Hospitals stand to lose 50% more money than previously estimated when an outpatient prospective payment system kicks in next year, according to a recent HCFA analysis.
Hospitals are faced with a 5.7% drop, or a total of $900 million, in their Medicare outpatient revenues in the first year of the PPS, the study shows.
However, the outpatient PPS would make a small dent in hospitals' total Medicare revenues, which would dip only about 0.6% in the first year as a result, HCFA said.
The Balanced Budget Act of 1997 required HCFA to develop and implement an outpatient PPS for hospitals to replace the current cost-based reimbursement system. The change would be significant for hospitals that have been pushing more services and procedures to the outpatient setting, where costs are lower and reimbursement is higher.
HCFA revised its original impact estimate, published in 1998 in the Federal Register, because it failed to account for certain technical changes, sources said.
Provider groups were quick to bemoan the cuts, but hoped that HCFA could come up with a payment system that was more financially favorable to them.
"Our members are already feeling the pain (of the 1997 budget law)," said Brent Miller, vice president of public policy and political affairs at the American Medical Group Association. "To pile it on like this makes it really hard."
Thomas Scully, president and chief executive officer at the Federation of American Health Systems, which represents for-profit providers, said, "This could be a big problem, but the important thing is not to panic."
Meanwhile, hospital stocks slid on the news as investors pondered the long-term effects of the adjustment on companies' revenue sources.
"All of us are fairly upset about it because every time they throw out these trial balloons, it has an effect on the marketplace," said William Schoen, chairman and CEO at Health Management Associates, a Naples, Fla.-based rural hospital company whose stock slid slightly last week. "Our opinion is that these decreases will not take place, and it is very unfortunate that these figures have been released that are not in conformity with the legislation and the desires of the legislators."
Scully said he met with HCFA officials to discuss his concerns after the new analysis became public last week.
"We believe that HCFA has the ability to fix this," Scully said, adding that the federation has also met with members of Congress in the event that a legislative remedy is more desirable.
Rural and teaching hospitals would be the hardest hit by the outpatient payment changes (See chart).
Under the new analysis, rurals would lose about 30% more of their Medicare outpatient revenues than would all hospitals. Major teaching hospitals would lose about 85% more of their Medicare outpatient revenues than all hospitals.
Schoen said he is not worried about his company's prognosis because HMA is an efficient operator and because the brunt of the change would be felt among hospitals smaller than those HMA owns. But he bemoaned the political stir that the HCFA figures have caused.
"I have talked to legislators and they are not interested in taking more money out of the proprietor's pocket in Medicare," he said. "In fact, there will be a move afoot over the next few months to put more money into Medicare."
Both teaching and rural hospital groups have sought legislative relief from other payment cuts included in the 1997 budget law. Earlier this month, a group of influential senators unveiled a bill that would provide some financial relief from expected cuts (May 10, p. 2).
Last week, Sen. Daniel Patrick Moynihan (D-N.Y.) rolled out three bills designed to give teaching hospitals a leg up on the budget cuts.
-With Barbara Kirchheimer