Outpatient PPS poses a web of compliance traps

Final rule goes into effect in just two weeks, with numerous billing questions still unanswered

Hospitals that were hoping the implementation date for the hospital outpatient prospective payment system (PPS) would be pushed back beyond Aug. 1 should expect no such reprieve, according to the Health Care Financing Administration (HCFA). Another delay is always possible, but don't count on it, says one agency official. That leaves hospitals facing a host of unanswered questions, many of which could land them in trouble with federal regulators.

In fact, Sacramento, CA-based Sutter Health’s chief compliance officer, Sheryl Vacca, warns there are as many as two dozen issues related to the new payment system that could pose compliance problems for hospitals. She says the myriad issues included in the outpatient PPS loom like a huge spider web. "If you are not accurately coding, that is a compliance issue; and if you do not group them correctly, you won't be reimbursed correctly," she warns.

Department of Health and Human Services’ (HHS) Office of Inspector General (OIG) Mac Thornton responded to similar concerns voiced by the Chicago-based American Hospital Association (AHA) June 26 by asserting that when honest mistakes or negligence result in erroneous claims, the hospital will be asked to return the funds without penalties. But he added that even "inadvertent billing errors" are a "significant drain" on the Medicare program, and hospitals must be vigilant to avoid them.

Thornton said that the OIG’s decision to impose civil or criminal penalties in individual cases will turn, in part, on the clarity of the rule, the complexity and novelty of the billing system, and the efforts of hospitals to train personnel.

The new outpatient PPS is "a necessary tool of compliance" that hospitals must understand in order to check HCFA’s payments for accuracy, according to Debra Williams, senior associate director at the AHA. "One thing we have clearly learned from the last few investigations is that if HCFA mispays you and you don’t catch it, you are in some ways held responsible," she warns.

According to Williams, understanding payment rules well enough to check the remittance will be no easy task, because hospitals do not yet have all the tools required to do that. "In order for hospitals and vendors to adopt HCFA’s pricing rules, they must know what they are," she explains. "But HCFA has not yet released the logic for the pricer."

In addition, she says, HCFA has not yet shown what the remittance will look like. "It is not exactly clear how easy that will be for people to use, or whether all the information they need will be on there," she explains.

Williams says that educating physicians about what the hospital will be paid for under Medicare will also be crucial, because if a service is performed on an outpatient basis but falls into HCFA’s new "inpatient-only category," they will face heightened legal liability.

That means hospitals must master inpatient-only services even though it will be largely left to physicians to notify patients that they must be admitted for certain procedures previously performed on an outpatient basis. "There is no obligation to notify the beneficiary that the service will not be paid for," says Williams. But she adds that hospitals might consider an informal process to accomplish that, even though it could turn into a complicated arrangement between the hospital and the physician.

Williams also notes that what was once a small number of medical devices has mushroomed into a list of nearly 300 that hospitals will be reimbursed for separately. "HCFA is saying that anything that is on that add-on list is one-time use only," she explains. "It is our initial reading that if you bill for a reused item, you have a problem."

The bad news for hospitals is that all of those challenges don’t even begin to address the ambulatory payment classifications (APCs) that hospitals must master. "The complexity of the groupings of APCs is probably where the crux of our problems lies," says Vacca. "There are so many issues associated with APCs that I don't know if we can be entirely accurate on Day One," she adds.

In theory, APCs are designed to work much like diagnosis-related groups, with a national rate adjusted to the local labor market, says health care attorney Dennis Barry of Washington, DC-based Vinson Elkins. Each of the 450 APCs will have its own weight, ranging from 0.38 to 115.31. "This is an incredible range," he asserts.

Making matters even worse, Vacca says, the rates keep changing. The final APC methodology was included in the regulation published in April, but just two weeks ago, HCFA added roughly 200 additional APCs. Vacca says that makes the APCs a moving target. In fact, the new rates are so complex, and there is so much confusion among hospitals and fiscal intermediaries, that HCFA may not implement them until Oct. 1. But HCFA has yet to confirm that.

Barry says that the consolidated billing rules for skilled nursing facilities (SNFs) represent yet another "compliance trap" confronting hospitals in the final rule. Under the new requirements, if a SNF patient comes to the hospital and the treatment at the hospital is part of the plan of treatment at the SNF, the hospital may not bill Medicare. Instead, the hospital must bill the SNF, and the SNF must absorb the hospital’s bill as part of its costs under the resource utilization group payment per diem methodology.

However, in other instances where a SNF patient comes to the hospital with an emergency situation or for other services such as chemotherapy, those services will not have to be bundled with the SNF bill.

"You have a situation where the hospital sometimes must bill the SNFs, and other times bill the program," Barry explains. "There is no default position that you can use to instruct your billing people." That means personnel in low-level positions sometimes must make important judgment calls, he warns.

With the implementation date just two weeks away, many hospitals have yet to fully address other key parts of the regulation that kick in Oct. 1, such as the new provider-based status requirements. (See "New provider-based status rules catch hospitals," Compliance Hotline, May 22, 2000, p. 1.) "That will take time to sort out," warns Vacca. "But you can only do so much at one time."