Task force backs ambulatory payment adjustments for hospitals - Healthcare Financial Management Association Chairman's Task Force on Ambulatory Care

Healthcare Financial Management, June, 1990

A uniform base rate for ambulatory procedures for all providers-plus payment adjustments for hospitals and others with justifiable cost differences-may be the most appropriate direction for ambulatory payment reform, according to the HFMA Chairman's Task Force on Ambulatory Care. The task force also concluded that for teaching costs, procedure-specific payments are impractical. Therefore, a pass-through type of payment should be made. Also, any system must have mandated annual rate updates. The Omnibus Budget Reconciliation Act of 1986 (OBRA'86) mandated that the Health Care Financing Administration (HCFA) develop a model system for the payment of outpatient hospital services other than ambulatory surgery. The Secretary of Health and Human Services must report to Congress on the model system by Jan. 1, 1991. Although HFMA's task force is not opposed to payments for bundies of services in the future, it recommended that before implementing such a payment arrangement, bundles should be demonstrated to: * Reasonably relate to resources consumed; h* Predictably contain the same components from year to year; * Refrain from putting providers

who are not directly responsible

for ordering services at significant

risk; * Apply to all ambulatory delivery

settings; * include a defined process to

modify bundles or payments for

changes in practice patterns and

technology; and * Deal with the division of payments

among providers.

The task force emphasized that payment for ambulatory services must recognize fully the increasing use of this "non-inpatient" setting for providing care. Any payment system should take into consideration the guidelines outlined by the task force as well as the differences between care provided in a hospital outpatient setting, in a freestanding ambulatory care center, in a physician's office, and so on. Industry review also should be allowed before implementation of any new payment system, the task force concluded. The task force, appointed by former HFMA Chairman Richard S. Blair, FHFMA, CMPA, CPA, was headed by Dan Governile, chief financial officer of Butterworth Health Corporation in Grand Rapids, Mich. The other members of the task force were: Dennis M. Barry of Wood Lucksinger & Epstein, Washington, D.C.; Thomas McNulty of Henry Ford Hospital, Detroit, Mich.; Galen D. Powers of Powers, Pyles & Sutter, Washington, D.C.; Theodore N. Giovanis of T. Giovanis & Co., Washington, D.C.; Gary L. Nielsen, FHFMA, CPA, of Owensboro Davies County Hospital, Owensboro, Ky.; and Richard Pence of Medical Care International, Inc., Dallas, Texas. Hospitals have higher costs

The consensus in the healthcare industry is that hospitals have higher costs for providing ambulatory care services than freestanding providers, according to the task force.

The adoption of a payment policy that fails to recognize or compensate for these differences could result in significant financial losses for hospitals with large outpatient service programs, the task force determined. The task force identified the following areas of cost differences between hospitals and freestanding ambulatory care providers: STANDBY COSTS. Most hospitals offer emergency services on a 24-hour basis, which are necessary to provide otherwise unmet medical needs. To ensure that there is the capability to furnish emergency services when needed, hospitals must incur costs for equipment, staff, and training. Facilities that are open only during normal business hours or do not have emergency services need not incur these costs.

Emergency services very seldom are financially self-sustaining. Rather, they are subsidized through other hospital services. The high costs of these services result from suboptimal use, not organizational inefficiencies. The continued availability of quality emergency services to handle a broad range of medical emergencies is essential, the task force concluded.

COMPREHENSIVE SERVICES. Hospitals also have attempted to meet community healthcare needs by providing comprehensive services, regardless of whether each service contributes positively to financial soundness. Such services include non-routine care and often more expensive procedures (for example, surgery on prison inmates or use of highly specialized, rarely used equipment).

Thus, hospitals may be the only community source of some low volume tests or procedures that are needed but not used on a scale large enough to meet their financial needs, the task force pointed out. Often, hospitals must subsidize these services through their pricing structures.

INDIGENT CARE. Hospitals consistently have expressed concern that Medicare does not recognize the cost of treating indigent patients.

HCFA maintains that uncompensated care is a revenue reduction rather than a cost. HFMA and its Principles and Practices Board have strongly insisted that uncompensated care is a cost and that reporting it as a deduction from revenue is inappropriate.

Because hospitals have an obligation under Title XVIII to accept and treat patients in emergency situations regardless of ability to pay, Medicare, as well as all other payers, should recognize this cost, the task force said. The "disproportionate share" adjustment that is added to medicare prospective payment system's (PPS) inpatient rates of hospitals serving a disproportionately large number of indigent patients does not compensate for Medicare's share of indigent care but, rather, is intended to recognize other special costs incurred by eligible facilities, the task force noted.