Faced with a choice of cutting hospital reimbursement or finding new federal money, Congress has declined to act on a proposed outpatient department prospective payment system for Medicare that could relieve the financial burden on beneficiaries.
In March 1995, HCFA proposed a hospital outpatient PPS that was based on a billing and data system that clusters clinically similar outpatient services into about 300 ambulatory patient groups, or APGs.
It would fix a system in which the Medicare program pays for 80% of hospital costs, but beneficiaries pay 20% of what hospitals charge for the service. That has resulted in beneficiaries paying an ever-growing share of the outpatient department bills.
The current system also means Medicare pays some hospitals more than it should for delivering outpatient services to beneficiaries.
The Prospective Payment Assessment Commission, in its June report on the Medicare system, said a total of $23.2 billion will be paid to hospitals for outpatient services to beneficiaries in fiscal 1996, which ends Sept. 30. Of that, beneficiaries will pay $9.2 billion, or 39.6%.
The 1990 federal budget law required HCFA to draft a prospective payment proposal, but Congress needs to approve it first.
But if it is to endorse such a payment-system reform, Congress first will have to make a stark choice. It must decide whether to reduce hospital payments-including what they receive in coinsurance from beneficiaries-or divert money from elsewhere in the federal budget to continue reimbursing hospitals at current rates.
"If you want to reduce coinsurance for beneficiaries, you have to offset either by cutting payments to hospitals or find the money elsewhere," said Thomas Ault, director of HCFA's bureau of policy development.
But the longer Congress waits, the more the beneficiary share of outpatient reimbursement will grow and the greater the payment reductions will be for hospitals when Congress does decide to change outpatient reimbursement to a prospective system, added James Bentley, senior vice president for policy at the American Hospital Association.
The issue was highlighted last month when a federal appeals court in California said HCFA was under no obligation to cap hospital outpatient charges to reduce the burden on beneficiaries.
ProPAC estimates that Medicare beneficiaries, on average, pay 37% of the total payments for hospital outpatient services. For certain surgeries, radiology and diagnostic procedures, the beneficiary share is about 53%.
Congress didn't include an outpatient PPS in last year's balanced-budget legislation that was vetoed by President Clinton. However, it did take action to ensure that the Medicare and beneficiary shares together equal hospital costs.
The hospital outpatient PPS was expected to cost the government more money than current law over the seven years that Congress was aiming to balance the federal budget, and thus was not included in balanced-budget legislation.
While the congressional proposal wouldn't have solved the problem of beneficiaries' growing share of outpatient bills, it would have reduced Medicare's payments to hospitals.
That's because beneficiaries' coinsurance - based on charges-equals more than 20% of the hospitals' costs, while the Medicare program pays 80% of hospital costs.
The sum of beneficiary and program payments equals more than 100% of the hospitals' costs. This flaw in the outpatient payment system is called the "formula-driven overpayment." The congressional proposal would have eliminated the overpayment.
Clinton, meanwhile, included an outpatient PPS beginning in his fiscal 1997 budget proposal, although it is scheduled to begin in 2002. Clinton's balanced budget also included the congressional proposal to eliminate the formula-driven overpayment.