Medicolegal Issues

The ABCs of CMS


Now, more than ever, major changes in the way healthcare is provided, measured, and paid for seem to be coming from a single source: the Centers for Medicare and Medicaid Services (CMS). From the Physician Quality Reporting Initiative (PQRI) to last summer’s Medicare Physician Fee Schedule, CMS has an ever-growing influence on U.S. healthcare.

Although it has published numerous articles about CMS and its policies, The Hospitalist has never offered an explanatory overview of one of the largest healthcare agencies in the world. In order to help hospitalists understand the policies, payments, and trends that affect them every day, we have prepared this CMS fact sheet.

Agency Background

CMS falls under the jurisdiction of the U.S. Department of Health and Human Services, and is tasked primarily with administering the Medicare program and working in partnership with state governments to administer Medicaid and the State Children’s Health Insurance Program (SCHIP). CMS’ current mission is “to ensure effective, up-to-date healthcare coverage and to promote quality care for beneficiaries,” which is a more modern focus than when the Medicare and Medicaid programs were first signed into law in 1965. Those programs were created solely to provide healthcare coverage to Americans over the age of 65, as well as low-income children and people with certain disabilities.

CMS has grown in size and scope since its inception. “First and foremost, CMS is the largest single payor for healthcare in the United States,” says Patrick J. Torcson, MD, MMM, FACP, director of hospital medicine at St. Tammany Parish Hospital in Covington, La., and chair of SHM’s Performance and Standards Committee. Insurance companies model their coverage and fee schedules after CMS. “That makes it very important for reimbursement.”

Approximately 45 million Americans are Medicare beneficiaries, and CMS pays reimbursements for more than 90 million people through the Medicare, Medicaid, and SCHIP programs. Hospitalists treat so many of these beneficiaries that Dr. Torcson estimates CMS represents “at least a third” of the payor mix for most adult hospitalists. For hospitals, the percentage is larger: “For acute-care public hospitals, I’d estimate that Medicare is probably 50% of the payor mix,” Dr. Torcson says.

Policy Points


A CMS trail of coordinated care programs has shown that these programs—specifically created to keep Medicare patients out of the hospital and reduce costs—generally did not work, according to a study published in the Feb. 19 Journal of the American Medical Association.

In 2002, CMS instituted the Medicare Coordinated Care Demonstration (MCCD), selecting 15 coordinated care test-site programs with a total of 18,309 Medicare beneficiaries, most of whom had age-related chronic conditions, including diabetes, heart disease, and lung disease. Nurses in the program provided patient education and monitoring to improve adherence and ability to communicate with physicians. Of the 15 programs, only two of the sites met their goals.

CMS contracted with Mathematica Policy Research to conduct an independent evaluation of the demonstration. Randall Brown, the main author of the evaluation, deemed the program results “underwhelming.” The only way to reduce hospitalizations and costs, he says, “is by changing patients’ behavior and by changing physicians’ behavior, and both things are really hard to do.”

The study is available online at


Congress reauthorized the State Children’s Health Insurance Program (SCHIP) for another four and a half years, increasing the program’s funding to $32.8 billion—largely through an increase in the federal tax on cigarettes—and allowing it to cover an additional 4.1 million children. The bill includes money for the development of pediatric quality measures and demonstration projects to test ways to improve the delivery of children’s healthcare, including the use of health information technology.


A Maryland state senator has introduced legislation that would set minimum standards on hospitals providing no-cost or reduced-cost care to patients. Democratic Sen. George Della introduced a bill requiring hospitals to provide no-cost care to patients with incomes of as much as 150% of the federal poverty level. The bill also prohibits hospitals from placing liens on patients’ homes.

Part A and Part B

When a beneficiary is hospitalized, Medicare pays separately for hospital services (Part A) and physician services (Part B). Because of their unique role in the hospital, most hospitalists receive payment through both Medicare reimbursement plans. “Physicians are never paid under Part A, but most hospital medicine groups receive some subsidy from their hospital, and, of course, that money originally comes from Part A,” Dr. Torcson explains.

Medicare Part A reimbursement applies to inpatient care in hospitals, critical-access hospitals, and skilled nursing facilities. It does not apply to custodial or long-term care, but it does help cover hospice care and some home healthcare.

Medicare Part B covers medically necessary services and supplies. Most beneficiaries pay a premium to receive this coverage, which includes outpatient care, doctor services, physical or occupational therapists, and additional home healthcare. Part B also covers nonphysician services and procedures.

Part B reimbursement is dictated by the CMS Physician Fee Schedule, which is released every year in the agency’s Final Rule (see “Medicare Modifications,” January 2009, p. 17). You may recall the scramble each of the past three years to urge Congress to avert a 10.6% cut in Part B payments to doctors.

“From the physician side, we still have this …hanging over our heads,” Dr. Torcson says. “Every year, we manage to avert a 10% cut in pay. Now we only have until this summer to block that cut again, unless there is a complete reform of how Part B is reimbursed.”

Congress Calls the Shots

Although CMS administers the Medicare programs and writes the checks, Congress sets the agency’s budgets and directives. Congress must pass into law every CMS initiative, including the Physician Compare Web site that publicizes PQRI data and reimbursement for follow-up inpatient telehealth consultations.

Congress is advised on healthcare issues by an independent agency, the Medicare Payment Advisory Commission (MedPAC). The 17-member MedPAC board advises Congress about payments to providers in Medicare’s traditional fee-for-service program as well as private health plans participating in Medicare. MedPAC also is tasked with analyzing access to care, quality of care, and other issues relating to Medicare. “They’re not a governing board,” Dr. Torcson says. “MedPAC clearly functions as an advisory panel. The final authority is through Congress.”

CMS Sets the Direction

In addition to putting money in hospitalists’ pockets, CMS plays an important role in setting nationwide trends for healthcare payment and policies. As the largest and most powerful payor in the U.S., the agency often acts as a model for other payors—namely, private insurance companies.

Dr. Torcson points to two historic changes in payment reform: “By 1983, there was a turning point when hospitals began getting payment through the DRG [diagnosis-related group] system. Private payors started following along.” And when the Medicare physician fee schedule was introduced in the 1990s, “private payors began basing their physician payments on the physician fee schedule.”

Private payors are watching CMS initiatives (e.g., PQRI and value-based purchasing) to see how physician payment develops in the future.

“CMS is powerful and it’s going to become more so,” Dr. Torcson predicts. “It’s going to continue to be a model of healthcare reform, with its focus on aligning quality and cost in concepts like value-based purchasing.”

For the time being, no one knows the exact shape U.S. healthcare reform will take or how fast it might happen. But one thing is certain: CMS will be at the forefront of changes that have a major effect on how hospitalists work, as well as how they are compensated. TH


SHM’s Legislative Action Center: Stay abreast of policy issues and have direct e-mail access to your legislators:

American Medical Association: Review the AMA’s healthcare policy agenda or search individual topics, such as patient safety or managed care reform:

American College of Physicians: Find out ACP’s stance on policy issues and search topics in its virtual library:

Council on Affordable Healthcare Insurance: Keep up-to-date on regional, state, and national healthcare reform measures:

Jane Jerrard is a medical writer based in Chicago.

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