Complexity, caution mark start of PPS for capital - prospective payment system's effect on hospitals and healthcare facilities

Healthcare Financial Management, Nov, 1991 by Marion M. Torchia

Unfortunately, the normal appeals process via the Provider Reimbursement Review Board (PRRB) cannot begin until after final settlement of the affectef cost report. For this reason, appeal of the hold harmless interim rates will not be possible until 1993 or even 1994. In HFMA's view, a qicker, more informal process of negotiation should be established.

HCFA's final implentation task, revising the Medicare cost report, must be accomplished by the end of FY92. This is a monumental task.

Given the complexity of HCFA's implementation task and the likelihood that hospitals will face problems related to the accuracy and timeliness fo their capital payments, HFMA has asked HCFA to work closely with industry representatives to identify and solce any problems that occur. HCFA officials have indicated their willingness to work with the industry in this way.

Down the road

Although some hospitals will be paid more, at least initially, under the new rules than under cost-based reimbursement, some will be serious "losers." All hospitals will face adjustment problems. On average, 7 percent to 10 percent of Medicare payments now will be received on a per-case basis instead of as a predictable subsidy of incurred costs.

HCFA has promised ot monitor effects of the new payment structure and the return to Congress if legislative fine-turning becomes necessary. But that cannot happen until serious harm to individual hospitals is shown--and that may take a while.

It is too to tell with any precision who will be adversely affected and in what ways. Hospitals whose capital costs were low in the past they could not afford likely will have a difficult time replacing their aging assets. Hospitals whose overall margins are low will have difficult gaining access to capital financing. And hospitals in financial difficutly may be driven to invest in capital in ways that are not wise in the long run, such as purchasing revenue-yielding equipment rather than investing in needed maintenance.

A great deal depends on how hospitals respond to these pressures, and how policymakers respond to their calls for help. Ultimately at issue is whether and in what institutional form the nation's healthcare infrastructure will be maintained.

Marion M. Torchia, PhD, is a director of policy and government relations in HFMA's Washington, D.C., office.