ICU payments may rise as Medicare attempts fairness
June 1, 1999
ICU payments may rise as Medicare attempts fairness
New payment method based more on acuity
As of 1999, Medicare has officially made the transition from a largely cost-based payment system to one built on fixed payments for inpatient care.
The program, dubbed Medicare+Choice Plus, officially kicked off in January and will be phased in over five years. For critical care nurses, the change involves important financial issues, including:
• More fairness in hospital payments. By replacing the existing complex formula for setting payment rates to managed care organizations (MCOs), the Health Care Financing Administration (HCFA), which administers Medicare, says it has finally brought more fairness to inpatient reimbursements.
Under the old system, MCOs received payments based on regional economic factors, such as area wage and cost figures. Under the new method, patient acuity will be the basis for setting rates. Critical care units are expected to benefit.
• Greater relevance to actual patient utilization. New rates will be set by competitive bidding and based on actual patient utilization. The information will be taken from each hospital’s database. In prior years, the agency depended on aggregate statistics to set rates.
As part of the change, your hospital is likely to be paid an amount based on the degree to which your unit actually serves its patients. That could mean higher or lower payments depending on your patient volume, according HCFA.
• Higher payments for critically ill patients. Units that care for critically ill patients will probably be paid more than what they currently receive under cost-based Medicare. They will also receive more than medical-surgical departments, according to Trinita Robinson, MA, a managed care analyst with the Health Care Financial Management Association (HFMA) in Chicago. The professional society is composed of health care financial executives.
And certain services rendered to the critically ill will be paid more than others, Robinson adds. For example, end-stage renal disorder will be paid at a higher rate than other disorders, due to the resource intensity of providing care to these patients. But these are statistical differences and may result in no actual increase to certain providers. The rate will be based on the total number of high acuity patients admitted in a one-year period, Robinson says.
• More emphasis on hospital-specific diagnostic data. The managed care system effectively diminishes the use of diagnosis-related groups (DRGs) of illness classifications, or the well-known DRGs, in paying hospitals. DRGs have been the cornerstone of Medicare’s traditional cost-based fee-for-service system and will continue to be offered as an option to some beneficiaries (those who may not qualify for enrollment in an HMO).
The new system shifts the focus to the amount of financial risk a provider or health plan assumes in treating more seriously ill patients. Critically ill cases are more expensive to treat and therefore will receive higher payment rates. But a hospital’s costs also will be considered, which may raise payments for some providers.
The rates will be based on a system called principal inpatient diagnostic cost groups (PIP-DCGs). The PIP-DCGs will replace the area-wide wage and cost calculation, which is called the average adjusted per capita cost (AAPCC) method.
• More emphasis on grouping payments into lump sums. Payments will be set at a fixed amount for every Medicare patient enrolled in the HMO. In some places, the amount will be a pre-paid per member-per month (PMPM) rate. In others, a per diem or case rate will form the payment base. The difference will be determined by the contract. In all cases, the payment rate will reflect the PIP-DCGs. Most ICU care is reimbursed per diem.
All hospitals will receive an annual rate increase of up to 2%. For some providers, the change will mean an increase in reimbursements. But other facilities may see their payments drop. "The system flipped the tables on most hospitals," Robinson says.
Hospitals that struggled from year to year with virtually no increases due to their areawide economic status will likely see their reimbursements rise by a designated 2% across the board. Others that enjoyed a 10% per year rise will be disappointed.
Other factors that will determine actual payments include: a plan’s administrative costs, the size of the plan’s enrolled population, and the mix between singles, couples, and families covered by the same plan. Overall, "payments will become fair over time. But it won’t happen overnight," Robinson says.
(Editor’s Note: To obtain more details on the Medicare+Choice Plus rates, log on to HCFA’s Web site at www.hcfa.gov/stats/hmorates/aapccpg.htm. Also, contact HFMA regarding managed care information at www.hfma.org.)
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