Nursing World | ANA Policy Paper: Medicare and "Incident To" Payment

Medicare and "Incident To" Payment:
Coverage of nursing services in hospital outpatient clinics and emergency departments

Recent concerns have arisen about the utilization of advanced practice registered nurses (APRNs) and other nurses in hospital outpatient clinics and emergency departments (EDs). Clinics and EDs that had been using APRNs for many years have recently questioned whether they can continue to utilize them, based on a belief that Medicare can no longer cover their services.

Medicare and "incident to" payment

Medicare, since its inception in 1965, has been composed principally of two programs--Part A, which covers inpatient hospital and some other institutional services; and Part B, which covers outpatient services of physicians and some other health professionals. Traditionally, there was no mechanism by which registered nurses would be paid separately under Medicare; payment went to the hospitals and physicians who employed them and paid their salaries.

Since the creation of the program, Medicare law has been changed to allow direct reimbursement of a limited number of other providers. Nurse practitioners (NPs) and clinical nurse specialists (CNSs) can be paid directly for their services in designated rural areas. NP services in nursing homes (regardless of geographic setting) are covered by Medicare (although payment for these services is made to the NP's employer). The services of certified nurse-midwives and certified registered nurse anesthetists are also covered under Medicare Part B.

ANA has identified Medicare's failure to cover the services of APRNs in all geographic areas as a major flaw of the program. ANA has made Medicare reimbursement of APRN services a top priority for some time, and is actively pursuing legislation in the 105th Congress that would provide for the reimbursement of nurse practitioners and clinical nurse specialists, regardless of geographic area.

In the meantime, the principal means by which services provided by RNs, including APRNs, are paid for by Medicare in outpatient settings and physicians' offices is through a mechanism called "incident to"--that is, these services are paid for under a provision in Medicare that covers services that are furnished incident to those of a physician and billed by the physician. "Incident to" payment has been widely utilized as a means to cover services furnished by non-physician practitioners in physician's offices, group practices and physician-directed clinics. (See the Health Care Financing Administration Medicare Carriers Manual, Section 2050.1.)

The idea behind "incident to" payment is that a physician can be reimbursed for services that are part of the physician's service, which can range from giving injections to changing dressings to providing a physical assessment. Over time, "incident to" has been used to cover a broad range of services provided by nurses, especially advanced practice registered nurses, and has provided a mechanism by which the physician is reimbursed for those services.

"Incident to" payment also brings with it some very restrictive requirements, including physician supervision, the need for the physician to have initiated treatment, and the need for the physician to be physically present in the office suite when services are provided.

Confusion sometimes arises because nurses are licensed to perform a wide range of tasks independently, and many assume that their services can be covered as long as they are acting within their scope of practice. Medicare payment rules are often more restrictive than state practice acts (the requirement for physician supervision under "incident to" is a prominent example). Passage of direct reimbursement legislation in Congress will enable APRNs to provide Medicare-eligible services free of most of these artificial restrictions.

Because the Medicare laws and regulations have not kept up with nursing practice, the "incident to" mechanism is increasingly inadequate as a method of payment for services provided by registered nurses. It is important to keep in mind some of the major points involved in coverage of "incident to" services. These points include:

Medicare rules regarding payment for services that are incident to a physician's services are designed to permit a physician, under certain circumstances, to bill for a service that he or she has not personally performed, or has performed only in part. These rules introduce some flexibility into a payment system that would otherwise require the physician to perform personally every service for which he or she bills the program.
Generally speaking, Medicare covers and will pay for "incident to" services that are furnished in any setting where the service would be covered and paid for if it were furnished by a physician--as long as certain other conditions are met (e.g., supervision by the physician, etc.).
The major exception to this rule is that Medicare will not cover or pay separately for "incident to" services that are furnished in a hospital setting, whether they are furnished on an inpatient or outpatient basis. This limitation on services furnished in hospital settings stems from two pieces of legislation. One, the Social Security Amendments of 1983 (P.L. 98-21), "bundled" all inpatient hospital services (except a physician's personal professional services) into the diagnosis-related group (DRG) payments. The other, the Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509), required hospitals to bill for all services (other than a physician's personal professional services) furnished in their outpatient settings. The effect of these changes was to exclude "incident to" services furnished in hospitals from coverage.

Obsolete and confusing language has led to misunderstanding of current law

Unfortunately, Medicare regulations and other formal agency guidance, such as the Medicare Intermediaries Manual, have not been updated to reflect these two changes in law and could be read as permitting billing for "incident to" services furnished in a hospital, at least on an outpatient basis.¹ This obsolete regulatory language has caused serious problems because a number of hospitals have based billing decisions on outdated passages found in Health Care Financing Administration (HCFA) documents. Although some of the language in current regulations and the Intermediaries Manual is obsolete and misleading, Medicare officials have issued other guidance that reflects the changes made by the 1983 and 1986 legislation. For instance, an October 19, 1994, letter from the Director of the HCFA Bureau of Policy Development to the American College of Emergency Physicians states that payment may not be made in an emergency department for nurse practitioner services (unless it is in a rural area). There has also been confusion over reimbursement for psychiatric services provided by registered nurses, particularly clinical nurse specialists.

Recent developments cause focus on billing procedures

In 1995, HCFA discovered that medical residents at the University of Pennsylvania medical center were performing tasks that were being billed by attending physicians. The medical center paid a fine of $30 million. HCFA became concerned that this practice was common in teaching hospitals. As a result, HCFA has launched a major enforcement effort designed to make sure that all services are provided in accordance to HCFA policy. Many teaching hospitals are performing their own self-audits in order to ensure compliance with HCFA policies and to mitigate possible consequences of violations of payment rules.

These self-audits and similar activities, including efforts by some physician specialty organizations to urge their members to double-check their billing practices, have helped lead to a current rash of questions regarding coverage of and payment for APRN services.

"Medicare won't cover your services"? Wrong!

While "incident to" payment for nursing services is not available in hospital outpatient clinics and emergency departments, it is inaccurate to say that these services are not covered under Medicare. Medicare does not pay for them on a fee-for-service basis, but Medicare covers the costs of providing these services--along with other outpatient services--as part of its payment to the facility. Even though services provided by nurses do not generate a separate bill to Medicare, hospitals are being paid for providing the services. And because Medicare payment reflects the extra cost of employing an NP (as opposed to, for instance, an unlicensed medical assistant or an EMT), facilities are not penalized for doing so.

Even though hospital emergency departments and outpatient clinics receive payment for nurse practitioner services as part of their facility payment, some hospitals may have come to expect to receive payment by billing these services as "incident to" services as well. Unfortunately, when some EDs and clinics have been told that they couldn't bill separately for services provided by nurse practitioners using "incident to," many questioned if it was economically feasible to keep them employed. The answer to this question is YES:

Since the salary of the nurse practitioner is covered in the cost-based reimbursement, they are, in fact, being paid for the services of the nurse practitioner. They are not getting paid each time a service is performed, so it is not as obvious, but they are being paid. It is important for the whole nursing community to keep reminding hospital administrations of the important fact that just because there isn't a separate check coming in, that doesn't mean they aren't getting paid for their nurse practitioners and clinical nurse specialists.
Nurses, including APRNs, remain the most cost-effective providers of care available in clinics and EDs. They are independently licensed, experienced, educated and qualified to provide a broad range of services, and to function independently. Replacing them with less qualified staff--whether unlicensed personnel or lesser educated, dependent practitioners--greatly limits the range of services that can be provided, requires closer supervision and simply does not offer the value that nurses do.

What can be done?

In the face of many hospitals' questioning the use of APRNs in outpatient clinics and emergency departments, what can be done? Here are a few suggestions:

Educate hospital decision-makers about coverage for nursing services. Make sure that they understand that nursing salaries are reflected in the Medicare facility payment--that even if their services do not generate a separate bill on a fee-for-service basis, these services are covered, and the cost of providing those services are reimbursed to the hospital on a reasonable-cost basis.
Emphasize the value of nursing services. Even if their services do not generate a separate fee-for-service bill to Medicare, APRNs and other nurses remain cost-effective because of the wide range of services they can perform based on their preparation and independent licensure.
Make sure that nursing is involved in any self-audit or other activities that include assessment of payment practices that affect nursing services. This is an important way to counter misperceptions or misstatements about the appropriate utilization of APRNs and other nurses and coverage of their services.
Work to achieve direct reimbursement for all APRNs, regardless of geographic area. When legislation is enacted that gives nurse practitioners and clinical nurse specialists direct reimbursement regardless of geographic location, these problems will be largely eliminated. ANA continues to make direct reimbursement for NPs and CNSs a top priority for its federal legislative agenda. These efforts came very close to victory in the 104th Congress. Success in the 105th Congress will depend on continued grassroots activism and campaigning by nurses and consumers across the country. This is an area where you can make a difference!

ANA will continue to work for Medicare laws and regulations that more accurately reflect the reality of how health care is delivered today. We will also work with HCFA to ensure clarity in Medicare rules and advisories, so that nurses and hospitals can all be as clear as possible on the requirements and mechanisms for payment of service.

1 When the Medicare program started, the hospital outpatient benefit--i.e., coverage of outpatient hospital services--was referred to as "incident to." The Medicare Intermediaries Manual continues to refer to hospital outpatient services as "incident to" services, easily lending itself to the misinterpretation that "incident to" services were eligible for reimbursement in hospital outpatient settings. Go back to article.

2/3/97

For more information regarding the Policy Series, contact policy products specialist, at (202) 651-7022. If you have specific questions about this document, please mention No. 96-POL-08.

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