Three months into Medicare's hospital outpatient prospective payment system, providers are clear about only one thing: Information technology is important, but training staff to understand the PPS is even more crucial.
Analysts and administrators alike say it will take 12 to 18 months before providers can gauge the financial impact of replacing the old cost-based outpatient reimbursement system with the PPS, which went into effect on Aug. 1.
Much is at stake. In 1998, Medicare accounted for $8.8 billion of the $202 billion in gross hospital revenue that came from outpatient procedures, and that figure doesn't include patient copayments, according to figures from HCFA and the American Hospital Association (See chart, p. 31).
And analysts and administrators alike expect private insurers to follow Medicare's lead and begin using a system similar to the PPS.
So far, the experience in processing claims under outpatient PPS bears out the computer axiom "garbage in, garbage out." If "coders"--the patient-billing workers who translate a medical chart into a Medicare claim--don't understand the new payment system, no computer billing system in the world can overcome their ignorance, analysts say.
"This has been no picnic for the folks in the hospital billing offices," says Carmela Coyle, the AHA's senior vice president for policy.
Ill-prepared providers will see more claims tossed out for corrections by HCFA's computers, thus delaying payment and hurting cash flow, say Anil Joseph and Jordan Melick, analysts with Fitch, a New York-based credit-rating agency.
Worse yet, poorly filed claims that don't include all of the right billing codes--known as ambulatory payment classifications, or APCs--could cost a provider 10% to 15% of its Medicare outpatient revenue, according to a Fitch analysis.
"To the extent that hospitals and health systems have trained their employees, they should feel little to no impact," Melick says. "For those that haven't trained well, they will not only experience delays in (receiving payments), but there will be payments they won't ever receive because they didn't know how to bill for them."
Covers the world. With a few exceptions, the new payment system covers all outpatient services at acute-care and psychiatric hospitals. Ambulatory centers owned by nonhospital-based companies will continue to be paid under their old fee schedule.
The covered services include radiology, clinic and emergency department visits, surgical pathology, diagnostic services and tests and cancer chemotherapy. Also covered are some services provided to skilled-nursing facilities, such as magnetic resonance imaging and ambulatory surgery, and preventive medicine and vaccines.
The exceptions to outpatient PPS include ambulance services, services already covered under Medicare's physician fee schedule, some diagnostic laboratory services and physical and occupational therapy.
The APCs, which are analogous to the DRGs used in Medicare inpatient reimbursements since 1983, are scheduled to grow to more than 950 in January from the current 642.
While providers' Medicare outpatient revenue may fall because of the PPS, it won't be because the government is paying less. Patients will be the ones shelling out less money. Under the outpatient PPS, copayments are frozen until patients are paying 20% of the bill that is actually being paid by Medicare, rather than what they have been paying: 20% of the provider's customary charges. Those charges are often twice what is billed to Medicare.
HCFA expects to be on the hook for $3 billion more because of this shift in fiscal 2001, which began Oct. 1 (See chart, p. 32).
Preparing early. Many hospitals started preparing for outpatient PPS in January, even though HCFA didn't publish the final rule in the Federal Register until April 7.
Administrators assembled task forces that drew from multiple departments, including operations, finance, clinical, billing and information technology. And many hired consultants to review their work.
Froedtert Memorial Lutheran Hospital, a 430-bed not-for-profit teaching hospital in Milwaukee, convened its task force at the beginning of the year, says Thomas O'Brien, the hospital's director of finance.
The first order of business was a complete overhaul of the hospital's outpatient billing codes, to match HCFA's. Some of Froedtert's billing codes bundled several ambulatory services and had to be split up, while some separately billed services had to be combined, O'Brien says.
"Every once in a while, the pendulum shifts with Medicare, where they want to see all this detail," O'Brien says. "Then, a few years later, they say, `Bundle it up, we don't need to see all this.' "
While O'Brien says it is too early to tell what the long-term financial impact will be, he does believe outpatient PPS will help hospitals manage their outpatient business better. It forced his hospital to clean up its billing system and should allow for better hospital-to-hospital comparisons of outpatient financial results, something that has been sorely lacking, he says.
"I guess that's the silver lining in the cloud," he adds.
O'Brien also believes the early start Froedtert got on outpatient PPS has allowed the hospital to review each Medicare outpatient claim meticulously without adding staff or using a lot of overtime for coders.
Coders wanted. Not so lucky was Cape Fear Valley Health System in Fayetteville, N.C., even though it started preparing for outpatient PPS a year ago. Its two hospitals, 133-bed Highsmith-Rainey Memorial Hospital and 504-bed Cape Fear Valley Medical Center, both in Fayetteville, simply can't find enough coders, says Larry Miller, the system's reimbursement director.
"There's a shortage of coders, probably nationwide I would think," Miller says.
The system's initial review of claims points to a 12% decrease in reimbursements, but Miller cautions that the review included only a handful of cases. It also doesn't take into account the "transitional corridor payments" that HCFA will make over the first 31/2 years of the PPS' implementation. The lower the reimbursements turn out to be when compared with historical costs, the bigger the transitional payments will be.
The biggest change for Cape Fear Valley came in the emergency departments, where its hospitals had relied on flat per-visit rates, rather than charging individually for the procedures that were provided, Miller says.
"We're not happy," Miller says. But he adds: "I think it's definitely made us look at the different service lines and look at how we were doing business in the past and how we should do it from now on."
Copayment pain. Claims processing isn't the only drain on hospitals' staff time resulting from outpatient PPS. Another is trying to explain the new copayments to patients, says Bill Bierschenk, fiscal services director at 550-bed Lakeland (Fla.) Regional Medical Center.
Though the copayments will ultimately be lower under the new system, copayments are frozen until they fall to 20% of the Medicare charges.
That change, combined with a billing system tied more to individual services than to the bundle of services provided on a typical visit, has made it much more difficult for staff members to estimate copayments for patients, Bierschenk says.
He estimates that since the PPS took hold Aug. 1 reimbursements have dropped to 22% of the hospital's charge from 29%. That adds up to a 24.1% decline in Medicare outpatient revenues, but he adds that figure doesn't take into account the transitional payments, which are to be made quarterly. Still, he expects Lakeland, which handled 144,404 outpatient visits for the fiscal year ended Sept. 30, to lose $2.4 million in Medicare outpatient revenue in 2001 compared with 2000.
Acute-care hospitals aren't the only ones struggling to understand the new payment system.
For mental health providers, the system is a huge change, says Mark Covall, executive director of the National Association of Psychiatric Health Systems. Psychiatric hospitals and, especially, community mental health centers have had a challenging time building the billing infrastructure needed under prospective payment, Covall says.
"Prior to outpatient PPS, they didn't have to have the same kind of billing that (an acute-care) hospital has had to have," Covall says.
Community mental health centers also are concerned about HCFA's scrutiny of long-term patients and the level of services being offered to them, Covall says.
"The most important thing that we've stressed is: Make sure that you document the services accurately when you're filling out the billing forms. If not, they will be kicked out and not paid," Covall says. This will lead to delays in reimbursement as bills are resubmitted.
Adding to the uncertainty is the debate over HCFA's provider-based rule for reimbursing outpatient services. The rule, which was delayed by three months and won't go into effect until Jan. 10 at the earliest, determines whether a remote ambulatory center that is owned by a hospital is reimbursed at the higher rate hospitals receive or the lower rate that outpatient centers owned and operated by nonhospital companies receive under a separate payment system.
Private payers join in. As providers feel their way around the outpatient PPS, they understand that they had better get used to it. Not only is HCFA committed to it, hospital industry observers expect private insurers to adopt it, too.
In markets with sophisticated managed-care companies engaged in vigorous competition, insurers may adopt a PPS-type system within a few months, Fitch's Melick says. Markets such as Chicago, Minneapolis, Pittsburgh, San Diego and South Florida are good possibilities for quick adoption, he says.
As Froedtert's O'Brien puts it: "Medicare leads, and the rest of the industry seems to follow. We're hoping to be in good shape for that by then."