Congress created the Medicare outpatient prospective payment system to stabilize hospital costs. But three years after the system was put in place, it seems anything but steady.
The outpatient regulation for 2003 proposed last week by the Centers for Medicare and Medicaid Services includes myriad coding changes and an open-ended question of what will happen to new drugs and technology that "pass through" the system. The CMS has called its 2002 rates unusual. And the final regulation, expected in November, could look far different as the CMS adds new drugs that receive government approval in the next few months and completes cost information on others.
"It creates more uncertainty and potentially more instability," said Carmela Coyle, senior vice president of policy for the American Hospital Association. She further contended Congress has underfunded the outpatient services by up to 17%, which means the CMS must keep finding new ways to pay for the system with too little money.
Last year's rates were "an aberration" because of the enormous influx of costly new drugs and technologies and the lack of actual data, said CMS Administrator Thomas Scully in an open conference call with the hospital industry last week. He advised hospitals to compare the 2003 proposed payment rates instead with the 2001 rates.
Congress set the outpatient spending at a fixed amount, so the CMS had to use money that would have been used for outpatient services to pay for costly pass-through drugs and technologies. For example, payments for colonoscopies and mammographies, which went down about 10% last year, are up about 18% this year. Also, for the first time in the relatively new system, 2003's proposed rates are based on real hospital claims instead of estimated data.
"The change from last year looks pretty wild," Scully said. "I think you'll find this year is back on track."
But if this year's payments were an aberration, next year's will be, too, Coyle said. "This is really a financial shell game," she said. "We're simply reallocating the same pot of money that is inadequate to cover the costs of covering Medicare in the first place."
The CMS moved from a cost-based system to the prospective payment system in 2000 as a way to stabilize hospital outpatient service payments. The services are grouped into ambulatory payment classifications, which each have their own payment code. In 2003, the CMS will pay hospital outpatient departments a total of $18 billion from the PPS pool.
Under a congressional mandate, hospitals will see an overall average 3.5% rise in outpatient payments for 2003 compared with 2002, a total boost of $530 million. The increase varies greatly by type of facility. Rural hospital payments will rise by 7.6%. Payments for urban hospitals will increase by slightly less than 2.5%.
Although the proposed outpatient PPS for 2003 has a lot of changes, it is relatively simple and straightforward, said Lawrence Goldberg, director of the national healthcare practice at Deloitte and Touche in Washington. That is not true of the coding changes for outpatient services included in the 623-page document.
"It's a coding nightmare," Goldberg said.
The coding changes will be burdensome to smaller hospitals, said Ray Coffey, vice president of reimbursement for Brentwood, Tenn.-based Province Healthcare Corp. The for-profit system owns 13 hospitals in mostly rural areas. "It's a small amount of revenue but an enormous amount of change," Coffey said.
Hospitals are watching closely how the CMS will divvy up the payments for new drugs and technologies.
"The mystery and unknown is what happens to the pass-throughs," Goldberg said.
Each year, the CMS sets aside a reserve pool of money for new drugs and technologies, but at this point, the CMS does not know the estimated cost of these services for 2003. The CMS has a $475 million pool set aside for these items, but further additions and analysis could exceed the budget, Scully said.
For the first time, 95 categories of devices and about 240 drugs no longer will be eligible for pass-through payments on Jan. 1, 2003. They will be folded into the ambulatory payment classifications, and CMS has proposed creating a separate code for those it estimates to have a median cost of more than $150. The CMS, however, may revise the criteria in the final regulation if it determines it has significantly overpaid or underpaid.
The CMS once again could increase payments for outpatient services that use the drugs and technologies. Or it could reduce what it pays for all new drugs and technologies in 2003. Rural hospitals such as those owned by Province would prefer the former. "It does simplify the system," Coffey said.
The CMS published the proposed regulation in the Aug. 9 Federal Register and will accept public comments until Oct. 7. It will publish a final regulation in November.