Changes could put EDs out in the cold
Long-awaited APC plan finally on the horizon
New billing regulations for Medicare patients will lower reimbursement and put some EDs in financial jeopardy, predicts Michael Bishop, MD, FACEP, vice president of the American College of Emergency Physicians (ACEP) in Dallas.
Access managers who oversee emergency departments should alert administrators and physicians to the changes, which likely will mean less payment for outpatient services provided to Medicare beneficiaries, he says.
Although ED patients already are guaran - teed access to care under the Emergency Medical Treatment and Active Labor Act (EMTALA), financial ramifications could create barriers to care, says Charlotte Yeh, MD, FACEP, medical director for Medicare policy at the National Heritage Insurance Co. in Hingham, MA. "If the payment levels are insufficient, you might not only see hospitals closing, but some hospitals may pull out of outpatient and emergency services," she predicts. "If that happens, it will create an access problem."
"Obviously, if you cut up to 15% of patient reimbursement for emergency services, that will have a significant financial impact on the hospital," Bishop notes. "If your costs are going up and your payments are cut, then it’s a double whammy." ED managers will need to provide the same services for less money, which is a formidable challenge, he explains.
The financial impact may be so devastating that some EDs may have to close their doors. "You need to be concerned about the financial viability of your institution," warns Mason Smith, MD, FACEP, president and CEO of Lynx Medical Systems, a Bellevue, WA-based consulting firm specializing in coding and reimbursement for emergency medicine.
"There could be huge shifts in volume of outpatient surgery in competitive markets. The need to meet the competitive price may affect the financial viability of the institutions, and it will definitely affect their cash flow," he explains.
"This is so broad-sweeping, it has potential financial ramifications for literally every ED in the country," emphasizes Bishop, who served on an ACEP task force that commented on the regulations.
The long-awaited plan from the Health Care Financing Administration (HCFA) in Baltimore will shift outpatient reimbursement for hospitals into ambulatory patient classifications (APCs) similar to the diagnostic related groups (DRGs) for inpatient payments. The proposed system groups more than 5,000 outpatient codes into 346 payment groups, or APCs. "Each APC has been constructed to include a related group of clinical services for which Medicare will reimburse hospitals at a single, predetermined rate," Smith explains. "So APCs substantially reduce the number of payment levels that need to be tracked."
To define the clinical services included in each APC, HCFA will use the same coding system currently used to reimburse physician services for Medicare patients, known as the current procedural terminology (CPT) system.
"This would be a major change in how billing is done. It represents the same magnitude of change as the switch to DRGs on the inpatient side," Yeh says.
Biggest billing change in a decade
This is the biggest reimbursement change in Medicare billing since 1982, when the Tax Equity and Fiscal Responsibility Act was passed, Bishop points out. "That caused many emergency physicians to do their own billing instead of the hospital. This change will have no less of an impact on EDs."
The regulations will control the growth of Medicare expenditures for hospital outpatient services the way the DRG reimbursement system controlled inpatient expenditures. "The Medicare strategy is simply to treat hospital outpatient services exactly the same way as they treat physician office services, which is a totally new approach," Smith says.
Explains Bishop, "This is a move by HCFA to decrease Medicare costs, which is not a bad thing, but there are potential problems. In the ED, we can’t control the patients we see, so we see the sickest patients. If the amount of revenue goes down for the hospital, we will have less money to provide the same services."
As a result, patient care could be affected. "This can certainly affect patient care if there is not as much money coming in to the hospital. Decreased payment could result in decreased staffing, equipment, and supplies," Bishop says.
Some hospitals will be affected more than others, he warns. "Teaching institutions and large inner-city hospitals, any hospital that has a high percentage of high-acuity or Medicare patients, will be hit the hardest."
Hospitals should expect less payment for outpatient services provided to Medicare beneficiaries, both from Medicare payments and copayments from beneficiaries, says Smith. "HCFA predicts reductions in direct payments from the Medicare program amounting to 3% to 15% of current revenue. The actual impact on individual hospitals will vary based on the hospital’s current cost-to-charge ratio."
Copayments will be reduced from current levels by an unspecified amount. "Estimating the amount of this reduction is very difficult," says Smith. "Comparing the maximum and minimum copayment amounts for common procedures suggests that the eventual reduction will average 13% of total payment. More than 50% of the revenue reduction will result from lower beneficiary copayments."
The impact on hospitals will depend on the amount of copayment they charge. "A hospital has to choose whether to charge the maximum or minimum allowable copayment, or some number in the middle," says Smith.
Stay on top of this issue
Keep your staff informed so the change doesn’t take them by surprise, Bishop advises. "Most ED physicians don’t know much about this, so ED access managers need to get the word out that this is coming. Inform staff and hospital administrators about the potential ramifications of this."
Also, keep abreast of new developments, Yeh recommends. "ED managers should stay in touch with hospital administrators and work with trade associations like the American Hospital Association [AHA] and the American College of Emergency Physicians to make sure our voices are heard."
Many access managers in the ED are not prepared for this change, says Smith. "It is a sleeping issue because it’s been expected for so long and has been put off so many times," he explains. Implementation originally was scheduled for Jan. 1, 1999, but the date has been moved to April 2000.
A draft of the proposed regulations was published by HCFA, and comments on the preliminary rules are being reviewed, notes Smith. The final rules will be published 90 days before implementation. The delay is due to HCFA’s problems with the Y2K computer bug.
"Hospitals will need the intervening months to prepare for the operational changes required or billing of outpatient services and to plan their response to the market changes that the new Medicare payment system is certain to cause," says Smith.
EDs may come out ahead
Although the overall impact on hospitals will be negative, it’s possible that EDs may benefit from the change financially as individual departments, says Smith. "The EDs are actually going to come out ahead rather than behind, because in general they do less-complicated cases, compared to the rest of the hospital," he explains. "EDs do have very complicated medical cases, but there is a built-in filter so we don’t get the worst surgical cases."
The change will directly increase the revenues attributed to the ED. "The ED will become a revenue center instead of a loss center," he predicts. "For example, for an IV administered, right now the only payment the average ED gets is whatever is included in that visit level."
When the new regulations take effect, EDs will get credit for both the visit and the procedure. "If that IV is billed under a revenue code for the pharmacy, then the charge will be denied because it’s bundled into the visit service," Smith says. "The $100 paid for that IV needs to be billed by the ED revenue code, not under the pharmacy code."
The ED then gets credit for the payment, he explains. "So the pharmacy becomes a supplier of material to the ED. The gross revenue of the ED will go up, and dramatically down for the pharmacy," he says.
If HCFA decides to make its payment decisions based on the patient’s symptoms and services received instead of the eventual diagnosis, that could be a positive change for emergency medi cine and patients, Yeh says. "We will finally have some policy recognition that a diagnosis is not what drives emergency care," she explains.
If the fee schedule allows for payment for services required under EMTALA, including medical screening exams and stabilization, that would be another plus, she says. "There should be some payment recognition for EMTALA-mandated services, which we have an obligation to provide," she stresses.
Following are explanations of the two major changes that EDs are expected to make in response to the regulations:
1. The existing cost-based reimbursement will be replaced with a prospective payment system. Hospitals will be required to report outpatient service charges using a standardized coding system. ED charges will be submitted based on the APC coding system for procedures. "HCFA’s reporting structure is the same one currently in place for physician services," Smith explains.
Currently, Medicare pays emergency departments for supplies and medications used in a procedure, not the procedure itself, notes Smith. "Now Medicare will pay for the service of injecting a drug, instead of paying for the drug or supplies consumed in a procedure."
Hospitals are paid based on costs, but they now will be paid based on the APC fee schedule. "The amount that will be paid for a particular CPT code will be grouped with other services," he says.
The APC system groups services together and pays a present average fee for that group of services, which reduces the total number of payment levels. "The principle is, the payment for a laceration is averaged across all lacerations. For instance, all laceration repairs at the simple or intermediate level are grouped into a single category," says Smith. "So the hospital payment will be the same for a 1-inch laceration as it is for a 5-inch laceration, whether it is a layered closure or not."
2. Payment rules for physician offices and hospital outpatient services will be standardized. According to HCFA, the proposed prospective payment system for outpatient services is designed to create a "level playing field" where the same payment methodology is used to reimburse for a service, regardless of where it is performed. However, the same payment rates won’t necessarily apply to different settings.
"Implementation of these proposed rules will impose on hospital outpatient services the payment rules that HCFA already applies to physician services," says Smith.
[Editor’s note: The complete regulations can be reviewed on the Federal Register Online (Sept. 8, 1998) Web site. Web: www.nara.gov/fedreg. Information also can be obtained from the American Hospital Association at www.aha.org.]
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