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Recent integration puts doctors at risk
Many experts worry that cuts in hospital Medicare funds contained in the Balanced Budget Act of 1997 (BBA), combined with proposed changes in outpatient payments, could have a ripple effect on physician practices.
"Recent trends in hospital-physician integration mean more medical group practices are now hospital-based or hospital-affiliated. Often, these arrangements have been structured as part of hospital outpatient departments," notes Robert Redling, senior writer at the Medical Group Management Association (MGMA) in Englewood, CO.
This means many group medical services traditionally provided in freestanding physician practices are now provided through hospital outpatient departments.
According to a June report by the American Hospital Association, seven out of 10 hospitals may have negative Medicare margins within three years due to the $71 billion in projected Medicare cutbacks. This is 33% more than the $53 billion predicted by the Congressional Budget Office when the legislation was passed, according to AHA president Dick Davidson.
Rural hospitals and home health will be hit particularly hard by these cuts. Medicare margins for rural hospitals may plummet to between -10.4% and -7% in 2002 as a result of BBA revisions, the study stated. Meanwhile, margins for hospital-based home health services are predicted to drop from -4% to -11.6%.
The changes included in regulations proposed by the Health Care Financing Administration (HCFA) would:
• Establish 346 Ambulatory Payment Clas sifications (APCs) under which HCFA has placed each covered hospital outpatient service. Compo sition of the APC groups would be based on services’ clinical similarities and similar resource costs.
• Create new compliance requirements for provider-based entities. Among the criteria is a rule that would require those seeking provider-based status to obtain a determination to that effect from HCFA prior to billing as a provider-based facility or organization.
• Establish a presumption against provider status for "off-campus" physician practice sites.
• Mandate physician supervision of certain diagnostic tests.
• Create a limited bundling system for outpatient services.
According to another study by Baltimore-based consultants HCIA Inc., the BBA-mandated cuts in Medicare spending could create significant geographic disparities in hospital and related physician finances.
"The BBA could lower hospital profit margins from their current 5% average to less than zero by 2002," says HCIA spokesman John Morrow.
Providers on the East and West coasts are the most at risk, estimates HCIA. Specific major metropolitan areas that appear most in danger include Denver, Boston, Atlanta, Washington, DC, Los Angeles, and Seattle.