Expect greater effect on hospital-based centers

[Editor's note: The Health Care Financing Administration (HCFA) in Baltimore released the much-anticipated ambulatory payment classifications (APCs) on June 12, along with its proposed rule recommending changes to existing ambulatory surgery center (ASC) payment regulations. At press time, HCFA officials expected to release the proposal for hospitals' outpatient facilities later this summer. Outpatient Reimbursement Management asked Ramona Conner, RN, MSN, a perioperative nursing specialist with the Association of Operating Room Nurses' Center for Nursing Practice, Health Policy and Research in Denver, to discuss the outpatient payment changes' bigger picture, such as how these types of changes have affected health care facilities in the past and how APCs might affect outpatient facilities.

Conner has nearly 25 years' experience working in the operating room setting, and she also has worked as an educator and manager. Before becoming a consultant with the Center for Nursing Practice, she was the director of ambulatory surgery services for Swedish Medical Center in Denver.)

ORM: Where will APCs likely have the biggest impact?

Conner: Certainly HCFA's action may level the playing field between hospital-based facilities and ambulatory surgery centers. I think hospitals are going to be the most dramatically impacted, and their pricing strategy is going to have to be more aggressive and a little more in line with what the freestanding ambulatory surgery centers have had to do in order to compete.

APCs are going to compress the margin for hospital-based surgeries. And I suspect there is going to be even more cost-cutting pressure on the ambulatory surgery centers.

ORM: How will they cut costs?

Conner: Staff reduction is always the first place any administration looks to cut costs. I see that as short-sighted; it has a short-term benefit, but in the long term it has a negative impact on productivity and customer service. But since this is a service industry, that's where they are going to look, and that's where a majority of the costs are.

I think we're going to see an awful lot of hospital-owned facilities scrambling and developing strategies between now and Jan. 1, 1999 [when APCs are scheduled to be implemented for hospital outpatient procedures].

The large national hospital corporations have been doing a lot of cost-cutting and trying to consolidate and eliminate duplicate services and so forth during the last five years. They probably will be in the most strategic position to compete and to meet the challenges of the reduced Medicare reimbursement.

ORM: What other changes might we see?

Conner: Probably we'll be seeing some closures of the facilities that are less efficient. We'll see even more mergers and acquisitions. But without seeing the regulations, it's hard to predict how APCs will impact the growth of the industry.

Also, we'll probably see some of the big companies getting larger and the smaller facilities, which are owned by one or two physician groups, probably are going to be squeezed out. They'll have a real challenge to compete because the competition will be more intense.

It's similar to what happened with diagnosis-related groups [DRGs] when they first came out in the early 1970s and changed Medicare reimbursement for hospitals and physicians. There was an impact on third-party payers, who quickly followed suit. So without a doubt, the consumer will benefit in lower rates, but there probably will be fewer providers.

ORM: What happened with DRGs, and will that history repeat itself with APCs?

Conner: The history of DRGs is one we can draw from. When DRGs came into play, they quickly impacted the third-party payers. The third-party payers began demanding the same rates or similar rates to what Medicare was being given by providers, and so very quickly charges to payers dropped. There was a whole lot of chaos created by people trying to come up with creative billing schemes that would satisfy the demands of the third-party payers for equitable rates. And that competition turned into a situation in which providers needed to create more efficient systems and processes. So then we started to see the consolidations, the downsizings, and all those things we've seen throughout the 1970s and 1980s.

In the 1980s, third-party payers began catching up and began developing payment schemes like health maintenance organizations [HMOs], and so it was in the 1980s that we saw the rapid growth of HMOs and the public began feeling the effects. They felt it through higher insurance rates and through the impact of HMOs.

I think probably the best thing that could be said about DRGs is that they slowed the rate of inflation on medical costs. I think we're at 4% a year growth rate, which is really great; in the 1980s, it was 10% to 12% a year.

Still, it's not a reversal of health care expenditure, and the reasons for that are very complex. They include everything from the aging of the population, as baby boomers start accessing more and more health care, to the culture where the American public sees health care as a right, and due to the increase in technology, which raises costs. Better technology and health care science has created a growth industry in which we do things better and better, but the better we do, the more it costs.