As they near the July 1 implementation date for Medicare's outpatient prospective payment system, many hospital operators admit they can't predict the exact bottom-line impact of the change.
Many say they expect it to be negative despite HCFA's projection that on average hospitals will receive 4.6% higher payments under the new system.
The outpatient PPS will pay hospitals a fixed fee for each of about 450 groups of like-services, replacing the old cost-based reimbursement system.
For-profit chains, including Columbia/HCA Healthcare Corp. and LifePoint Hospitals, have indicated that Medicare outpatient revenue accounts for so small a portion of total revenue that a slight increase or decrease won't affect the companies' overall profitability.
But several hospital administrators contacted for this story say they're working hard to minimize what they expect to be smaller profits under the new system.
That's on top of what appears to be an already steep drop in the profitability of Medicare outpatient services in recent years, according to new data from a congressional advisory group.
Hospitals' Medicare outpatient profits fell to a loss of 15.2% in 1998, according to the Medicare Payment Advisory Commission, after hovering at about an 8% loss in 1996 and 1997 (See chart).
All other noninpatient categories also showed losses for 1998. Hospitals had a 25.9% loss in 1998 on home health, and a 22.4% loss on skilled nursing.
But MedPAC officials and some hospital administrators said Medicare payments for outpatient services generally cover costs. Hospitals typically allocate a large portion of corporate overhead to outpatient services, whereby Medicare picks up part of the tab. Losses on outpatient services are in part a side effect of such accounting practices, they say.
Rapid City (S.D.) Regional Hospital System of Care, which owns two hospitals, leases another and manages three more, projects lower reimbursement under the outpatient PPS but still expects to break even or make a slight profit on its outpatient services. The hospital began general preparations at least two years ago, according to President and Chief Executive Officer Adil Ameer, but it's only been since the publication of the final payment rules last month that the hospital started intensive training. "Now we're going into crunch time," he said.
Training and educating staff in the new coding procedures, as well as recalibrating the hospital's price list, will cost hundreds of thousands of dollars, said Ron Trautman, chief financial officer. The hospital has also worked on cutting costs, he said.
The system, which had an operating profit margin of 1.3% on revenue of $279 million in fiscal 1999, generates about 4% of its overall revenue from Medicare outpatient services.
At MeritCare Health System in Fargo, N.D., Medicare outpatient services account for about 10% of overall revenue.
Lisa Carlson, executive partner of business decision support at the 311-bed hospital, said the new payment system will be simpler than the current one. But the hospital is incurring $125,000 in direct costs to ensure it won't lose money under the PPS, she said.