Medicare Introduction

Title XVIII of the Social Security Act, designated "Health Insurance for the Aged and Disabled," is commonly known as Medicare. As part of the Social Security Amendments of 1965, the Medicare legislation established a health insurance program for aged persons to complement the retirement, survivors, and disability insurance benefits under Title II of the Social Security Act.

When first implemented in 1966, Medicare covered most persons age 65 or over. In 1973, the following groups also became eligible for Medicare benefits: persons entitled to Social Security or Railroad Retirement disability cash benefits for at least 24 months, most persons with End-Stage Renal Disease (ESRD), and certain otherwise noncovered aged persons who elect to pay a premium for Medicare coverage.

Medicare has traditionally consisted of two parts: Hospital Insurance (HI), also known as Part A, and Supplementary Medical Insurance (SMI), also known as Part B. A new, third part of Medicare, sometimes known as Part C, is the Medicare+Choice program. This program was established by the Balanced Budget Act of 1997 (Public Law 105-33 or "BBA") and expanded beneficiaries' options for participation in private-sector healthcare plans. When Medicare began on July 1, 1966, approximately 19 million people enrolled. In 2000, about 40 million people were enrolled in one or both of Parts A and B of the Medicare Program, and 6.4 million of them chose to participate in a Medicare+Choice plan.

Medicare's HI and SMI fee-for-service claims are processed by nongovernmental organizations or agencies that contract to serve as the fiscal agent between providers and the Federal Government. These claims processors are known as intermediaries and carriers. They apply the Medicare coverage rules to determine the appropriateness of claims. Medicare intermediaries process HI claims for institutional services, including inpatient hospital claims, Skilled Nursing Facilities, Home Health Agencies, and hospice services. They also process outpatient hospital claims for SMI. Examples of intermediaries are Blue Cross Blue Shield (which utilize their plans in various States) and other commercial insurance companies. Intermediaries' responsibilities include the following:

•    Determining costs and reimbursement amounts
•    Maintaining records
•    Establishing controls
•    Safeguarding against fraud and abuse or excess use
•    Conducting reviews and audits
•    Making payments to providers for services
•    Assisting both providers and beneficiaries as needed

Medicare carriers handle SMI claims for services by physicians and medical suppliers. Examples of carriers are the Blue Cross or Blue Shield plans in a State, and various commercial insurance companies. Carriers' responsibilities include the following:

• Determining charges allowed by Medicare
• Maintaining quality-of-performance records
• Assisting in fraud and abuse investigations
• Assisting both suppliers and beneficiaries as needed
• Making payments to physicians and suppliers for services that are covered under SMI

Peer Review Organizations (PROs) are groups of practicing healthcare professionals who are paid by the Federal Government to generally oversee the care provided to Medicare beneficiaries in each State and to improve the quality of services. PROs educate other healthcare professionals and assist in the effective, efficient, and economical delivery of healthcare services to the Medicare population. The ongoing effort to combat monetary fraud and abuse in the Medicare Program was intensified after enactment of the Health Insurance Portability and Accountability Act of 1996, which created the Medicare Integrity Program. Prior to this 1996 legislation, The Centers for Medicare & Medicaid Services (CMS) was limited by law to contracting with its current carriers and fiscal intermediaries to perform payment safeguard activities. The Medicare Integrity Program provided CMS with stable, increasing funding for payment safeguard activities, as well as, new authorities to contract with entities to perform specific payment safeguard functions.