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Hospitals Fight MedPAC Plan to Reduce Outpatient Rates

 |  By cclark@healthleadersmedia.com  
   March 13, 2013

The Medicare Payment Advisory Commission seems intent on issuing a recommendation that would reduce federal payments to hospital-based outpatient departments by nearly $1 billion a year for some 66 procedures. The reason: Those services are now provided in a physician's office for less cost.

But hospital representatives say the controversial "site-neutral payment plan," would be a disaster for hospitals and patient access alike because hospitals depend on those extra funds to cover the uninsured, meet regulatory requirements, and be constantly equipped for emergencies.

MedPAC advises the Centers for Medicare & Medicaid Services on policies the agency puts forth in new payment rules each year. Several options for the plan were outlined in a regular MedPAC meeting Thursday.

Under one MedPAC plan, Medicare might pay hospitals the same rate it now pays for the service in a physician's office, or it may narrow the gap between the two, paying the physician's office more and the outpatient physician's office less. Several options are on the table, but under all scenarios, federal payments to hospitals would drop dramatically.

"From our perspective, we hope they don't make any of these [changes] because hospitals have a higher cost structure than these other settings," says Roslyn Shulman, the American Hospital Association's director of policy.

"Hospitals have a safety net function where they care for all patients who seek emergency care regardless of their ability to pay, and hospitals provide about $39 billion in uncompensated care annually. They provide 24/7 access to care, have disaster response and readiness, they have a much heavier regulatory burden, and these are costs that ambulatory surgical centers and physician's offices don't have."

During the Thursday meeting, Joanna Kim, also of the AHA, addressed MedPAC chairman Glenn Hackbarth:

"The commission has already recommended cuts to a number of services of about $1 billion dollars as far as the cut to the hospitals, and today we discussed another $1.5 billion in cuts that, as you said, would reduce outpatient revenue by about 5.4%, and that's to a system that already has a negative margin of 11%," she said, according to the transcript of the meeting.

"The cuts continue to hammer the same types of hospitals over and over – teaching hospitals, safety net hospitals, the public hospitals, and rural hospitals," Kim continued. "And we're having a hard time seeing how those discussions fit with the 1% update recommendations that are going to be made in the March report."

MedPAC is giving the idea serious consideration because of what Hackbarth called the "rapid growth in hospital employment of physicians, which has contributed to the migration of ambulatory services from free-standing offices to outpatient departments," especially in cardiology.

Certain procedures, such as a level II electrocardiogram without contrast, are performed in a hospital outpatient department, are reimbursed by Medicare 67% more than when they are performed in a physician's office, even though the service is exactly the same.

If Medicare cuts the rate it pays for that service in a hospital outpatient department to what it pays for it in a physician's office, that would mean a $275 million loss to hospital revenue each year, according to an analysis by Linda Fishman, senior vice president for the AHA, in a Jan. 4 letter to MedPAC.

"This single (procedure) represents a quarter of the overall payment impact," her letter said.

Likewise, a level III nerve injection procedure is now reimbursed at a rate that is 32% more when it's done in a hospital outpatient department than when it's done in a physician's office, and if that were cut, it would mean a $108 million loss of payments to hospitals.

MedPAC has been concerned that payment policies may be influencing physician behavior in that doctors are gravitating to settings where their services are paid at higher rates. Hackbarth noted that physicians employed by hospitals increased 55% from 2003 to 2011, "And according to the American College of Cardiology, the share of cardiologists employed by hospitals grew from 11% to 35% from 2007 to 2012."

"Because payment rates for most services are higher in OPDs than in offices, the result of services shifting to OPDs is higher program spending and beneficiary cost sharing," Hackbarth said. "Meanwhile, there may be no significant changes in patient care."

He said that if the same migration of services to more expensive settings were to continue unabated, that is absent a major payment policy change, "by 2021, Medicare spending on E&M (evaluation and management) visits would be over $1 billion higher annually due to the shift to OPDs, and beneficiary cost sharing would be about $300 million higher.

He said that if the same service could be safely provided in different sectors, "it may be undesirable for a prudent purchaser to pay more for that service in one setting than another. Therefore, Medicare should base its payment rates on the resources needed to treat patients in the lowest-cost clinically appropriate setting."

Of course, hospitals do have more costs. Frequently, it's advisable to have a patient undergo a relatively simple procedure — usually performed in the physician's office — to an outpatient setting because the patient is sicker, with more of a chance of complication that would require prompt acute care.

Commissioners recognize that in some parts of the country, the only place a patient can now receive such services is in a hospital outpatient department because private practices offering those procedures are too far away. For those hospitals, some "stop-loss" policies are in the works.

But it seems that the commissioners are strongly in favor of seeing Medicare make a site-neutral policy shift to avoid spending much higher amounts of money simply because a physician provider moved the procedure's location.

"I think these payment principles are sound," said MedPAC Commissioner Scott Armstrong of the group Health Cooperative in Seattle. "We've debated them for, it seems, at least a couple of years now…"

"Frankly I would have extended the application of these principles to these 61 or 66 (categories of care) and then the equalization of payments between the ambulatory/surgery centers and the outpatient departments back in March when we first made the payment policy changes to the E&M codes. So if anything, I think we are too slow and I would go much more quickly than we're talking about."

Armstrong added, "Not only is this a pricing structure that creates behavior that's costing the Medicare program in ways that doesn't create any value for beneficiaries, the cost to health care is far more than just the Medicare program," because private plan payment structures are organized around Medicare. "There's tremendous waste as a result of this payment structure. The sooner we change it, the better."

Hospital officials say they will continue to tear the plan apart because of the damage it could do. "There is cross subsidization going on in hospitals because of their safety net functions, disaster preparedness and additional cost of regulations. It's just a fact of the way hospitals provide services to their communities. And if these subsidies weren't there, these services wouldn't be offered," Schulman says.

"MedPAC says it wants Medicare to be a 'prudent purchaser," Schulman adds. "But despite the lip-service they're providing for making sure they count stand-by costs, and regulations, and packaging, and all the criteria that gets put into place, this will really harm the very hospitals they are purporting to protect.

"And what's going to happen is that the very hospitals they say they want to help are going to be the very ones that are harmed under these proposals."

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