HCFA proposes using physician fee schedule to pay for outpatient rehabilitation - Health Care Financing Administration - Medicare/Medicaid

Healthcare Financial Management, August, 1998 by Richard L. Gundling

The Balanced Budget Act of 1997 called for the elimination of many of Medicare's remaining cost-based reimbursement methods, and as a result, HCFA continues to issue Medicare payment policy changes. Most recently, these changes have taken aim at many postacute care services.

A proposed rule dealing primarily with physician fee payment changes, particularly as they relate to practice expense resource-based relative value units, also affects other providers paid under Medicare Part B. Specifically, the rule, issued by HCFA in the June 5, 1998, Federal Register, would move outpatient rehabilitation services, including physical, occupational, and speech-language therapy, from a reasonable-cost payment system based on a 10 percent reduction in reasonable costs to a system based on the physician fee schedule.

Beginning in 1999, a prospective payment system (PPS) will be effective for outpatient rehabilitation services and all services provided by comprehensive outpatient rehabilitation facilities (COREs). Payment will be 80 percent of the lesser of actual charges for the services or the applicable physician fee schedule amount. (Effective April 1998, all rehabilitative therapy services were to be billed using HCPCS or CPT coding.)

Fee schedule payment will apply when outpatient physical therapy, occupational therapy, and speech-language pathology are furnished by rehabilitation agencies, public health agencies, clinics, skilled nursing facilities, home healthcare agencies for patients who are not homebound, hospitals (when services are provided to an outpatient or to a hospital inpatient whose stay is not covered by Part A), and COREs. Outpatient rehabilitation services have been excluded from the ambulatory payment classifications that will be used to pay for most hospital outpatient services.

The Balanced Budget Act also requires the HHS Secretary to make recommendations on a revised coverage policy for outpatient physical and occupational therapy based on diagnostic categories, rather than dollar limitations, by January 1, 2001. Although HCFA said many providers had asked that the agency develop a site-of-service differential, the June 5 rule said HCFA would not propose such a differential.

Beginning January 1, 1999, and extending through 2001, there will be a $1,500-per-beneficiary annual cap for outpatient physical therapy (which includes speech-language pathology) and a separate cap of $1,500 for outpatient occupational therapy. These caps represent increases from the previous $900 caps. Services are subject to a 20 percent beneficiary coinsurance amount. The limit does not apply to hospitals, critical-access hospital outpatient departments, or COREs. After 2001, the amount will be increased according to the Medicare Economic Index. To track services up to the limit for each type of provider, HCFA will develop discipline-specific modifiers.

The June 5 proposed rule includes a provision to replace existing conditions for coverage, which require survey and certification, with some simplified criteria for physical therapists in private practice. Another proposed change requires that-physicians review and recertify required plans of treatment within the first 62 days and at least every 31 days after the first review and recertification.

The goal of the new outpatient payment methods is to create incentives to provide services to Medicare beneficiaries in the most cost-efficient and effective manner. It is imperative that healthcare financial managers understand their organizations' cost structures to handle these proposed payment methods as well as both commercial and Medicare risk contracts under these proposed payment methods.

Richard L. Gundling, FHFMA, CMA, is technical director, HFMA Washington, D.C., office group.