New HCFA rules may cut reimbursement up to 15% for outpatient services

Brace for double whammy’ if costs go up and payments are cut

New billing regulations for Medicare patients would have an unprecedented impact on your ED’s bottom line, according to experts interviewed by ED Management. The proposed regulations would lower reimbursement and put some EDs in financial jeopardy, predicts Michael Bishop, MD, FACEP, vice president of the American College of Emergency Physicians (ACEP) in Dallas.

"Obviously, if you cut up to 15% of patient reimbursement for emergency services, that will have a significant financial impact on the hospital," Bishop says. "If your costs are going up and your payments are cut, then it’s a double whammy." ED managers will need to provide the same services for less money, which is a formidable challenge, he explains.

The financial impact may be so devastating that some hospitals may have to close their doors. "You need to be concerned about the financial viability of your institution," warns Mason Smith, MD, FACEP, president and CEO of Lynx Medical Systems, a Bellevue, WA-based consulting firm specializing in coding and reimbursement for emergency medicine. "There could be huge shifts in volume of outpatient surgery in competitive markets. The need to meet the competitive price may affect the financial viability of the institutions, and it will definitely affect their cash flow."

"This is so broad-sweeping, it has potential financial ramifications for literally every ED in the country," emphasizes Bishop, who served on an ACEP task force that commented on the regulations. (See excerpt of ACEP’s comments, p. 91.)

The long-awaited plan from the Health Care Financing Administration (HCFA) in Baltimore will shift outpatient reimbursement for hospitals into ambulatory patient classifications (APCs) similar to the diagnosis related groups (DRGs) for inpatient payments.

The proposed system groups more than 5,000 outpatient codes into 346 payment groups, or APCs. "Each APC has been constructed to include a related group of clinical services for which Medicare will reimburse hospitals at a single, predetermined rate," Smith explains. "So APCs substantially reduce the number of payment levels that need to be tracked."

To define the clinical services included in each APC, HCFA will use the same coding system currently used to reimburse physician services for Medicare patients, known as the current procedural terminology (CPT) system.

"This would be a major change in how billing is done. It represents the same magnitude of change as the switch DRG has had on the inpatient side," says Charlotte Yeh, MD, FACEP, medical director for Medicare policy at the National Heritage Insurance Co. in Hingham, MA.

This is the biggest reimbursement change in Medicare billing since 1982, when the Tax Equity and Fiscal Responsibility Act was passed, Bishop says. "That caused many emergency physicians to do their own billing instead of the hospital. This change will have no less of an impact on EDs."

The regulations will control the growth of Medicare expenditures for hospital outpatient services the way the DRG reimbursement system controlled inpatient expenditures. "The Medicare strategy is simply to treat hospital outpatient services exactly the same way as they treat physician office services, which is a totally new approach," Smith says.

Explains Bishop, "This is a move by HCFA to decrease Medicare costs, which is not a bad thing, but there are potential problems. In the ED, we can’t control the patients we see, so we see the sickest patients. If the amount of revenue goes down for the hospital, we will have less money to provide the same services."

As a result, patient care could be affected. "This can certainly affect patient care if there is not as much money coming in to the hospital. Decreased payment could result in decreased staffing, equipment, and supplies," Bishop says.

Some hospitals will be affected more than others, he warns. "Teaching institutions and large inner-city hospitals, any hospital that has a high percentage of high-acuity or Medicare patients, will be hit the hardest."

Hospitals should expect less payment for outpatient services provided to Medicare beneficiaries, both from Medicare payments and copayments from beneficiaries, says Smith. "HCFA predicts reductions in direct payments from the Medicare program amounting to 3% to 15% of current revenue. The actual impact on individual hospitals will vary based on the hospital’s current cost-to-charge ratio."

Although ED patients already are guaranteed access to care under the Emergency Medical Treatment and Active Labor Act (EMTALA), financial ramifications could create barriers to care, Yeh stresses. "If the payment levels are insufficient, you might not only see hospitals closing, but some hospitals may pull out of outpatient and emergency services," she predicts. "If that happens, it will create an access problem."

Copayments will be reduced from current levels by an unspecified amount. "Estimating the amount of this reduction is very difficult," says Smith. "Comparing the maximum and minimum copayment amounts for common procedures suggests that the eventual reduction will average 13% of total payment. More than 50% of the revenue reduction will result from lower beneficiary copayment."

The impact on hospitals will depend on the amount of copayment they charge. "A hospital has to choose whether to charge the maximum or minimum allowable copayment, or some number in the middle," says Smith.