Medicare outpatient bundling: a precursor to full Medicare PPS - prospective payment system

Healthcare Financial Management, May, 1992 by Dan Rode

A sleeper in future Medicare policy is showing signs of awakening. A final Medicare outpatient bundling regulation is wending its way through the approval process of the Health Care Financing Administration (HCFA), the Health and Human Services Department (HHS), and the Office of Management and Budget (OMB).

Currently, an administrative hold freezes all government regulation issuance until May. This 90-day hold was imposed by President Bush in his State of the Union address. However, once approved, this bundling regulation, a precursor to the Medicare outpatient prospective payment system (PPS), will substantially change the way patients, physicians, hospitals, and outpatient suppliers interact and how outpatient services are rendered to all patients, whether or not they are covered by Medicare.

Inpatient PPS

The concept of Medicare bundling is not new. It was first introduced in the Medicare inpatient prospective payment system in 1984. Inpatients transferred to an outside provider for services and subsequently transferred back to the "referring facility"(a) saw their outside services bundled into the diagnosis related group (DRG) reimbursement amount. The outside provider billed the referring facility and was paid a negotiated amount. The referring PPS facility received no additional increase in its Medicare payment because the DRG rate in most cases did not reflect additional outside services. Non-PPS hospitals or units could add the outside charge to their submitted charges.

The transfer of an inpatient to outside providers for healthcare services is usually coordinated by a facility's nursing staff. Rarely can an inpatient be sent to an outside provider without staff knowledge of the transfer.

In the Omnibus Budget Reconciliation Act (OBRA) of 1990, Congress initiated an additional bundling procedure for the inpatient stay. Charges for diagnostic services related to a patient's admission occurring within three days of that admission were to be included within the claim associated with that admission. This portion of the law became effective Jan. 1, 1991. To date, HCFA has not reflected this increase in bundled inpatient services in the DRG-based payment.

The three-day bundling law also stipulated that related treatments be accumulated into the stay after Oct. 1, 1991. Regulations for this process await HCFA completion.

Since issuance of these related bundling regulations, HFMA and a number of other advocate organizations have questioned HCFA's interpretation of "related to." HCFA's fiscal intermediaries (FIs) have taken the position that, as in preadmissions prior to OBRA '90 (when any outpatient services incurred within 24 hours of an admission were bundled), all service in the three-day period should be bundled. Therefore, FIs have included all diagnostic services in the bundle, whether or not they are related to the admitting principal diagnosis.

While HCFA officials recently have indicated that they would reexamine their position on "related to," the Bush Administration continues to push for additional bundling of other ambulatory services into the inpatient admission. Several officials of the OMB have suggested that post-inpatient services also be bundled for some period of time after discharge.

Outpatient PPS

In the mid-80s, Congress and HCFA, reflecting on the relative success of the inpatient PPS program, moved to establish a similar PPS program for ambulatory care cases. Through the OBRAs of 1986 and 1987, Congress designated several steps to this transition, including:

* Establishment of the ambulatory surgical procedures payment system for hospital-based ambulatory surgery centers (ASC);

* Establishment of fee schedules

for radiology services;

* Use of the HCFA Common

Procedure Code System (HCPCS) for

hospital outpatient billing;

* Establishment of an outpatient

hospital bundling regulation; and

* Development of an outpatient

PPS program.

In other legislation, Congress also established a fee schedule for laboratory services.

Implementation agenda

The implementation of an outpatient PPS program has yet to take place. Under OBRA '90, and previous legislation, HCFA was charged originally with submitting a model and supporting research to Congress by Jan. 1, 1991. The agency also was to generate implementation plans by Sept. 1, 1991.

Instead of the mandated plan, on Jan. 1, 1991, HCFA issued what was essentially a status report. The second report scheduled for September had not been delivered as of March 1992, and it appears that another status report may be forthcoming in late spring.

HCFA officials have expressed their desire to implement an outpatient PPS program based on average patient groups (APGs). APGs are procedure-based codes that package the services associated with a particular outpatient encounter much as the ambulatory surgery center fees are established. Recognition would be made for each encounter. When more than one procedure is performed during the encounter, a lesser amount is be paid for the second procedure, and so on.