A path through the mine field - attitudes towards Health Care Financing Administration's regulations for medical care payment - Vantage Point - Column

Healthcare Financial Management, Nov, 1991 by Joanne M. Judge

A mine field may be what the Health Care Financing Administration (HCFA) created when it released regulations for capital payment, outpatient bundling, and the new Medicare physician fee schedule.

Hospitals and physicians must walk cautiously through this field, and I believe the physician payment reform issue has the greatest potential to seriously affect their relationship.

Payment constraints undoubtedly will challenge some physicians' economic stability and perhaps affect their responsiveness to patients. Healthcare executives will be faced with balancing concerns for the financial viability for their organizations against preserving relationships with physicians. Before the new payment mechanism starts, I encourage financial managers to provide information that can help physicians and healthcare executives make decisions that support high-quality patient care.

Beginning in January 1992, HCFA intends to phase out the Medicare reasonable charge method of paying for physician services and phase in its revised schedule. As HEALTHCARE FINANCIAL MANAGEMENT reported in September, the new schedule's linchpin is a resource-based relative value scale (RBRVS) intended to distribute Medicare payments more equitably among physicians.

At this writing, criticism of RBRVS by physician groups, including the American Medical Association and the American Society of Internal Medicine, seems to be paying off. With the latest changes, Medicare expects to spend $191 billion for physician services during the next five years rather than its previously projected $184 billion.

In a study about the impact of physician payment change, physicians expressed concern that the reforms will adversely affect relationships among physicians. They also indicated that they will be more cognizant of cost-effective approaches to care, that medical group practices will increase, and that the volume of invasive and high-technology procedures will grow in response to decreases in payment per procedure.

The study, conducted by Arthur Andersen & Co. and the American College of Healthcare Executives, also asked hospital chief executive officers (CEOs) and physicians how physician paymwnt reform will affect their relationships. More CEO respondents than physicians expect hospital-physician relationships to be hindered by physician payment reform.

The study showed that 16 percent of doctors and 55 percent of the CEOs believe it is very likely that hospital-based physicians will seek renegotiated contracts. In addition, 33 percent of physician respondents and 73 percent of CEOs say it is very likely that doctors will seek payment for medical staff duties. Seventy-three percent of CEOs and 23 percent of physicians say it is very likely that physicians will shift more high-paying procedures from hospitals to physician offices.

Against this backdrop, the role of the financial manager is clear. We must lead physicians and our organizations through this mine field by providing information that can help all involved make good business decisions that support quality patient care. Physician payment reform comes on the heels of new capital payment regulations and new outpatient bundling regulations, making our challenges formidable.

Quick starts are necessary. For example, financial managers can ascertain and communicate to their administrative teams and boards of directors the effects of payment reform on Medicare revenue for salaried physicians and on physicians with income guarantees. We must be prepared for physicians who want to renegotiate terms.

Another likely outcome of physician payment reform is more head-on competition among hospitals' ambulatory facilities and physicians who start up clinics or outpatient centers for high-cost procedures. Financial managers should be prepared to share market analyses and strategic plans to lead all parties to financially feasible conclusions. This information may save joint ventures that were in the talking stages or help initiate new business arrangements.

By compiling and disclosing information, financial managers will make leadership contributions to the future of physician and hospital services that appeal to our communities.