While hospitals claim they are still smarting from Medicare payment reductions, some hospitals may be willing to take an extra cut in exchange for being dubbed a Medicare "center of excellence."
But physician specialists, who have endured their own Medicare payment cuts lately, have expressed reservations about participating in a new demonstration project that HCFA says will save Medicare millions of dollars on costly cardiovascular and orthopedic procedures.
Hospital chief executive officers in Indiana, Michigan and Ohio received letters late last month from HCFA urging them to request applications for the project. According to the letters, Medicare hopes to save money by directing beneficiaries to designated centers of excellence, hospitals chosen by HCFA because they perform many procedures and have agreed to accept a discounted price from Medicare for those services.
Medicare would pay the hospitals a global fee that bundles Medicare hospital and physician payments. Hospitals would then share those fees with the physicians who performed the procedures. Normally, Medicare would pay separate fees to the hospital, the surgeon, the anesthesiologist and the consulting physicians involved in a procedure.
"We hope to align hospitals' and physicians' incentives to work together to provide coordinated, cost-effective care, thus achieving savings to the Medicare program and giving hospitals and physicians the flexibility to allocate resources as they determine most appropriate," HCFA said in the demonstration overview that accompanied the letters.
The announcement of the project took some physician groups aback.
"This comes as a surprise, and that's not necessarily a good approach," said Henry Desmarais, M.D., director of health policy and advocacy at the American College of Surgeons. "We weren't consulted about the details of the proposal."
Desmarais served a number of roles at HCFA during the mid-1980s, including a stint as acting deputy administrator, before becoming a lobbyist for the surgeons.
"The idea of herding seniors to a center of excellence is kind of abhorrent to us," said David Lovett, director of the Washington office of the American Academy of Orthopaedic Surgeons. "Some studies show that volume improves quality, but our problem with this is the real goal of HCFA, which is to drive down the price."
HCFA does appear eager to duplicate the cost savings realized after a 1991 demonstration project on heart bypass operations. That project saved Medicare an estimated $40 million, or 10% of the cost of 10,000 surgeries at seven sites, according to HCFA. Beneficiaries also saved $7.9 million on part B co-insurance payments.
While physicians may be wary, hospitals have good reason to be interested, said Karen Fisher, associate vice president of the Association of American Medical Colleges, which represents many of the nation's major teaching hospitals.
"You get the label of being a center of excellence," said Fisher, whose organization has not taken a position on the demonstration. "That would have some attractive marketability, and that's a big reason why (hospitals) would do it."
Unlike physicians, hospitals said they are willing to give Medicare a discount if HCFA gives them that marketable title, which in addition to attracting Medicare beneficiaries would also attract commercial business.
"That money had to come out of someone's pocket," said Charles Cataline, director of health policy at the Ohio Hospital Association. "Hospitals have deep pockets and incur more of that discount. Any idea that hospitals with a center of excellence can say to physicians, `We'll cut your pay,' is crazy. Pitting doctors against hospitals is not the goal here."