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Medicare weighs outpatient, lab bundling schemes.

Administration officials spent part of the fall working on proposals to bundle up payments for laboratory and other services under Medicare. The mere thought of the changes gives providers a chill.

One set of regulations expected to be finalized soon implements a five-year-old law that would bundle payment for hospital outpatient services, making the facility financially responsible for most nonphysician care delivered to Medicare patients.

At the same time, the Health and Human Services Department's Office of the Inspector General is amplifying its call for a laboratory roll-in component to be tacked onto physician office reimbursements. And this time the OIG is armed with a dramatic new estimate of the potential cost savings for Medicare.

The regulations were mandated by the Omnibus Budget Reconciliation Act of 1986 at a time when Congress wanted to extend the prospective payment system to include outpatient services. The action picked up this September when the Health Care Financing Administration issued carrier instructions on how to implement the bundling provision, which would take effect 90 days after the final regulations were published.

Those instructions suggest that the final regs will be largely the same as the proposed version published Aug. 5, 1988.

Basically, the proposal says that hospitals would be required to provide most nonphysician services to their outpatients either directly or under some other arrangement. When a patient is referred to an outside provider for additional testing or other diagnostic service as the result of an "encounter" in the hospital outpatient or emergency department, that hospital assumes the full financial obligation.

Thus it would be up to the hospital to negotiate arrangements with the outside providers, bill Medicare, and monitor the delivery of those services, which include the supply of durable medical equipment and prostheses. Any part billing Medicare in violation of the bundling rules would be subject to civil money penalties of up $2,000 levied by the OIG.

The rules were originally set to go final Oct. 1, but were delayed pending a joint protest by the AHA, the Federation of American Health Systems, and 11 other hospital groups.

The groups, noting that HCFA planned to finalize the rules as proposed, objected in a letter to agency chief Gail Wilensky, Ph.D. "We believe HCFA's approach in the proposed rule was overly broad and will impose significant costs and administrative burdens on hospitals," they wrote. "Moreover, the financial and legal environment in which hospitals operate today is substantially changed from that which existed when OBRA 1986 was enacted."

The groups argue that the bundling rule would make hospitals financially liable for services they do not provide and for costs they cannot control. As a practical matter, they say, hospitals have no control over outpatients once they leave the grounds, and they may or may not choose to visit the provider to which they were referred. Similarly, hospitals say they have little ability to control their physicians' referral patterns, which may be based on factors other than price and the hospital's own preference.

"In essence, the bundling regulation would make hospitals risk contractors without allowing them to effectively limit the choice of patients or physicians," according to a synopsis of complaints prepared by the AHA.

Group leaders also claim the regs would impose an "enormous" administrative burden, partly from the need to negotiate service-by-service pay agreements with a wide range of outside providers. Other demands would include physician notification of the providers with whom the hospital has an arrangement; in-house tracking systems to see whether doctors are referring properly and whether patients actually receive the services; and elaborate billing and payment systems to reconcile charges.

What's more, hospitals claim they may have trouble complying with both the bundling rules and other laws or regs, particularly with regard to antitrust liability.

Associations cite a 1990 finding by the U.S. Court of Appeals for the 11th Circuit that "the channeling of patient choice is sufficient to show injury to consumers" for bringing an antitrust action.

"Quite clearly," the AHA summary says, "since hospitals reasonably cannot be expected to enter into arrangements with every outside entity, the outpatient bundling regulation would compel hospitals to try to channel patients to those outside entities that are under arrangement and thereby restrict patient choice." As a result, analysts say, hospitals could comply with the bundling rule and avoid the $2,000 penalty only to be hit with an antitrust suit for treble damages. On another count, hospitals are worried that complying with the bundling rule could put them in conflict with Medicare's anti-kickback statute.

The preamble to the "safe harbor" regulations published in July indicates the OIG recognizes that hospitals are in a position to make or infuence referrals or otherwise generate business for other providers. "Accordingly," the AHA explains, "safe harbor protection apparently will not be available for many common payment practices that are contemplated by the bundling regulation, such as financial arrangements between hospitals and diagnostic centers to serve hospital patients."

Group representatives who petitioned Dr. Wilensky won a meeting on October to discuss the problems and possible remedies. At press time, the groups were preparing for a follow-up session in November and HCFA was still holding off on final regulations.

While those developments unfolded, the OIG advanced discussions about a system that could prohibit labs from directly billing Medicare for their services.

Under this related bundling scheme, known as a laboratory roll-in (LRI), Medicare would add a factor of perhaps $13.50 per physician office visit as reimbursement for all lab testing. It would then be up to individual laboratories to negotiate pay arrangements with the physicians (see Washington Report, MLO, February 1991).

Earlier in the year, the OIG offered a preliminary estimate that an LRI would save the Government $100 million a year in administrative expenses alone. The new savings projection contained in a recent report: $1 billion the first year and more than $12 billion over five years.

The report upholds the OIG's belief that the current fee-for-service arrangement creates incentives to overutilize lab services, whereas the LRI would control test pricing and volume simultaneously.

As currently envisioned, only procedures defined as physician services would be excluded from the LRI. Lab payments would be a fixed amount added to physician charges in the HCPC procedure codes 90000 series, and Medicare would no longer process claims in the 80000 series. The OIG estimates the bundling would eliminate more than 25% of the line items that are currently processed by carriers.

HCFA generally supports the concept of bundling services for payment; however, the agency does not agree the LRI is a good idea. A letter sent to Inspector General Richard Kusserow from Dr. Wilensky outlined the following key objections:

* $980 million of the projected $1 billion in first-year savings would stem from patient coinsurance on the newly defined package of services that go into a physician office visit. If the Administration succeeds with a proposal to reimpose laboratory coinsurance outright, most of the LRI savings would evaporate.

* An LRI would conflict with the proposed regulations to implement CLIA '88 because the system would not identify individual tests performed. That would make it impossible for carriers to correlate tests performed with the lab's certification status.

* The LRI, which would treat all physicians the same, would not be a fair payment system because test ordering practices and costs of tests typical to each specialty may differ greatly.

* It would be difficult if not impossible for HCFA to develop lab payment reform while implementing physician payment reform. The administrative burden is exacerbated by mandates to implement CLIA and the ban on physician self-referral to lab facilities.

The OIG isn't buying all those arguments. Its officials continue to believe the LRI is a viable concept for controlling the steady rise in lab reimbursements. They are recommending that HCFA research and develop the LRI mechanism and propose legislation to implement it within two years. The potential reception from Congress is uncertain, although some analysts believe budget-conscious lawmakers may find it appealing as a less overt way of increasing patient copayments.
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Title Annotation:Washington Report; proposed payment scheme for Medicare's outpatient and laboratory services
Author:Albertson, David
Publication:Medical Laboratory Observer
Date:Dec 1, 1991
Previous Article:Imperative skills for today's lab manager.
Next Article:Stat testing in the new CLIA era.

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