How cardiologists and hospitals get paid

Navigating payment system DRGs and CPT codes

Sauer explained that hospitals receive payments based on DRGs, which provide a fixed amount per patient admission regardless of the duration of the stay or the resources utilized. This system incentivizes hospitals to manage costs efficiently during the patient’s stay since their revenue remains constant, impacting their profit margins directly. 

"If the cost changes, their margin changes, so they are motivated to watch those costs," Sauer explained.

On the other hand, physicians are paid through CPT codes. Each medical procedure or service they perform is assigned a specific CPT code, which determines the reimbursement amount. This system operates on a volume-based, fee-for-service model, meaning that the more procedures physicians perform, the more they get paid.

Key reimbursement takeaways for providers

Sauer highlighted several crucial points for healthcare providers to understand:

   • Hospitals are paid a predetermined amount per patient admission under DRGs. This model encourages hospitals to minimize the length of stay and control costs to maintain profitability.

   • Variable physician payments are tied to the volume of services rendered, as each procedure has a corresponding CPT code and reimbursement rate. This system has faced criticism as reimbursement rates have not kept pace with inflation, making financial sustainability challenging for many physicians.

   • There is a disparity between private insurance reimbursements and Medicare/Medicaid payments. Private insurance usually pays at least twice as much and Medicare. This disparity is widening as the share of commercial reimbursements decreases, putting additional financial strain on hospitals.

   • There is a shift from fee-for-service to value-based reimbursement models. These models aim to reward healthcare providers for quality and efficiency rather than the volume of services provided.

Future directions in Medicare payments

Sauer discussed how hospitals are strategically managing their admissions to focus on higher-margin cases and how they can cut costs for conditions that have a lower reimbursement. Typically, lower-margin cases prompt hospitals to explore outpatient management or home care options that could potentially reduce costs.

"We are working on ways to save or determine if there is even a need to admit heart failure patients. Can I keep them at home, deliver as good or better outcomes for the patients at a lower cost threshold? That is happening and needs to happen at a much greater level in order for us to bend the cost curve," Sauer explained.

The Centers for Medicare and Medicaid Services (CMS) plan to move from a fee-for-service to value-based payment models by 2030. Sauer said this will lead to a gradual shift towards risk-based payment models, which involve financial risk for the provider. This transition aims to promote cost-effective and quality care

"I was recently on a CMS webcast where the chief transformation officer for CMS said, look, we are using fee-for-service value introductions to teach our physicians and provider communities the skills they'll need to take risk. It was effectively telling us risk is coming. So even though it has been slower than we were anticipating, it is still on the horizon. We need to pay attention to it," Sauer explained.

He also noted that the Merit-based Incentive Payment System (MIPS), though initially intended to drive value, has been criticized for its complexity and limited impact on patient outcomes. Sauer indicated that future models might involve broader risk-sharing mechanisms, such as population-based or episode-based cost risks.

By optimizing cost management and embracing new payment structures, hospitals and physicians can better align financial incentives with patient outcomes, ultimately enhancing the sustainability and quality of healthcare delivery, he said.