CMS takes aim at 'facility' fees

Federal officials for more than a decade have let hospitals charge Medicare varying rates for certain emergency department overhead and staffing costs called “facility” fees—a controversial policy some critics believe invites overcharges.

Now, in a major turnabout, the CMS has proposed tighter controls over facility fees as part of a plan to redirect billions of dollars Medicare spends annually on outpatient care. Its proposal, though preliminary, is already drawing fire.

CMS officials want to replace five escalating price codes hospitals can choose from in billing facility fees with one flat rate, starting next year. The 2013 rates for ED facility fees start at $51.82 for a Level 1 patient visit and move up to $344.71 at the top range. For 2014, the CMS is proposing a new flat rate of $212.90 for ED visits, regardless of how intensive the treatment is. Doctor fees aren't affected.

The CMS used claims Medicare paid during 2012 to calculate the proposed new rate. CMS officials said the rate would be re-evaluated annually. The rule was published July 19 in the Federal Register and revised Sept. 6 to correct technical errors that could affect payment rates. Comments are due by Sept. 16. It is set to take effect Jan. 1.

In an Aug. 2 member advisory, the American Hospital Association called the proposal a “dramatic step.” It warned of revenue losses if the new rate doesn't take into account that Medicare patients may get sicker over time and require more complex and costly services. The AHA also said the CMS has “consistently stated its belief that hospitals are billing in an appropriate and consistent manner.”

The draft CMS fee proposal has drawn sharp critiques from some hospital groups and medical billing experts. Paying ED facility fees at just one rate, they argue, will likely overpay hospitals that tend to treat people with relatively minor ailments in the ED, while shortchanging institutions such as trauma centers that care for very ill patients.

“This could be a windfall for some hospitals, but others could lose,” said Duane Abbey, an Iowa healthcare billing consultant who called the proposal a “major change.”

Dr. Steven Meyerson, a senior vice president at Chicago-based AccretivePAS, a revenue-cycle firm, said the CMS proposal might simplify billing, but “it does seem to have the potential of paying hospitals inappropriately.” Some hospitals may do better than others financially, he said. While rising billing codes don't necessarily indicate inflated charges, he said, a single code would obviously prevent that from happening. In that sense, he said, the payment change gives the CMS what it wants.

The CMS didn't estimate the financial impact of the coding change and declined a written request for any data indicating upcoding by hospitals. The agency also declined to provide any comment on the rationale for the draft rule.

Whether charged at one rate or five, the mere existence of facility fees has faced sharp criticism from consumer groups and some physicians because the fees come on top of physician bills and hospital charges for tests, medicines and other supplies, and have risen sharply in recent years. Hospitals counter that the fees are needed to defray costs of big-ticket medical technology.

In proposing the facility fees change, the CMS appears to be searching for a simple way to prevent hospitals from picking service codes at a higher level than they really deserve, an illegal practice known as upcoding. Hospitals deny they engage in upcoding.

Last year, a Center for Public Integrity investigation found that thousands of medical professionals billed for more complex and costly healthcare over the past decade—adding $11 billion or more to their fees—despite little evidence that elderly patients needed more treatment. Some of the biggest jumps occurred in hospital emergency departments, which billed more than $1 billion in steadily rising Medicare facility fees over the decade. The investigation also found that the growth of electronic health records and billing software could be contributing to higher coding for a number of ED services by making it easier to cut and paste documentation to justify those bills.

In the wake of that investigation, Attorney General Eric Holder and HHS Secretary Kathleen Sebelius threatened possible criminal prosecution for physicians and hospitals caught upcoding. Their September 2012 letter said the CMS “has the authority to address inappropriate increases in coding intensity in its payment rules.”

Hospitals argue that they shouldn't be taken to task for any confusion over how to bill these charges properly. During the past decade, the industry repeatedly urged the CMS to set standards for billing emergency department facility fees. But in 2007, CMS officials wrote that the effort “was proving more challenging than we initially thought.” The proposed new rule states that national guidelines are “not feasible,” hence the decision to give up on them and adopt a flat-rate payment.

Though the CMS draft rule stops short of accusing hospitals of coding improperly, it said the agency expects to simplify billing and “eliminate any incentive for hospitals to 'upcode' patients whose visits do not fall clearly into one category or another.” Another goal, the draft rule said, is to “remove any incentives hospitals may have to provide medically unnecessary services or expend additional, unnecessary resources to achieve a higher level of visit payment.”

Choosing the proper code for ED visits and evaluating whether the proper code was chosen have always been confusing, because the evaluation and management codes being used were designed by the American Medical Association for physician billing, not emergency department services. Doctors pick one of the five-digit codes that best reflects the amount of time and medical decisionmaking involved in caring for a patient; the higher the code, the more they are paid.

Hospitals have long complained that codes written for physicians don't translate easily for pricing emergency department resources. But they deny they take advantage of the situation to bill higher codes than justified. The CMS has struggled unsuccessfully for years to establish codes that are specific to ER services.

Up to now, hospitals have had wide latitude in applying facility fees. Since April 2000, Medicare has relied on about 4,000 hospitals nationwide to set their own guidelines for picking billing codes that most “reasonably relate” to the intensity of emergency department resources used in treating a patient.

Experts disagree about the appropriateness of recent billing trends and the financial implications of the proposed CMS change in ED facilities fee billing policy.

Jugna Shah, a hospital outpatient billing expert who is president of Washington-based Nimitt Consulting, said CMS officials in recent years haven't given any hint that they believe some hospitals game Medicare. “It caught me off guard,” she said of the proposed rule. The CMS could be searching for a “quick fix” to the controversy over alleged upcoding, she added.

Along the same lines, the American College of Emergency Physicians advised its members that the CMS “might be reacting to the media attention and speculation” about upcoding, noting the “harsh reprimand” from Holder and Sebelius.

Medicare officials generally expect hospitals and other medical professionals to bill a range of the five codes because some patients require more effort than others. In an emergency department, for instance, someone arriving with a mild leg sprain would likely necessitate a lower code than someone suffering an apparent heart attack.

But the Center for Public Integrity's analysis of Medicare billing data showed that emergency department facility coding shot up at many hospitals over the past decade, in some cases faster than other evaluation and management billings. Between 2001 and the end of 2008, use of the two most expensive codes nearly doubled, from 25% to 45% of all claims. Many of these patients were treated for seemingly minor injuries and complaints and sent home without being admitted to the hospital.

The recent draft rule contains a number of other changes. For instance, the CMS proposes to create a flat rate for hospital clinic visits, and make many other billing changes as well. The CMS now allows from $56.77 to $128.48 for clinic visit facility fees and wants to replace that with a flat charge of $88.31.

Clinic facility fees have become a hot button issue as more Medicare patients seek care in hospital-affiliated clinics, and as hospitals purchase medical offices and rebrand them as an arm of the hospital. That can result in patients seeing the same doctor in the same building, but suddenly being charged more because hospital facility fees are tacked on. It's a practice that has been criticized by the Medicare Payment Advisory Commission and consumer groups.

Dr. Kevin Kavanagh, a retired physician who heads Health Watch USA, a Kentucky-based patient advocacy group, said the CMS should be paying the same rate for a service regardless of where it is performed. He said many patients wind up paying twice as much for routine medical care because of a facility fee. “I don't see any extra value in a hospital campus for the exact same service,” he said.

Hospitals disagree. The AHA has argued that prohibiting the charges would threaten “patient access to care,” especially for low-income and chronically ill people who depend on networks of hospital-based outpatient clinics.

In its proposal, the CMS conceded that since 2002 it has not required hospitals to seek the agency's approval before considering “off campus” medical buildings as a unit of the hospital that can charge facility fees. But the agency sidestepped the growing controversy over the propriety of these charges, saying it is “considering collecting information” to analyze the situation.

Other price changes in the proposed rule could redistribute billions of dollars in Medicare spending. The CMS is proposing a 1.8% adjustment for inflation in 2014, which is expected to pay hospitals $600 million more than they received this year.

Overall, the billing changes must be “budget neutral,” according to the CMS, even though they are expected to add nearly $4.4 billion in expenditures for 2014. The agency did not specify where it plans to make cuts to accommodate the new costs. Total spending for outpatient services for 2014 was projected at $50.4 billion, a 9.5% increase over this year.

The CMS also is proposing “bundled” rates for more than two dozen outpatient medical procedures, such as implanting a heart pacemaker, as well as packaging charges for some drugs, biologics and laboratory and diagnostic tests that could raise some charges and lower others. That's consistent with a federal goal to stop paying individually for each service and healthcare product.

Some of these proposals have generated fierce opposition, such as from wound care specialists. In an Aug. 6 comment to the CMS, Dr. Brent Wallace, chief medical officer of Intermountain Healthcare in Salt Lake City, argued that the $875 bundled payment would make it impossible to use costly bioengineered skin substitutes for treating diabetic wound care “without incurring a financial loss.”

He predicted that as a result, patients would “experience an increase in overall amputation rates.”

The final rule is expected Nov. 1.

Fred Schulte is a senior reporter at the Center for Public Integrity.