Were you expecting the worst with outpatient PPS? You can relax

Among provisions: Laparoscopies, new method IOLs to be reimbursed

Overall, same-day surgery managers can breath a sigh of relief regarding the final outpatient prospective payment system (PPS) rule for hospitals. Compared to the proposed rule, the final rule offers more money, reimburses for more outpatient services and devices, including laparoscopies and new technology intraocular lenses (IOLs), and provides a "transitional corridor" for those programs that suffer losses.

The payment system is based on 451 ambulatory payment classifications (APCs). The regulations were published in the April 7 Federal Register. (For information on how to access the rule, see resource box, p. 51.) The regulations also are available on the Health Care Financing Administration (HCFA) Web site (www.hcfa.gov). A 60-day comment period applies only to the regulatory changes in the final rule that resulted from the 1999 budget law. (For information on submitting comments, see box, p. 50.) The final rule is effective July 1, 2000.

Same-day surgery programs and other hospital outpatient units will bill for services using HCFA common procedural classification system (HCPCS) codes, not APCs, using the same claims forms they use now. "Although to receive payment under the new system, hospitals will have to more fully code the services they furnish; they will not have to know to which APC the service is assigned in order to determine the payment amount," HCFA says. HCFA published the payment rates applicable to each HCPCS codes in the final rule.

The regulation gives hospitals a 4.6% increase over current outpatient payments. Hospitals were expecting a 5.7% reduction in outpatient payments under the Balanced Budget Act (BBA) of 1997.

"It depends on the actual mix of services in individual hospitals, but for any given service, a lot of hospitals should do better than payments they were receiving before," says Chantal Worzala, PhD, an analyst with the Washington, DC-based Medicare Payment Advisory Commission, which advises Congress on health care financial issues.

Kevin Quinn, senior health economist at Abt Associates, a health care research and consulting firm in Washington, DC, describes the final rule as "a very hospital-friendly PPS." Originally, the PPS was intended to bundle a number of services into the payment. However, the final rule is an unbundled approach, he says. "So hospitals will be able to bill for every individual lab test, every individual X-ray, every CAT scan. It really puts a lot less financial risk on hospitals than they would have seen if HCFA really had done outpatient DRGs," says Quinn, referring to diagnostic related groups, which form the inpatient PPS.

However, not everyone is happy with the final rule. Overall, the increased payments still put hospitals in a hole compared with where they were prior to the Balanced Budget Act (BBA), according to the Chicago-based American Hospital Associa-tion (AHA). Before the BBA was passed in 1997, Medicare paid hospitals about 92 cents for every dollar of outpatient services performed, the AHA says. The BBA cut that amount to about 82 cents on the dollar and threatened to lower it. The 1999 Balanced Budget Refinement Act stopped the de-crease. With the new PPS regulation, the amount of payment will go to about 86-87 cents for every dollar of outpatient services. And that amount will decrease as transitional corridor payments are phased out, AHA officials point out.

During a transition period until 2004, Medicare will pay hospitals a portion of any losses they would otherwise incur resulting from receiving smaller payments than under prior law. For rural hospitals with 100 or fewer beds, these losses will be fully replaced.

"But the big question is how well the corridor system will work," says Eric Zimmerman, JD, an associate with the law firm of McDermott, Will, and Emery in Washington, DC. Zimmerman points out that the payments will be made retroactively when hospitals submit the paperwork. "It will be interesting to see how well carriers will implement that and how soon providers will get their money," he says.

Additionally, AHA officials are concerned there isn’t enough time to implement the system accurately. Specifically, the association is concerned that providers will have difficulty obtaining software for the new rules and training staff.

Same-day surgery experts, however, express relief about the final rule because many procedures previously labeled as "inpatient only" in the proposed regulation have been moved to outpatient APCs, including laparoscopic cholecystectomy. (See list of added procedures, p. 52.) In the final rule, HCFA said, "We acknowledge that emerging new technologies and innovative medical practice are blurring the difference between the need for inpatient care and the sufficiency of outpatient care for many procedures, although we are concerned that some of the procedures that commenters claim to be performing on an outpatient basis may actually have been performed with overnight postoperative care furnished in observation units." In the final rule, HCFA declined to pay for observation services. (See story on other bad news, p. 52.)

Having a procedure on the APC list doesn’t mean that HCFA requires that procedure to be performed on an outpatient basis, the agency clarified. ". . . Regardless of how a procedure is classified for purposes of payment, we expect, as we stated in the proposed rule, that in every case, the surgeon and the hospital will assess the risk of a procedure or service to the individual patient, taking site of service into account, and will act in that patient’s best interest."

HCFA emphasized that it expects "only the simplest and least resource-intensive procedures of each type to be performed in the outpatient setting." The agency plans to annually update the list of procedures in the outpatient PPS. "If hospitals find that surgeons are discharging patients successfully on the day of surgery, they should bring this to our attention, as well, because hospitals may become aware of this trend before our payment data disclose it," HCFA said.

Medicare will make payments for certain new medical devices and drugs for up to three years. These are called "transitional pass-throughs." For same-day surgery providers and others who have high-cost cases, Medicare will make outlier payments. When the cost exceeds the PPS payment by more than 2.5 times, HCFA will pay 75% of the cost above the 2.5 threshold.

HCFA also is making special transitional payments for new technology items and services. Transurethral destruction of prostate tissues by microwave thermotherapy and wound closer by adhesive are two procedures designated as new technology services. In the final rule, HCFA also explains how to submit requests for coverage of new technology services as they arise.

Intraocular lenses (IOLs) also received special treatment in the final rule. Medicare will pay for implanted medical devices, including new technology IOLs, under APCs, rather than under a medical equipment fee schedule. "We previously thought it would only apply in the ASC setting," Zimmerman says. In the final rule, payment rate for cataract procedures with IOL insert — $1,287.33 — equals the payment for cataract procedures without the IOL insert. "Proper coding in the future should result in better differentiated costs between these groups," HCFA says.

HCFA received about 2,000 comments on its proposal to package corneal tissue acquisition costs into the APC payment for corneal transplant procedures. In response, HCFA hasn’t packaged the payment for the tissue acquisition costs with the APC payment for corneal transplant procedures. "Instead, we will make separate payment, based on the hospital’s reasonable costs incurred to acquire corneal tissue," the agency said.

Although the final PPS rule for surgery centers hasn’t been released, HCFA has indicated it will have a consistent corneal tissue policy for hospitals and surgery centers, according to the Fairfax, VA-based American Society of Cataract and Refractive Surgery. The final outpatient PPS rule for freestanding surgery centers should be published in November of this year, with implementation in April 2001.

For their part, freestanding ambulatory surgery centers (ASCs) see the final hospital rule as good news for them as well. "I think it’s good for ASCs, because both will be paid on a prospective basis," says Kathy Bryant, JD, executive director of the Federated Ambulatory Surgery Association in Alexandria, VA. "It will be a more level playing field for the competitors," she says.

Hospitals need to keep that level playing field is mind, because with this final rule, HCFA is killing cost-based reimbursement, Quinn points out. "Hospitals with high cost are going to be in trouble, and hospitals with low cost are going to be in good shape. To the extent other payers will copy Medicare, and sooner or later almost all of them will, this final rule underscores the point that hospitals are going to have to intensify their efforts to be cost-efficient." (For information on how one same-day surgery program lowered its cost, see story, p. 53.) n

For more information on the hospital outpatient prospective payment system, contact:

Kathy Bryant, JD, Executive Director, Federated Ambulatory Surgery Association, 700 N. Fairfax St., Suite 306, Alexandria, VA 22314. Phone: 703-836-8808. Fax: 703-549-0976. E-mail: fasa@fasa.org.

Kevin Quinn, Senior Health Economist, Abt Associates, Suite 610, 1110 Vermont Ave. N.W., Washington, DC 20005. Telephone: (202) 263-1750. Fax: (202) 263-1802. E-mail: kevin_quinn @abtassoc.com.

Chantal Worzala, PhD, Analyst, Medicare Payment Advisory Commission, 1730 K St. N.W., Suite 800, Washington, DC 20006. Telephone: (202) 653-7200.

Eric Zimmerman, JD, Associate, McDermott, Will, and Emery, 600 13th St. N.W., Washing-ton, DC, 20005. Telephone: (202) 756-8000. E-mail: ezimmerman@mwe.com.

At the Health Care Financing Administration, contact:

• For general information: Janet Wellham at (410) 786-4510, or Chuck Braver at (410) 786-6719.

• For information related to the classification of services into ambulatory payment classification groups, contact: Kitty Ahern at (410) 786-4515.

The hospital outpatient prospective payment system rule is available on the Health Care Financing Administration Web site (www.hcfa.gov). To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested (April 7) and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $8. You can view the Federal Register at many public and academic libraries. This document also is available on-line at www.access.gpo.gov/su_docs/ aces/aces140. html.