The time for action is now - Vantage Point - Centers for Medicare and Medicaid Services proposes Medicare outpatient prospective payment system rule modifications - Brief Article - Column - Statistical Data Included

Healthcare Financial Management, Jan, 2002

As I write this column, the Centers for Medicare and Medicaid Services (CMS) just published the proposed rule to substantially modify payments under Medicare's outpatient prospective payment system (PPS) for high-cost items placed on its pass-through list. The healthcare industry lobbied hard for a payment system that would compensate providers fairly for high-cost new technologies and pharmaceuticals. At the time that legislation authorizing the outpatient PPS, based on ambulatory payment classifications (APCs), was passed, there was a paucity of data on what these costs would be in relation to overall APC payments. So Congress, at the recommendation of CMS (then HCFA), set a limit of 2.5 percent of APC payments for passthrough items.

Is anyone surprised that the actual costs are higher than the 2.5 percent limit? Certainly not those of us in the healthcare industry who tried to warn the Federal government that costs for these items would continue to escalate. Yet CMS seems not to notice the disparity in the payment limit and real costs.

In fact, the agency is seeking to fold into the base rates of APGs that use high-tech devices and pharmaceuticals 75 percent of the costs of these devices and drugs that would otherwise be paid on a pass-through basis. The remaining 25 percent of their costs will undergo a pro rata reduction to keep total pass-through payments at the 2.5 percent statutory amount; this reduction could be as much as 65 to 70 percent. In addition, CMS wants to narrow the criteria for new categories of pass-throughs to the most expensive and beneficial technologies, however that is to be determined. What is wrong with this picture?

Hospitals were never designed to operate as insurance companies. That fact became more than obvious during the past decade as hospitals entered into full-risk arrangements with HMOs and proceeded to lose significant amounts of money while trying to work with loosely configured medical staffs over whom they had little control. Therefore, expecting hospitals to accept the cost risk of high-cost technologies and pharmaceuticals, as CMS apparently is seeking to do, is not a smart or well thought-out strategy.

In addition, no one is limiting patient access to new technologies or pharmaceuticals by making benefit plans more restrictive. Hospitals simply will have to do what they always have been expected to do--provide the care patients demand and find some way to pay for it that does not involve excessive cost to the patients and payers, or risk a malpractice lawsuit for withholding treatment.

And consider the additional plight of teaching hospitals, which had to absorb medical education and disproportionate share reductions in 1997. Can the country's teaching hospitals continue to provide quality service when the most expensive technologies are not being adequately paid for?

So here we are--deja vu all over again. What will be our response this time around? Should employers in this country have something to say about picking up the difference between what Medicare pays and what the real cost of care to Medicare beneficiaries will be? As the hospital sector experiences severely declining bond ratings, which limit our access to capital, should we be expected to continue to absorb payment cuts such as those proposed for passthrough items?

I think it is time for Congress and CMS to begin to assess what its funding policies are doing to the healthcare delivery system in this country. If ways are not devised to relieve the financial distress of this, one of our nation's most vital service industries, the American public may find itself having to forgo the quality health care it has become accustomed to receiving, and precisely at a time when record numbers of Americans are nearing an age when they will most need those services.

I urge each of you not only to analyze the impact of payment changes such as the proposed passthrough payment reduction on your organizations, but also to take the results of your analysis to your congressional representatives. As healthcare finance experts, you have the power to inform and educate the decision makers in our government about the long-term negative impact that proposals such as these can have on our healthcare system.