New directions for Medicare payment systems - Medicare Payment Systems: Moving Toward the Future

Health Care Financing Review, Winter, 1994 by Brigid Goody, Maria A. Friedman, William Sobaski

Another area of concern is whether physicians react to fee reductions by increasing service utilization. A potential clue is offered by the episode-of-care analysis described in the article by Lee and Mitchell. They explored whether physicians responded to the surgical fee reductions for six procedure groups included in OBRAs 1986 (Public Law 99-509) and 1987 by providing more services as part of the surgical episode. The surgical groups involved are cataract extractions, total hip replacement, total knee replacement, coronary artery bypass graft (CABG), endoscopy of the upper gastrointestinal tract, and prostatectomy. Results show that two of these procedures (CABG and cataract) give evidence for the existence of a service volume offset to the fee reductions. Both CABGs and cataract extractions account for nearly one-half of Medicare revenues for cardiothoracic surgeons and ophthalmologists, compared with the other four procedures, which account for about 19 percent of the volume for the associated specialties. As a result, Lee and Mitchell's findings are consistent with the hypothesis that an intervention impacting a greater proportion of provider revenues is likely to elicit a larger and more immediate offset response.

EMERGING LONG-TERM CARE PAYMENT METHODOLOGIES

While reimbursements for nursing facility services account for only 3.5 percent of Medicare program expenditures, they represent a much larger proportion, 25 percent, of Medicaid program expenditures (Health Care Financing Administration, 1994a). As a result, both Federal and State governments have participated in efforts to develop payment systems that encourage the efficient delivery of institutional long-term care without compromising access to those services.

A primary emphasis of HCFA's work in the last decade has been on designing prospective systems that adequately respond to the varying types of beneficiaries receiving different types of services in skilled nursing facilities (SNFs) (Health Care Financing Administration, 1991). The development of such prospective, case-mix adjusted, per diem systems was hampered by a variety of data and methodologic problems (Liu et al., 1986; Fries et al., 1987; Morris et al., 1990). Many of these obstacles have now been overcome, so that it has been possible to develop and test several patient-level case-mix classification systems (Fries et al., 1987). One of these is Resource Utilization Groups (RUGS), which classifies patients based on costs according to the relationship of patients' various medical, functional, and personal characteristics, and their daily use of staff time. The use of staff time is measured according to direct and indirect time spent by all levels of nursing staff, social workers, and therapists. RUGS originally were developed for reimbursement of care received by Medicaid residents in nursing homes. More recently, the concept was adapted and refined for paying for Medicare-covered patient care in certified SNFs.

RUG-based classification and payment systems are appealing for several reasons. First, they could provide greater incentives for SNFs to accept more Medicare patients, particularly those requiring technical services or heavy care. Second, because patient classifications are well defined, providers would have greater confidence that all patients would be appropriately covered for payment. Finally, a RUG-based payment methodology could lead to integrated payment systems for Medicare and Medicaid patients, which would reduce facilities' administrative burden (Health Care Financing Administration, 1988).