Despite a myriad of new codes, a payment increase and adjustments to the way Medicare would pay for outliers, proposed changes to the outpatient prospective payment system released by the CMS last week drew little reaction from providers.
"We've gotten into a mode where it's just a regular update to the system," said Roslyne Schulman, senior associate director of policy at the American Hospital Association.
Under the proposal, which would go into effect Jan. 1, 2005, hospitals would receive a 3.3% payment rate increase for outpatient services. Including other policy changes affecting the outpatient PPS system, payments to hospitals for outpatient services would rise by 6.6% to $24.2 billion in 2005.
A CMS spokeswoman who did not want to be identified said, "The system is maturing ... the rules have gotten past (their) sputtering and coughing stage."
The CMS proposal includes a provision to pay hospitals for new drugs and biologicals as soon as the Food and Drug Administration approves them. It also would continue a program intended to ensure that sole community hospitals in rural areas receive at least as much under the outpatient PPS system as they would have received under the cost-based payment methodology used before August 2000, when the CMS shifted to a PPS for outpatient services. Final regulations are expected to be published by Nov. 1.
Other than the increase in payments, perhaps the most significant change the CMS proposed is in the way it would calculate outliers. For the first time, the CMS has proposed a fixed-dollar threshold in determining outlier payments. Currently, a hospital receives an outlier payment when the cost of a hospital service or procedure is 2.6 times the ambulatory payment classification rate.
Under the proposal, a hospital would qualify for outlier payments only if it meets two criteria: The service costs more than 11/2 times the ambulatory payment classification rate and is more than the sum of the APC rate plus an additional $625.
The CMS could not estimate how many procedures that currently qualify for outlier payments would fail to qualify under the proposal but said about 88% of all hospitals in the country would receive outlier payments with the proposed change, compared with 95% of all hospitals estimated to get such payments this year.
Urban hospitals, teaching and children's hospitals, and those that serve a smaller percentage of low-income patients are expected to benefit if the rule change becomes final, the CMS said.
In total, outlier payments account for only 2% of Medicare's outpatient spending, and the proposal would not change that. However, with the change, "providers that were tapping into outlier payments for `low-'cost services are not going to see any outlier payments," said Jugna Shah, president of Nimitt Consulting, a healthcare firm that focuses on issues dealing with the outpatient PPS.
In its proposal, the CMS acknowledged it was responding to a recommendation in the Medicare Payment Advisory Commission's March report to do away with outpatient outlier payments completely, saying outlier payments are too vulnerable to gaming by hospitals.
The MedPAC report also said the payments, which are intended to compensate hospitals for extraordinary costs in caring for extremely sick or complicated patients, too often go to services that are too trifling to threaten hospitals financially.
"We are concerned by the MedPAC findings, which indicate that a significant portion of outlier payments are being made for high-volume, low-cost services rather than for unusually high-cost services, contrary to the intent of an outlier policy," according to the CMS proposal.
The CMS spokeswoman said, however, that there is no intent to move toward eliminating outlier payments altogether.
"That's certainly not what we're saying in the rules," she said.
Tom Kelly, senior vice president and chief financial officer at the Medical College of Georgia Health System, a two-hospital system in Augusta, said that if the CMS were to move in that direction, it would "create financial hardships for hospitals, including mine and other academic centers, that have many high-cost procedures."
While providers said they were still examining how the proposed changes would affect their systems, they were pleasantly surprised by the 3.3% rate increase.
Glenn Fosdick, president and chief executive officer of the Nebraska Medical Center in Omaha, said Medicare outpatient PPS payments have paid about 26 cents for every dollar the 500-bed hospital spends on outpatient services. Last year, the hospital lost $9 million on all Medicare services. The rate increase, while not expected to bring the hospital back into the black on Medicare services, should significantly limit the loss, he said.
In addition to the overall rate increase, the proposal would pay hospitals $75 when a new Medicare beneficiary uses a hospital outpatient department for a physical. The Medicare Modernization Act added the new benefit. The proposal also raised rates for various screenings already covered by Medicare, such as pelvic and breast exams, colonoscopies and glaucoma screening.