Outpatient care from the payer's perspective.

Outpatient Care from the Payer's Perspective

As we enter the nineties, third-party payers of health care services are aware of a variety of attempts to control the rising costs of physician, hospital, and other health care services. These manipulations of the health care delivery system are the direct result of payment systems already implemented. For example, inpatient utilization has been reduced throughout the country. However, the incentive for control of inpatient costs often has been payers' allowing outpatient procedures to go unchecked, with full payment for ambulatory care. Insurance companies and other third-party payers are now focusing on both the cost and the quality of outpatient services, as it has become apparent that the cost of outpatient health care often exceeds historic inpatient charges.

Every physician executive must know the mechanism by which usual and customary fee schedules are determined for his or her own practice, hospital, or company. To promote or speculate on the effectiveness of outcome management strategies or any other quality-cost improvement policies without a thorough control of payment systems is impossible. The recent heated discussion over the relative value systems of paying for physicians' services ideally will bring the physician executive back into the determination of the levels of reimbursement that will ensure and encourage provision of appropriate services. Unfortunately, the development and implementation of the conversion factors to be applied to the relative values seems to have escaped discussion.

Now we are faced with the schizophrenic process of fee schedules for physician and other services being negotiated on a market-driven basis for managed care products and on a historical usual and customary basis for traditional indemnity products. Providers often feel that this results in a discount medicine approach to cost containment and respond by trying to achieve their previous inflated expectations for income.

Even the career patterns of providers are being affected. Students and residents are attracted to high-income specialties and locations and shun lower paying positions. Medical school departments and resources are dominated by the financial power generated by these unbalanced payment mechanisms. The very nature of the medical profession is being changed, with unneeded training of surgical and subspecialty doctors and reduction in the numbers of primary care and generalist doctors.

The focus of new services, hospital expansion, and equipment purchases also is being manipulated by the payment system, often with the loss of valuable medical services in communities. The fees and payments for new technology has been based on the original costs or charges that were submitted for payment. The hospital, clinic, and office equipment is sold on the premise that, with only limited utilization, the investment would soon be returned. Many items, [CO.sub.2] freezing units at $995 and CT scanners at $1 million, were soon justified on the basis of simple division of the cost by the individual procedure reimbursement rate.

Outpatient payment for therapies and home care has been based on the original cost reports, fueled by the cost-plus reimbursement strategies of Medicare and Medicaid. A schedule for guaranteed profits was built into the cost reports for for-profit companies. Originally, federal and state programs also included payment for headquarters expenses for multilocation providers. Private practice physicians were either restricted or poorly reimbursed for their services.

The acceptance of UB-82 (Uniform Bill adopted in 1982 for institutional providers) was essential in bringing uniformity for the federal payment schemes and allowed the lumping of billing for institutional providers into REV codes (revenue codes for general areas of services without detail). The bill was usually paid in full for inpatient and outpatient procedures. This led to a lack of information as to the actual costs of health care and encouraged unrestrained growth for institutional providers. The development of financial managers to understand and survive the maze of regulations placed the emphasis on accounting skills rather than the provision of health care services.

Most private sector payers did not have or use coding for the 90000 series CPT codes (medicine and cognitive procedure codes as described in the AMA Current Procedure Terminology Coding system), and few have adapted the federal HCPCS codes (HCFA Common Practices Coding System for nonphysician services and supplies and equipment). Development of systems to identify and separate the technical component from the professional component of services was ignored because the cost of computer tracking was considered exorbitant. Overlapping payment for the same procedure code by anesthsiologists, assistant surgeons, and cosurgeons was also tolerated. Tracking of pre- and postoperative medical care and consultation was often not tied to the surgical procedures.

Unfortunately, the physician executive has very seldom been involved in the construction of payment systems. The systems are jealousy guarded by nonmedical technical support staff and computer personnel, and any attempt by the physician executive to pry into the mechanism has been thwarted. The possibility of Federal Trade Commission violations has also hampered physician involvement. Gross inconsistencies were allowed to continue because we didn't possess the administrative skill to convince the managers of the federal programs or of private payers that the payment system is the most important policy determination. Through political pressure, individual providers and associations are able to influence increases in reimbursement of coverage. These individual repairs of fees and reimbursements have led to a disarray of payments, and the original market-driven, consumer-driven pricing has been lost. Providers shadow price the usual and customary determinations, and, until recently, institutional and physician providers were encouraged to inflate their original charges to establish better base charges.

Any attempt to explain or control the delivery of health care without the active participation of physicians is hopeless, and dangerous. These efforts will inevitably change the manner in which medical care is delivered. The impact of recent government changes--market-driven relative value payments and DRG-based reimbursement--will ideally bring some uniformity and reappraisal to the process. At least, these efforts have emphasized the importance of medical input into the process. No amount of financial, management, or computer experience can, by itself, be allowed to control the health care of patients again.

It is my personal opinion that the payment system must be both uniform and public. Past methods have only encouraged upcoding, unbundling, and unnecessary increases in medical costs. Physicians must take the time, immediately, to gain the knowledge to be actively involved in these important decisions. Quality improvement in the near future will be affected most by analysis of the processes of health care.

John J. Saalwaechter, MD, MBA, is Medical Director, Prudential Plus, Indianapolis, Ind. He is Chairman of the College's Society on Insurance. The views expressed in this article are those of the author and do not necessarily represent the views of Prudential Plus.