Changes in Health Care Compensation.
Supply and Demand Economics
Recently the health care industry has experienced staffing shortages. Medical imaging and radiation oncology have begun to be affected by this trend. These shortages are the result of many changes in the industry during the past 10 years. The nationwide revolution called managed care created an oversupply of professionals. Learning to "do more with less" became the mantra of administration offices across the country. Health maintenance organizations, capitation contracts and integrated delivery systems became part of our vocabulary and our workplaces. Management learned the concepts of flexible staffing, outsourcing and multi-skilled employees.
Many teaching programs closed due to the push for baccalaureate degrees and correlating low market demand for new students. Now health care must compete for potential students with other segments of the economy, even though health care professionals' wages are somewhat lower than jobs with similar educational requirements.
Generally, traditional economic theory suggests a decreasing supply of radiologic technologists or radiation therapists leads to a demand for higher wages, thus enticing people to change jobs and attracting new students to these professions. Unfortunately, significantly higher wages are not likely in the next few years. The impact of the next wave of health care reform has already begun to reshape the economic viability of health care facilities across the country, and many institutions may find economic survival very difficult.
Why Is Health Care a Target?
After diagnosis-related groupings (DRGs) in 1983 and the managed care movement in the mid-1990s, how much financial "fat" could be left in our health care system? Apparently the government believes the fat is still substantial. The Medicare Payment Advisory Commission, which advises Congress on Medicare payment policy, estimates hospitals' profit margin to be 15.7% in 1999. Many health care financial professionals dispute this figure, as the Commission's estimates frequently are based on only Medicare allowable costs. Nonessential costs, such as marketing and patient televisions, are not included in the facility costs and deducted from the estimated profit margin. While some facilities do actually have profit margins as high as 15.7%, the average is closer to 7% to 8% and many facilities have even lower profit margins.
Health care also is responsible for a huge portion of federal expenditures. According to the Council of Economic Advisors, the federal government spent $291 billion in 1998 and will spend $311 billion on Medicare and Medicaid expenditures in 1999. This figure represents about 17% of the federal budget. An aging population and the costly, wonderful advances in medical technology make higher expenditures likely in 2000 and beyond. Compare the average inflation-adjusted growth in various spending categories during the past 40 years. (See Table 1.)
Table 1 Changes in Federal Spending 1955-1995 1955 1995 (Billions of $) (Billions of $) National Defense 242.8 271.6 Health 1.7 272.4 Social Security 25.2 336.1 Education and Social Services 2.5 56.1 Science and Technology 0.4 17.1 Agriculture 20 14.4 Transportation 7.1 39.2 Real Growth 1955-95 (%) National Defense 11.9 Health 16 374.2 Social Security 1236.4 Education and Social Services 2117.4 Science and Technology 3937.8 Agriculture (27.9) Transportation 453.1
Source: Cato Institute
The BBA Solution
The Balanced Budget Act of 1997 (BBA) significantly reduces total Medicare reimbursement to freestanding facilities and hospitals. Inpatient reimbursement is reduced under current payment methods and outpatient reimbursement methods and formulas are substantially replaced with the prospective payment system (PPS) that was legislated to begin January 1, 1999. Services furnished by a select number of research cancer hospitals would not be subject to the new payment system until January 1, 2000. Much industry protest and concern has been voiced and lobbied to the Health Care Financing Administration (HCFA) regarding the methodology used to establish this payment system. These concerns and Y2K resource demands postponed the final ruling on outpatient PPS until December 1999, with implementation delayed until mid-2000.
The BBA included immediate implementation of an outpatient payment system based on the type of service provided (now delayed until mid-2000). The proposed PPS for outpatient procedures would classify patient services into numerous payment groups. Like the diagnosis-related groups (DRGs) for Medicare inpatient services, the outpatient classifications called ambulatory patient classification (APC) groups categorize procedures based on time, type of service, body system involved and the cost of performing the procedure. HCFA plans to classify procedures that may be performed on an outpatient basis into 346 separate APCs. The legislation also reduces the Medicare beneficiary copayment portion of outpatient hospital services. Currently, Medicare patients are responsible for 20% of the hospital's billed charges. The BBA requires patients to be responsible for 20% of the allowable Medicare APC charge. Because of the budgetary impact for hospitals, this 80/20 arrangement may be phased in over several years. In the interim, Medicare patients would pay significantly more than 20% of the APC. A sample of proposed medical imaging APCs is listed in Table 2.
Impact of Proposed Payment Changes On Freestanding and Hospital-Based Centers
Method of CPT Code Description Delivery 70553 MR brain w/wo contrast TC 72148 MR L-spine w/o contrast TC 70486 CT maxillofacial w/o contrast TC 74170 CT abdomen w/wo contrast TC 76700 U/S; abdomen complete TC 76805 U/S; OB/GYN pelvis complete TC 78006 Thyroid, imaging w uptake TC 78465 Heart imaging, 3-D TC Freestanding Centers Hospitals Current Allowable Proposed Under RVU Outpatient APC Payment CPT Code Payment System Rate 70553 $933 $403.33 72148 $466 $403.33 70486 $177 $256.39 74170 $318 $256.39 76700 $74 $83.60 76805 $79 $83.60 78006 $90 $191.53 78465 $442 $470.21
Source: May/June 1999 Imaging Economics. TC = technical component.
For most hospitals, the impact of the outpatient PPS system goes far beyond the medical imaging department. Medicare reimbursement for home health services, mental health and skilled nursing centers (rehabilitation facilities) are dramatically lowered. According to the American Hospital Association, the new payment method will result in an estimated 20% to 34% reduction in reimbursement through 2004. Overall, the proposed HCFA change in outpatient payments is 5.3% for urban hospitals and 7.4% for rural hospitals. These amounts vary dramatically depending on hospital size, status (urban vs rural) and geographic location. Some low-volume rural facilities may see Medicare outpatient reimbursement drop by 17.4%. These projected drops in income resulted in an outcry from facilities across the country and prompted the government to extend the public comment period for these changes twice.
The changes in the inpatient PPS also will have an impact on reimbursement for inpatient services. Labor-intensive services such as burn units and long-stay programs have been dramatically impacted.
Medicare inpatient reimbursement is based on the DRG payment system. These are updated annually for inflation. For fiscal year (FY) 1998, the BBA imposed a 0% update on the PPS rates. The 0% update, coupled with a provision for federal budget neutrality, effectively created an update of -1.9% for FY 1999, -1.8% for FY 2000 and -1.1% for FY 2001 and 2002. These changes are currently in effect. The BBA also reduces the payment to hospitals that treat a disproportionate number of low-income patients. This change translates to a total 5% reduction by FY 2002.
For many facilities operating on a narrow profit margin, these changes could mean closure. Most hospitals also rely on the greater profitability of a few departments to support divisions such as dietary, housekeeping, social work and medical records. Greatly reducing the income of revenue-generating departments such as medical imaging, laboratory and radiation oncology will have a substantial impact throughout the facility. These changes may affect the services hospitals are able to provide. Expensive technologies with marginal revenue advantages will not be acquired. Services such as burn units may be dropped.
Advantages of the BBA
Despite the many pitfalls of the BBA, some feel this legislation will be advantageous. For many years Medicare payments, specifically for outpatients, have been very complex. Some services are paid based on a fee schedule. Others are paid at cost. Still others are based on a combination of facility costs and Medicare Relative Value Units whose reimbursement varied by geographic region. It was nearly impossible for any facility to know in advance what its payment would be for a given procedure.
The proposed APCs will provide managers with a more accurate idea of prospective revenue. Managers also should be able to spot and correct CPT coding problems and identify ancillary services that need to be more efficient. Facilities' performance will be more directly measurable, enhancing development of case mix and other utilization review measures. These will assist in the analysis and competition for managed care contracts. The APC system also should facilitate ways to reduce cost, compare charges, eliminate payment delays and perform more accurate financial analysis. The system should enhance full hospital services integration across the country. This includes development of more integrated health care delivery systems that provide preventive primary care services, inpatient care, rehabilitation services, home health and outpatient diagnostic services.
We've Been Here Before
Medical imaging and radiation therapy professionals need to be aware of the changes their facilities are facing. The potential reduction in Medicare payments resulting from the BBA will likely keep pay increases low and staffing minimal for these departments until the full financial impact of these changes is known. Problems with staffing will be compounded by projected increases in baby boomer patient volumes. After months of protest, lobbying and letter writing, HCFA's final ruling regarding the outpatient PPS/APCs in December 1999 will, it is hoped, reflect a less substantial impact on some of the nation's struggling health care facilities.
Kimberly A. Earp, M.B.A., R. T. (T), is chief radiation therapist in the Radiation Oncology Department at Adventist Medical Center in Portland, Ore.
This article is reprinted from the Fall 1999 issue of Radiation Therapist.
Submissions for this column are welcome. Contact Managing Editor Katie Racette, c/o the American Society of Radiologic Technologists, 15000 Central Ave. SE, Albuquerque, NM 87123-3917.3