Could HCFA cuts close your doors?
New rules may reduce outpatient reimbursements
Proposed outpatient billing regulations for Medicare patients in areas such as emergency services could have an unprecedented impact on a hospital’s bottom line, experts say. These regulations could lower reimbursement and put some hospitals and emergency departments in financial jeopardy.
"Obviously, if you cut up to 15% of patient reimbursement for emergency services, that will have a significant financial impact on the hospital," predicts Michael Bishop, MD, FACEP, vice president of the American College of Emergency Physicians (ACEP) in Dallas. "If your costs are going up, and your payments are cut, then it’s a double whammy." The result: Emergency departments will face the challenge of providing the same services for less money.
The financial impact may be so devastating that some hospitals 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 the 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."
The plan from the Health Care Financing Administration (HCFA) in Baltimore will shift outpatient reimbursement for hospitals into ambulatory patient classifications (APCs) similar to the diagnosis 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 DRG has had on the inpatient side," says Charlotte Yeh, MD, FACEP, medical director for Medicare policy at the National Heritage Insurance Co. in Hingham, MA.
This is the biggest reimbursement change in Medicare billing since 1982, when the Tax Equity and Fiscal Responsibility Act was passed, Bishop says.
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.
"This is a move by HCFA to decrease Medicare costs, which is not a bad thing, but there are potential problems," explains Bishop. Emergency departments can’t control the patients they see, so they see the sickest patients, he says. "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."
Expect less $$ for outpatient services
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."
Although emergency department patients already are guaranteed access to care under the Emergency Medical Treatment and Active Labor Act (EMTALA), financial ramifications could create barriers to care, Yeh stresses. "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."
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 copayment."
The impact on hospitals will depend on the amount of copayments they charge. "A hospital has to choose whether to charge the maximum or minimum allowable copayment, or some number in the middle," says Smith.
Keep on top of this issue
Keep your staff and hospital administrators informed so the change doesn’t take them by surprise, urges Bishop.
Also, keep abreast of new developments, Yeh recommends. Managers should stay in touch with hospital administrators and work with trade associations like the American Hospital Association in Chicago and ACEP to make sure their voices are heard, Yeh adds.
Many managers are unprepared 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 bug.
"Hospitals will need the intervening months to prepare for the operational changes required for 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.
[Editor’s note: The complete regulations can be reviewed on the Federal Register On-line (Sept. 8, 1998). Web site: www.nara.gov./fedreg. Information also can be obtained from the American Hospital Association’s Web site at www.aha.org.]
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