Both the American Hospital Association and Centers for Medicare and Medicaid Services Administrator Thomas Scully left Washington healthcare players puzzled about their motives and tactics during the Medicare outpatient payment rule debate.
But to the rest of the hospital industry, the AHA and Scully managed to come through the fiasco relatively unscathed with the announcement of the rule's delay last week.
The new outpatient rule was applauded by medical technology companies in November when it was first published because it continues to pay a large portion of the costs for expensive medical devices used in outpatient procedures at some hospital-owned facilities. These funds, called pass-through payments, cover the increased cost for the handful of cases that involve high-tech devices using money from the vast majority of ambulatory payment classifications that do not involve such devices.
Industry and congressional sources, speaking off the record, say that the AHA was asleep at the switch when it became clear this summer that the CMS was going to dramatically cut the pass-though payments, which had grown to $1.4 billion in 2001 and were projected to be $2.3 billion in 2002.
The pass-though arrangement has been the subject of much hand-wringing within the hospital industry. Device and drug manufacturers initially won a pass-through provision through negotiations with the hospital industry when a structure for Medicare's outpatient prospective payment system was being completed in 1999. The groups agreed on capping the pass-through at 2.5% of total Medicare hospital expenses, but that restriction has been waived so far.
While hospitals had to deal with more uncertain payments for routine outpatient services starting in August 2000, the technology provision still kept funds flowing to certain drug and device manufacturers. Hospitals chafed a bit at the easy money flowing through them to high-tech manufacturers, but they weren't overly anxious to do anything to lose the extra funding, which enabled them to purchase devices and perform procedures they might not otherwise have been able to.
House Ways and Means Committee Chairman William Thomas (R-Calif.) wrote to Scully in July, telling him to reduce the amount of the pass-through in the 2002 rule. The Advanced Medical Technology Association, representing medical device manufacturers, jumped into action, lobbying Capitol Hill to protect what it could in the upcoming rule. But the issue didn't seem to grab the full attention of the AHA, according to observers, until after the rule came out in November.
It was "the single largest Medicare issue we were going to have to grapple with this year," a hospital lobbyist said, but the AHA didn't attend a key meeting with lawmakers in October and other industry sources said the AHA seemed to have its attention focused elsewhere.
AHA officials insist that they have been actively involved with discussions on the outpatient payment rule throughout the year but contend that the organization's lobbying scope is broader than just the pass-through issue. AHA officials began to consider legal action after the CMS announced the first part of the rule on Oct. 31. Despite the fact that the bulk of the cuts were coming from what was known to be a short-term exemption of letting the pass-though payments exceed the 2.5% cap, the AHA described the rule as a $1.5 billion "shortfall" to hospitals.
The issue evolved into a "carefully orchestrated dance" for Scully, one lobbyist said, as Scully looked to Capitol Hill for a way out of what threatened to be a colossal regulatory and legal mess. Scully conceded that his agency hadn't upgraded its software in time to process claims starting Jan. 1. If the new rule went into effect on time, as Scully said he was legally obligated to make happen, the CMS would have to make payments based on the old system and later reconcile more than 18 million hospital outpatient claims.
Scully was given a letter by congressional committee leaders earlier this month that handed him legal cover to delay the coding rule: It said the rule contained "significant coding errors," and he had the power to review the rule.
After a few days of crossed signals, during which Thomas told the Hill that a delay was approved and Scully publicly dismissed any such suggestion, Scully wound up using the coding errors as the official reason for the delay. Industry sources say this gave him more legal safety than delaying to accommodate the pleas of the hospital industry.
The delay led the AHA, the Federation of American Hospitals, and the Association of American Medical Colleges to drop their threat of a lawsuit against HHS over the rule. The hospital groups said they would sue because the CMS hadn't shared its data and methodology for developing the rule.
Several hospital association officials say that the CMS has lost critical portions of the data that were needed to develop the new rule. The CMS denies that data were lost.
The hospital community, meanwhile, is just happy that the AHA helped get the delay, says James Castle, president and chief executive officer of Ohio's hospital association.