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MedPAC Continues to Eye Equalizing Reimbursements to Save Medicare Money

By Jane Norman, CQ HealthBeat Associate Editor

October 4, 2012 -- Again tackling an issue that outrages hospital officials, members of the Medicare Payment Advisory Commission last week dived deeper into the question of how to equalize reimbursements paid to outpatient hospital departments and stand-alone doctor's offices.

In March, MedPAC recommended that payments for evaluation and management services paid to outpatient departments be lowered so they are equal to payments to doctor's offices. While Congress hasn't yet acted on that idea, it did catch the attention of lawmakers on the prowl for Medicare savings.

Now MedPAC is looking at other ambulatory care services to determine whether there might be ways to set equal payments across more settings beyond just evaluation and management, which refers to a doctor visit where the location of the visit doesn't affect the care. MedPAC staff estimated that equalizing those rates would save Medicare between $1 billion and $5 billion over five years.

Expanding the equalization effort as described in the new staff analysis that the commission discussed last week could save Medicare as much as $900 million a year. And the savings to beneficiaries through reduced cost sharing would be $250 million, the analysis found.

A spokeswoman for the American Hospital Association, however, said during the public comment period at the meeting that her organization is "extremely concerned" about any further proposed reductions in reimbursements on top of the March recommendation.
Roslyne Schulman said the March cut already constituted a $1 billion payment reduction for hospitals.

A spokeswoman for the American Association of Medical Colleges also urged a "thorough analysis" to determine whether low-income patients' access to hospital services could be harmed.

The issue is cropping up as more and more hospitals buy up physician practices and consolidate systems. When the hospital owns and operates a physician practice, even if it's not physically located in the hospital, the Medicare system allows an extra reimbursement. In some cases, such as laser eye procedures, the total payments can be 90 percent higher in a hospital outpatient department as in a physician's office, even though the procedure is the same, a MedPAC staff analysis found.

Commissioners raised questions after a staff presentation but seemed willing to pursue the idea of even more equalization. They are not yet at the point of crafting a draft recommendation to Congress. But the idea clearly was popular. MedPAC is an advisory board made up of health experts who make recommendations that Congress can accept, reject or ignore, though their discussions often form the basis for deeper analysis of Medicare spending.

"The principle of equal pay for equal services is, I think, really important, and I think taxpayers should know more about what they're paying for," said Mary Naylor of the University of Pennsylvania School of Nursing.

Scott Armstrong of the Group Health Cooperative in Seattle urged that "the sooner we move on this, the sooner we'll have an impact on cost trends beyond Medicare."

Why Pay More for Same Service?

The staff analysis set out payment principles that patients should have access to the right care but a "prudent purchaser" would not pay more for a service in one setting than another. Medicare should base its payment rates on the resources needed to treat patients in the lowest-cost, clinically appropriate setting, the analysis stated.

Payment rates could differ because hospitals incur costs related to other services that they provide and have to have on standby, and hospitals in some cases might have sicker patients. Hospitals also receive payments for tests or drugs apart from the payment for a doctor consultation.

But in some cases, payments could be the same whether they are provided in the outpatient department or the doctor's office, the analysis said. In certain other cases, payments could remain higher in outpatient departments but the size of the difference could be narrowed, according to the analysis.

The criteria for 25 services that could have equal rates across settings include those performed in physician's offices most of the time, those that don't involve a lot of other tests or procedures, those that usually don't involve an emergency department visit and those with few differences in the sickness of the patient.

Specifically, those could include diagnostic tests like certain bone-density testing or neuropsychological testing or laser eye surgery, the analysis said.

For example, an office visit for a laser eye procedure now carries a $389 reimbursement from Medicare, the analysis said. But in a hospital outpatient department, the reimbursement would be $738.

The analysis pinpointed 61 other services for which a hospital outpatient department could continue to receive an additional reimbursement because it provides other services but the reimbursement needn't be as large.

If Medicare were to adopt the system in the analysis, hospitals overall would see a reduction in revenue of seven-tenths of 1 percent and a decline in outpatient department revenue of 3.4 percent. Of the 100 hospitals whose payment reductions would be reduced the most, a majority are specialty hospitals and many are orthopedic/surgical hospitals.

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