CLINICAL DIABETES
VOL. 17 NO. 3 1999

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THE BUSINESS OF DIABETES

The Business of Diabetes Education Before and After New Medicare Regulations

Steven B. Leichter, MD, FACP, FACE

On August 5, 1997, the Balanced Budget Act of 1997 was signed into law, and as many in the diabetes community know, Medicare coverage for diabetes supplies and eventually for patient education, was included.¹ While coverage for diabetes supplies has already been implemented,² coverage for patient education is still being formulated.³ Once Medicare provides coverage for these services, it is assumed that other insurance carriers will follow its lead.⁴ These developments will cast an entirely new perspective on organizing and maintaining diabetes education programs.

One important area for consideration in approaching this new opportunity is the business of a diabetes education program. Up to now, the business options for this activity have been skimpy and erratic. The implementation of these new Medicare regulations may substantially alter that. Educators and program managers who are prospectively familiar with these factors will have an advantage in developing and maintaining their programs.

The Business of Diabetes Education in the Past
Up to now, support for diabetes patient education has been infrequent and erratic, at best. Medicare coverage of these services has been quite variable and unpredictable. This has been confounded by the fact that, before the passage of this new legislation, each geographic area for Medicare has been administered by a different intermediary, and each intermediary could elect to cover or not to cover such services at their own discretion.⁴ Other health insurers and managed care organizations have had similar variations. Kaiser-Permanente has maintained a system-wide diabetes education program for a number of years.⁵ A search of information for consumers provided by Prudential Health Care shows no information on specific diabetes education programs.⁶ A listing of specific lifestyle programs does not mention diabetes. A search of the entire website does list health care research initiatives in diabetes but does not list any coverage for patient education services.

In this environment, successful business planning and execution have been very difficult for many diabetes education programs. Programs have been organized by one of two possible structures: free-standing or institutionally related activities; or activities that have been integral parts of provider offices or groups. Education services that have been integral parts of physicians' offices or groups have been allowed to bill under the supervising physicians, using their provider numbers. Services that have been free-standing or institutionally based have billed under separate, institutional codes.

Provider-Related Services
Services offered in physicians' offices or groups must be billed under the physicians' provider number and therefore use physician billing codes. Under the Medicare Resource-Based Relative Value Schedule system, these codes allow physicians to increase the level of complexity by one for the rendering of diabetes educational services. For most carriers who pay on a fee-for-service basis (including most Medicare plans), this translates to a $12–19 increased reimbursement for the service. This increment is usually fixed in regard to educational services, regardless of the complexity of the service or the length of time it is provided. The only possible exception has been the initiation of insulin pump therapy. Some physicians have achieved reimbursement for this complex service under a global fee, which has at times exceeded $200. However, in the majority of cases, insurance carriers have rejected this charge.

For office-based educational activities, the situation is worse for patients in health maintenance organizations (HMOs) under capitated contracts. Capitation means that physicians receive a fixed monthly fee per patient, regardless of the services rendered. It is assumed that educational services, such as diabetes education, are part of the capitated payment.

This makes diabetic patients higher-risk patients for primary care physicians, because they require a more intense level of services for the same fixed payment. Obviously, with this reimbursement scheme, diabetes educators attached to physicians' offices increase the overhead of service without offering any hope of increased reimbursement for those services.

To employ one or more diabetes educators and not sustain a loss under the current reimbursement system, physicians and educators alike must be realistic about costs versus revenue, and these considerations must be tempered by other, peculiar realities in the system. If 100% of patients had coverage for educational services in the office under the current system, a diabetes educator making $40,000 per year would have to see 14 patients per day for 200 work days per year to break even on the salary line and added costs (Table 1).

The estimates in Table 1 assume collection of approximately $15–17 per patient visit and that all patients are eligible for coverage. In actuality, not all patients are eligible, as noted previously, but also, educators may see patients in association with a physician visit or as a separate visit, as long as the physician is supervising the services and countersigns all notations. The limitation is the number of patients per day that an educator may adequately serve. We estimate a minimum visit time of 20 minutes per patient and an average time of 30 minutes per patient. At that rate, an educator may have only 12–16 individual patient sessions per day, depending on available office hours.

Fraud and abuse laws indicate that physicians may not differentiate service to patients based on insurance characteristics. If a physician group or office employs an educator, they are obligated to make the educator available to all diabetic patients served by the group, including capitated HMO patients or patients who must pay out-of-pocket for such services and may be unlikely to afford them. These two subgroups will obviously reduce the income attached to the educator.

Given all of these factors, it may be difficult to avoid losing money on certified diabetes educators attached to office-based practices or groups under the current scheme. In addition, there are few options for increasing the income from their usual activities. Charges for fingerstick glucose determinations represent one small option. Thus, physicians and physician groups approach the employment of diabetes educators with conservatism and must watch costs and productivity closely.

Independent Diabetes Educator Programs or Institutionally Based Services
Under the current reimbursement system, the overall picture for the financial stability of free-standing or institutionally based diabetes education programs is similar to office-based programs, but there are important specific differences. Independent or institutional educators bill under a different set of service codes (institutional codes, Medicare Part B) than educators in the office. Generally, these codes allow higher levels of fees than are available to office-based educators. Fees may exceed $200 for complete educational services. However, the percentages of patients who have applicable insurance coverage tend to be smaller, and patterns of insurance payment are inconsistent. Special documentation is required for reimbursement to be considered. Patients of managed care plans are not covered unless the diabetes education program has a contractual relationship with the specific plan.

Often, but not invariably, payors ask for documentation of the services provided and only pay for "comprehensive services," for example. The definitions of "comprehensive" may be vague and may vary from payor to payor. However, recognition of the program by the American Diabetes Association (ADA)⁷ usually suffices to define such levels of service.

Overhead expenses are frequently more difficult to manage for free-standing or institutional programs versus office-based services. Unlike office-based units, there is little ability to redistribute assets to other income-generating activities when business volumes are too low to sustain the program. Free-standing programs may have added expenses related to maintaining their ADA recognition to be eligible for reimbursement, whereas office-based programs do not usually face that requirement to obtain their lower rates of reimbursement.

Business in the Era of Medicare Reimbursement
With the implementation of the diabetes provisions in the 1997 Balanced Budget Act, certain important aspects of providing diabetes patient education will change. As envisioned now, these Medicare provisions do call for applying reimbursement for diabetes patient education services to physicians' offices or for paying qualified programs under the physicians' fee schedule (Medicare Part A).⁷ The codes for programmatic reimbursement do not clearly apply to institutional and free-standing diabetes education programs, which are eligible to bill under institutional codes. However, the proposed rules for implementation imply that such programs may be able to participate if a physician clearly documents medical necessity.

To be eligible for such reimbursement from Medicare, programs will have to fulfill specific criteria. The most likely is to achieve ADA recognition. Alternatively, programs may have to demonstrate that their characteristics would meet these criteria, in the absence of actually achieving recognition.

Many of us expect other insurers and managed care organizations to follow the lead of Medicare. Indeed, various plans in Georgia have already let us know that they intend to contract with diabetes education programs to provide these services and to select programs with ADA recognition. Preliminary information from these plans suggests that they expect to pay $55 per patient visit. Unlike Medicare, they have indicated preliminary plans to contract with institutional diabetes education programs.

For all educational programs, these changes may have profound impacts on their programmatic and business status. Whereas their ability to meet financial goals is now difficult, they will become revenue centers instead of cost centers. Pro forma demonstrations of how these changes may affect institutional education programs are shown in Table 2.

Because these changes may convert diabetes education programs from cost centers into revenue centers, they should make quality diabetes patient education more accessible and available. The use of ADA criteria for patient education programs should provide some reasonable consistency to program quality. The trend to adopt these models from Medicare to other insurers may stimulate widespread acceptance of these concepts by managed care and other insurers.

These trends will also compel diabetes educators to develop business skills and acumen. Obviously, learning cost control and cash flow oversight and managing optimal levels of patient service will be important to maintaining successful programs. The parameters by which Medicare and other insurers will qualify and pay for diabetes patient education become the defining factors in the organization and scope of the educational programs, rather than the individual concepts of the educators. Educators who offer "Cadillac-level" services for "Pontiac-level" reimbursement may soon find their programs in substantial deficit.

The effects of these trends on office-based diabetes education programs seem positive. Their effects on institutional programs are unclear. Whether institutional programs that have achieved recognition may bill under the same codes as office-based programs is not known. These changes may compel free-standing or institutional programs to engage "physician advisors" and bill under the physician UPIN number (the federal tracking number for physician billing). The degree, if any, to which patients will be shunted by reimbursement rules from one setting to the other is also unclear.

Currently, two dynamic initiatives are in motion that will determine this landscape. The Health Care Financing Administration (HCFA) is in the midst of collecting public feedback about the scope and characteristics of the Medicare program. Certainly, there will be much input to HCFA about whether and how each setting (office-based or institutional) will participate in this program. Simultaneously, many managed care organizations and health insurers are working to develop contractual relationships with institutional diabetes education programs to meet not only the developing market pressures for such services, but also the increasing federal and state mandates that they provide these services. Perhaps every segment of the diabetes team will be a winner in this developing situation.

REFERENCES

¹American Diabetes Association: American Diabetes Association applauds President Clinton for supporting improved diabetes Medicare coverage in fiscal 1998 budget. American Diabetes Association press release, Alexandria, Va., February 13, 1997.

²American Diabetes Association: Medicare's new diabetes policy: what it means to 3 million seniors with diabetes. Diabetes Advocate, Sept. 1997.

³American Diabetes Association: Statement regarding comment period for Healthcare Financing Administration regulations for diabetes self-management education under Medicare. (http://www.diabetes.org/ada/new.asp#hcfa), 1999.

⁴Healthcare Management Advisors: New Medicare Part B carriers named to replace Aetna. HFMA Express News, Dec. 6, 1996.

⁵Martin TI, Selby JV, Zhang D: Physician and patient prevention practices in NIDDM in a large urban managed-care organization. Diabetes Care 18:1124-32, 1995.

⁶Prudential Insurance Co.: Prudential Home Page. (http://www.prudential.com/index.html). 1999.

⁷Dept. of Health and Human Services: Medicare Program: expanded rules for outpatient diabetes self-management training services. Federal Register 64:6827-52, 1999.

Steven B. Leichter, MD, FACP, FACE, is a clinical professor of medicine at Mercer University School of Medicine in Macon, Ga., and president of Columbus Metabolic Foundation in Columbus, Ga.

Copyright © 1999 American Diabetes Association
Updated 7/99
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