Global fees are headed your way — Are you ready to give up control?

Bigger version of case rates mixes physician fees with facility payments

How well do you know your case rates? St. Mary’s Hospital, part of a three-hospital system based in Tucson, AZ, has seen the number of outpatient cardiac catheterization procedures climb by 55% between 1995 and 1996. At the same time, the prevalence of case rate-based reimbursements for cardiac caths and a host of other ambulatory surgical services has kept pace with the rising patient volume.

Meanwhile, case rate reimbursements have been a fact of life for several years for National Surgery Centers. With 38 freestanding surgery centers nationwide, the Chicago-based chain ranks fourth in number of facilities and performs 94,000 surgical procedures annually.

"[Case rates] have been around in the industry for about ten years," remarks E. Timothy Geary, National Surgery’s chief executive officer. Throughout that time, facilities have seen few dramatic changes in the way they’ve functioned, says Geary.

Case rates are going global

That situation may be changing. After a decade of effectively ratcheting down reimbursements — initially among inpatient claims, now in the outpatient sector — case rates are beginning to take over the world in more than one sense.

In a drive to achieve greater cost savings, managed care organizations (MCOs) are retooling conventional case rates and globalizing these payment methodologies to reflect charges once deemed taboo by facility-based managers. For one, case rates are moving toward bundling all the charges related to a given outpatient service, including the physicians’ fees. (For a comparison of payment methodologies, see the chart, p. 19.)

As a result, facilities could see big changes not merely in the size of their individual reimbursements but in the manner and frequency in which they get paid. In response, providers are going to have to become sharper negotiators on managed care contracts and will have to attain a much better grasp of their internal costs, experts say.

They also will have to view global payments as a step toward higher risk-sharing arrangements such as capitation. And they will have to gear up for these new demands partly through more sophisticated information, says Donald L. Shubert, MBA, a managed care consultant with Mercy Health System in Bakersfield, CA. (For suggestions on working with global payments, see story, above right.)

Among top concerns, under global fees, facility managers could find themselves negotiating with physician groups instead of MCOs for contracts and settling for fewer dollars in the process. Here’s how and why:

Larger scope of charges.

Today, case rates are rapidly moving toward bundling everything from the cost of individual sutures to the surgeons’ and anesthetists’ professional fees, says Thomas Morrow, MD, vice president and medical director of One Health Plan of Georgia, a 7,000-member HMO based in Atlanta.

Bundling of the professional and technical components.

Until recently, both categories of payments were kept separate partly out of tradition but also to avoid hints of illegal patient referrals and kickbacks, particularly within the Medicare program.

Managed care has dismantled many of these conventions by integrating the fortunes of physicians and facilities, while the Medicare program has stepped up fraud and abuse initiatives.

Quality and value as driving forces.

HMOs are convinced that they can achieve better value by maximizing the number of piecemeal factors and charges such as OR and nursing time that are now packaged into the traditional case rate.

"You get more efficiency when you focus as a payer on the whole process rather than its parts," says Morrow, who lectures on reimbursements at the American College of Managed Care Medicine in Glen Allen, VA.

Perceived limitations of the Medicare surgery rates.

Hospitals are trying to get away from the eight-tiered Medicare ambulatory surgery center (ASC) rates, which have been the basis for many commercial contracts. Providers have long thought that the Medicare rates don’t adequately reflect changes in technology such as lasers and non-invasive endoscopies, which have driven up the outpatient cost of many procedures.

A precursor to risk contracts.

Case rates or global fees can be viewed as part of an evolution to shared risk-based capitation, which essentially globalizes payments for an entire risk group of patients, observes Kim Swanson, contract analyst with Tucson-based Carondelet Health Network, which operates St. Mary’s Hospital.

Under shared risk, physicians and facilities together agree to accept one monthly payment to cover the cost of services for a volume of enrollees. Inefficient providers inevitably face adverse financial consequences. Therefore, case rates are a viable proving ground for risk, Swanson notes.

But the upshot of globalized fees may adversely affect facilities. How this trend affects facility charges will be determined largely by physicians because they will stand to benefit most from the trend toward global fees, Morrow says.

Physicians may end up in control of the globalized payment. Health plans likely will cut one check — usually it will be to the medical group, says Morrow. Physicians therefore are likely to become selective in subcontracting with hospitals and ASCs based on lowest cost and highest volume.

"Facilities will end up negotiating with physicians, who are generally poor negotiators," Morrow adds.

Then there is the problem of getting case rates to adequately reflect the cost of expensive technologies. Much of the shift occurring among surgeries from the inpatient to the outpatient sector has been driven by technology.

Global fees don’t necessarily address the problem of adjusting case rates to account for the rising cost of capital equipment, says Geary of National Surgical.

"You can easily argue that the Medicare ASC rates are nothing more than case rates," Geary says. "You still have to re-open discussions with your payer on covering your [technical] costs. And that isn’t easy."

National Surgery has faced a persistent problem of eking out better rates from private payers for knee arthroscopies, which under the current Medicare ASC rate falls below cost.

Differences in payments could be large

But most of Geary’s facilities do an insubstantial number of arthroscopies compared with other better paying procedures and therefore aren’t adversely affected, Geary says. The negative impact of case rates is more keenly felt among high-volume, high-cost procedures, notes Swanson of Carondelet.

For some facilities, nevertheless, the difference in payments between the case rate and usual charges can be daunting. At some facilities in California, the case-rate reimbursement could be as low as $800 for a $3,000 procedure, says Shubert of Mercy Health.

But Morrow of One Health Plan defends the situation. "Have you seen how much hospitals are charging for some procedures? The amounts are hugely inflated," Morrow says. Managing the whole process actually results in larger profits than under charge-based reimbursements.

Providers are forced to eliminate waste and duplication, Morrow argues. "Global payments help bring down the cost of services and make them a better value for everyone involved," he adds.