Hospitals and pharmaceutical companies soon could be pitted against each other in a lobbying battle over billions of Medicare dollars for drugs used in outpatient departments.
HCFA is nearing the release of its proposed regulation to enforce a prospective payment system for hospital outpatient departments. Required under the Balanced Budget Act of 1997, the outpatient PPS had been set to take effect in 1999, although now it may be delayed until mid-year 2000 (See related story, p. 3).
HCFA is considering "bundling" the payments for hospitals' drug costs with the prospectively set rates paid to hospital outpatient departments.
Medicare now pays hospitals the lesser of their costs or charges for outpatient procedures. When ambulatory surgical centers perform the procedure, Medicare pays a blend that factors in the ASC rate.
As part of that cost-based payment system, Medicare reimburses hospitals for the costs of drugs used in outpatient procedures and services.
Under prospective payment, HCFA has the option of setting in advance the pharmaceutical reimbursement as part of the PPS fee.
A bundled system could make hospitals more conscious of their pharmaceutical costs and motivate them to shop for better deals to make their Medicare outpatient business profitable. Drug manufacturers would resist such a change because it could give hospitals more purchasing power and force pharmaceutical companies to keep their prices lower.
Medicare will pay hospitals $11.7 billion for outpatient laboratory, medical and surgical procedures and other services in fiscal 1998, which ends Sept. 30, according to the Congressional Budget Office.
Charging that the bundled system would threaten quality, the Pharmaceutical Research and Manufacturers of America has started lobbying lawmakers in an attempt to head off the proposal.
Bundling could jeopardize quality, the association said, because it could result in better reimbursement for outpatient services than hospitals now receive, giving them an incentive to treat some patients in the outpatient department rather than in inpatient beds.
"There is an inducement to move people out of hospital beds when in fact that's where they ought to stay," said PhRMA spokesman Jeff Trewhitt. "(Patients) are going to go to the place where (hospitals) can get the best rate."
Hospital groups, however, said hospitals use medical need as the basis for decisions on where patients should be treated.
To hospitals, the proposal makes sense because a prospective payment system is meant to capture the costs that are an integral and essential part of the procedure, said Steve Speil, vice president for health financing and policy with the Federation of American Health Systems.
Paying for pharmaceuticals outside the prospective rate would complicate the payment system, Speil said.
But hospitals are not moving as aggressively as PhRMA. Thomas Nickels, vice president of government affairs and associate general counsel with the American Hospital Association, called any lobbying on the effort "premature" until HCFA publishes a proposed rule.
Meanwhile, HCFA last month published a proposed rule outlining a new Medicare reimbursement system for freestanding ambulatory surgical centers.
HCFA proposes expanding the number of applicable payment groups from eight to 105 beginning Oct. 1.
The groups, called ambulatory payment classifications, will be similar but not identical to the ambulatory patient groupings used by some providers and payers.
The proposed rule said HCFA will use similar payment groupings in its regulatory proposal for hospital outpatient department payment.