Hospitals are about to experience the second coming of a prospective payment system-this one targeting the growing outpatient services market.
While many healthcare executives are concerned, few hospitals are making adequate preparations, industry observers say.
Prospective payment for outpatient care has been in the works for some time. However, the latest news came earlier this month, when HCFA Administrator Bruce Vladeck was quoted as saying that in March HCFA will submit to Congress a formal outline recommending a prospective payment system for hospital outpatient services. No date for implementation has been set.
It's part of the federal government's effort to reduce growing payments for hospital outpatient services as well as encourage cost-efficiency.
The reason is that more and more hospitals are offering outpatient services as a viable alternative to inpatient care. According to HCFA, 90% of all U.S. hospitals offered some type of outpatient services in 1992, compared with 54% in 1985.
Correspondingly, Medicare's bill for outpatient services has grown to $12.2 billion in 1993 from $1.9 billion in 1980.
HCFA will install its DRG-like system for outpatient care initially for outpatient surgery, radiology and diagnostic services-areas that best represent the overpayment problems in the current system.
So just how are hospitals responding to outpatient prospective payment?
"They're hitting the panic button, and it's about time," said Deane Richard Ferguson, a senior consultant with Healthcare Management Advisors, an Atlanta-based consulting firm.
Most hospitals are aware of coming change, yet few are preparing for it, Ferguson said, even though doing so may cost only between $10,000 and $50,000.
Essentially, hospitals need to do two things: learn about the new ambulatory patient group, or APG, billing codes and procedural terminology that will accompany outpatient prospective payment, and streamline their information systems to handle the changes in outpatient billings.
"Hospitals are most interested in knowing how (outpatient prospective payment) is going to affect them financially and how they should model their outpatient services to best optimize the reimbursement system," Ferguson said.
And while HCFA hasn't formally released the guidelines for outpatient payment reform, the federal agency is running a demonstration project in Iowa for the state's Medicaid program to study the effects of such reform.
Hospitals can use the data from the Iowa Medicaid program as an educational tool to prepare their facilities for the new outpatient payment system, she added.
Healthcare Management Advisors and other healthcare consulting firms offer educational seminars for hospitals on outpatient payment reform, she said.
From a procedural standpoint, hospitals can purchase computer software that will help their billing departments adapt to APG coding, the outpatient version of DRGs. One company currently selling APG software is 3M Health Information Systems, which last October released a new software product for hospital outpatient clinics, emergency rooms and surgery units.
The 3M Ambulatory Patient Grouping Software was developed by the Minneapolis-based company specifically for HCFA's prospective payment system. The software was introduced last October at a American Health Information Management Association conference in Las Vegas.
According to the company, 3M's software classifies outpatient services into 297 APG groupings that are similar in terms of resource use and cost. It automatically classifies patient data through existing outpatient billing, data collection and coding practices.
Hospital executives can use the data to enhance their outpatient department's effectiveness. It can also be used to develop more cost-efficient outpatient treatment protocols, the company said.
"From 1986 through 1991, Medicare payments to hospital outpatient departments climbed 14% per year," said Brian Hewitt, general manager of 3M Health Information Systems. "We must learn to analyze and control these costs wherever possible, with no decrease in quality of care."
Approximately 100 hospitals nationwide are using 3M's software, including 40 hospitals in Iowa, a company spokeswoman said. Cost of the software varies, but it generally starts at around $1,500, she added.