Medicare outpatient pay spurs worries

Physicians fear that the new reimbursement system could encourage hospitals to avoid some high-cost services or could result in unnecessary inpatient admissions.

By Jane Cys, amednews staff. Aug. 28, 2000.

Washington -- Physicians harbor concerns that Medicare's new hospital outpatient prospective payment system will restrict seniors' access to certain services.

It's too early to tell whether those fears will become a reality, physicians said, and many plan to keep an eye on the payment system as it evolves.

The outpatient payment system, which Congress passed in 1997 as part of the Balanced Budget Act, bundles more than 8,000 outpatient services into 451 "ambulatory payment classifications." Each APC has its own set payment rate and contains services with similar clinical and resource uses. The actual cost incurred by hospitals for providing the various services included in each APC varies, sometimes widely.

The new payment methodology, which became effective Aug. 1, won't affect Medicare's payments to physicians. But the Health Care Financing Administration has said it wants to ensure consistent payment across various patient settings, such as physicians' offices and hospital outpatient departments.

If the outpatient prospective payment system were to be applied to physicians' offices, the result would be "catastrophic," the AMA told HCFA in a recent letter.

"Physicians are even less likely than [hospital outpatient departments] to perform a mix of both high- and low-cost services within the payment group, and, thus, many physicians ... would always be vastly underpaid," the AMA said.

Several physician specialties expressed reservations about the way HCFA grouped some outpatient services. The American Society for Therapeutic Radiology and Oncology noted a continuing problem with the bundle for brachytherapy services.

One APC group, for example, contains five brachytherapy services. A wide difference between the actual cost of providing the most- and least-complex services means that the APCs' set reimbursement rate will result in a $700 loss every time the high-end service is performed and a $280 gain for the low-end service.

Such a broad cost variation violates a congressional mandate that limited the difference between high- and low-cost services, said Wendy Smith Fuss, ASTRO's director of health care policy. It also creates fears that hospitals may shift resources away from some complex services to avoid financial losses.

"The hospital could dictate and tell the physician that you can't do procedure X anymore because we lose money, so you need to do this other procedure," Smith Fuss said. "And that may not be in the best interest of the patient."

Physicians also highlighted problems with the data and methods used to calculate payments for the individual groups. The American College of Radiology cited the payment rate of $33.94 for a diagnostic mammogram as an example.

That rate is less than the congressionally set payment of $46.12 for a screening mammogram, even though the diagnostic procedure requires two to five more times the clinical labor, supplies and equipment than a screening mammogram, the radiologists told HCFA in a letter.

As a result, payments for diagnostic mammograms are "dangerously low" and may result in a "national public health care access crisis," the college said.

Laura Frazier, manager of APC solutions for QuadraMed Solutions Corp., a consulting group in San Rafael, Calif., noted that "HCFA's first pass at this is very immature." She added that changes to the APCs will likely be made once hospitals and physicians have more experience with the new system and once new data become available.

Observing emergencies

The outpatient prospective payment system spreads payments for observation services in the emergency department across all APCs for emergency services, rather than reimbursing separately for observation care -- a change that has physicians in several specialties worried about its effect on patient care.

"The concern is that HCFA's policy essentially diffuses any incentive for observation," explained Peter Sawchuk, MD, the emergency medicine representative to an advisory panel for the RVS Update Committee.

Observation in an emergency setting gives physicians the best chance of making a difficult diagnosis -- such as determining if a patient with chest pains is truly having a heart attack -- or of stabilizing a patient with a chronic disease to avoid an inpatient admission -- such as treating someone having an asthma attack.

If hospitals cut back observation services, the potential exists for increased inpatient admissions, Dr. Sawchuk warned.