The tempest that erupted over Tenet Healthcare Corp.'s Medicare outlier payments could dump some rain on the rest of the hospital industry.
Thomas Scully, administrator of the Centers for Medicare and Medicaid Services, has said he wants to "fix" the outlier payment formula and rules to ensure that Tenet's exceptionally high payments won't be repeated by Tenet or other providers, a spokeswoman for Scully said. Scully declined to be interviewed by Modern Healthcare.
Meanwhile, other investor-owned hospital chains took pains last week to show that their outlier payments were low, in attempts to distance themselves from Santa Barbara, Calif.-based Tenet, whose stock price remained mired around $15 last week, down more than two-thirds from its level before questions were raised about its earnings.
Outlier payments came into the Medicare system with DRGs and prospective payment in 1983, said Julian Pettengill, a research director for the Medicare Payment Advisory Commission. The goal was to ensure that the sickest Medicare beneficiaries with the most complex cases had access to care and to limit the losses hospitals would take on those cases, Pettengill said. Outlier payments make up part of the difference between the reimbursement the patient's DRG calls for and the cost of treatment.
Experts familiar with how outlier payments are determined said they aren't sure how the CMS could change the system without jeopardizing patient access.
Nancy-Ann DeParle, Scully's predecessor at what was then known as HCFA, noted that the loss threshold-the minimum loss a hospital must take on a case to trigger an outlier payment-went up sharply on Oct. 1, from about $21,000 to about $33,000. That change, designed by CMS to ensure overall outlier payments remained in the range allowed by law, should restrict outlier payments significantly, DeParle said.
The CMS also could tinker with a rule that Tenet has said was the mechanism by which its rapidly increasing gross charges, or listed prices, turned into higher outlier payments, DeParle said. The rule results in higher cost-to-charge ratios for hospitals that have recently opened, were recently acquired or have cost-to-charge ratios considered too low to be accurate. The combination of higher ratios and sharply higher gross charges fueled much of the growth in Tenet's outlier payments (Nov. 11, p. 6).
Karen Fisher, associate vice president of the Association of American Medical Colleges, said another option for the CMS would be to look at clinical data on outlier cases. A study that determined what the clinical characteristics of outlier cases are for different DRGs would set benchmarks that the CMS could use to monitor payments and investigate cases where the clinical situation differs sharply from the outlier norm, Fisher said.
Fisher said she is concerned that outlier payments may be going to hospitals for cases that aren't as medically complex as those for which the payments are designed to compensate. That, in turn, could be drawing funds out of the fixed pool of money for outliers and could be shortchanging teaching hospitals, which treat a large number of patients with complex conditions.
"I think it's worthwhile looking at (the outlier payment system)," Fisher said. "I'm open to anything that helps preserve the purpose of what the outlier payments are for."
Health Management Associates, Naples, Fla., and Universal Health Services, King of Prussia, Pa., last week issued releases stating that their Medicare outlier payments equaled or will equal about 1% of revenue in fiscal 2002. HCA, Nashville, noted last week in its quarterly report to the Securities and Exchange Commission that outlier payments equaled 1.6% of revenue for the nine months ended Sept. 30.
By comparison, Tenet has reported its outlier payments are about 5% of annual revenue.
HCA provided the information because, with Scully's comments indicating a potential change in the policy, securities laws require that "when you know something like that, you need to disclose it," HCA spokesman Jeffrey Prescott said.
DeParle said it would be difficult to devise any change in the policy. "Targeting the money ... is very difficult, and that is true throughout Medicare," she said. "The more complicated the formula is, the more targeted the money should be, but perhaps it's also more easy to game. There's so many moving parts that it's very complicated to get to the bottom of what's going on."