services than physicians do. Interestingly, CNSs provide a higher proportion of high-complexity services. This is likely due to the practice role of the psychiatric clinical nurse specialists, who report essentially the same service complexity levels as psychiatrists (Medicare Payment Advisory Commission [MEDPAC], 2002). Horrocks et al. (2002) also reported higher patient satisfaction levels with APRN providers, but did not go on to detail the factors associated with that satisfaction increase. Financially, physicians and nurse practitioners have equivalent relative work values, the core component of reimbursement measurement (Sullivan-Marx, Happ, Bradley, & Maislin, 2000; Sullivan-Marx & Maislin, 2000).

Under the correct circumstances, APRNs can receive reimbursement from third-party payers for both direct patient care and for supervising diagnostic studies. Accordingly, they must appreciate this complex regulatory environment both for economic viability and to avoid fraudulent billing. Interestingly, however, Zuzelo et al. (2004) surveyed practicing APRNs and found that they had knowledge deficits about Medicare program structures, APRN reimbursement processes, and billing and coding requirements.

The Omnibus Budget Reconciliation Acts of 1989 and 1990 first opened the door for direct APRN reimbursement, although it was limited to those practicing in skilled nursing facilities and areas designated as rural (Richmond, Thompson, & Sullivan-Marx, 2000). Until that point, APRNs could bill only for services provided "incident to a physician's services." Those services were billed under the physician's provider number and had the advantage of reimbursement at 100% of the physician rate. Reimbursement did include a stringent set of practice requirements for the APRN. This alternative still exists and, at rates equal to physician reimbursement, is beneficial in some practice settings. The Balanced Budget Act of 1997 included the Primary Care Health Practitioner Incentive Act, perhaps the most important payment reform to affect advanced practice nurses. The Act removed Medicare Part B restrictions on the settings and practices in which APRNs could provide professional services, allowing direct Medicare reimbursement to the APRN, but at 85% of the physician fee rate (Balanced Budged Act of 1997).


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