Hospitals are welcoming HCFA's anticipated move to a prospective payment system for outpatient care, although they're wary of how those payment rates will be set.
Hospital outpatient departments now handle an array of payment formulas from Medicare and private insurers. Already some private payers are converting to a PPS, similar to the DRG system for inpatient care, in anticipation of HCFA's move. Others are expected to follow.
The new HCFA system won't come until the federal government slices more than $1 billion from projected Medicare spending for hospital outpatient care in fiscal 1998, which starts on Oct. 1. The recent balanced-budget law calls on HCFA to have an outpatient PPS in effect Jan. 1, 1999.
The change will reduce budgeted Medicare spending on such services by $7.2 billion over five years, the Congressional Budget Office said. Absent that, Medicare is projected to spend $115 billion from fiscal 1998 to 2002 on hospital outpatient services, including outpatient laboratory work, according to the CBO.
By the time outpatient PPS is implemented, roughly four years will have passed since HCFA first proposed to Congress a new payment scheme similar to an existing system known as ambulatory patient groups, or APGs. HCFA's current payments to hospitals for outpatient services may be based on costs, charges or a more complicated formula reflecting payments to freestanding centers. APGs set payments in advance for about 300 clusters of procedures, visits and ancillary tests.
HCFA's 1995 proposal never became law and drew heavy criticism from the Prospective Payment Assessment Commission, which advises Congress on Medicare policy. ProPAC said HCFA did not include enough incentives motivating hospitals to control service volume.
The budget law doesn't specify the type of PPS to be adopted. But it opens the door for an APG-like system by instructing HCFA to group procedures that are similar clinically and in their resource demands.
Because HCFA has revised its PPS proposal considerably since 1995, hospitals said outpatient PPS is more likely to be implemented this time.
Of particular concern to hospitals is how prospective rates will be set. The budget law requires HCFA to reduce growth in Medicare spending on hospital outpatient care by $1.3 billion in fiscal 1998. That means the reduced spending, instead of current expenditures, could become the basis for prospective rates in 1999 and beyond.