Policy Changes in Healthcare Finance Healthcare Finance

¶ … Policy Changes in Healthcare Finance

Healthcare Finance

CPT Codes

The American Medical Association (2013) developed the Current Procedure Terminology (CPT) codes decades ago in the 1960s. The first edition was published in 1966 and over the subsequent years several updated versions were created. The reasons for developing the CPT code system was to make communications about medical procedures easier between health care providers, help patients and their doctors submit claims for services to insurance providers, create a structure that would facilitate the development of an electronics records system, and create categories that would help researchers collect data on the health care field.

The CPT code system expanded with each subsequent edition and with publication of the second edition the codes were transitioned from a 4 to a 5 digit system (American Medical Association, 2013). This transition was necessary as the services covered by the code expanded beyond medicine, radiology, and laboratory tests to include diagnostic procedures and treatments. By 1983, the Centers for Medicare and Medicaid Services (CMS) adopted the CPT code system and Congress enacted legislation mandating the use of the CPT code system for both inpatient and outpatient services the following year. Since then, the CPT coding system has become the primary system used by medical services in the U.S.

The reimbursement rates for each CPT code are calculated using a formula that includes a number of different factors (ACRO, n.d.). The "Work RVU" represents the contribution made by the physician(s) to the procedure in terms of time expended and the skills and training required to complete the procedure. "RVU" stands for relative value units. Work RVUs used by Medicare are supposed to be reviewed every five years to ensure physicians are adequately compensated and patients are not being overcharged. Higher RVU values represent more time and/or skills to accomplish a procedure and thus a higher reimbursement rate.

Practice Expense RVU (PE RVU) represents the overhead that can be attributed to providing the coded medical service (ACRO, n.d.). These costs include rent, support staff, equipment purchases and maintenance, consumables, and other services essential to operating a clinic. These costs are broken down into 'direct' and 'indirect' costs, with the former representing costs associated with nursing staff, consumables, and equipment, while the latter represents things such as rent and billing services.

The PE RVU subcategories are important because it explains why there is such a big difference in the reimbursement rates for procedures provided by facilities or non-facilities (ACRO, n.d.). Facilities are considered hospitals, while non-facilities would be a doctor's office or specialty clinic. Essentially, the expenses incurred when maintaining a free-standing clinic, apart from a hospital, are entirely reimbursed through the CPT code system. By comparison, the overhead expenses that hospitals incur for providing the same expenses are recovered through Medicare under the Hospital Outpatient Prospective Payment System (HOPPS/OPPS). In other words, when a doctor provides a medical service in his or her office the reimbursement rate reflects the fact that the doctor is responsible for having the needed support staff, exam room, billing service, and consumables (National Health Policy Forum, 2009). Should a physician provide the same service in a hospital clinic, the hospital is financially responsible for the support staff, equipment, exam room, and consumables and is reimbursed under HOPPS/OPPS.

The other factors that contribute to reimbursement rate calculations are Malpractice RVU (MP RVU), Geographic Practice Cost Indices (GPCI), and Conversion Factor (CF) (ACRO, n.d.). The MP RVU is self explanatory and the GPCI represents differences in physician work, expenses, and malpractice insurance based on geographic location. The CF simply converts the RVU into a dollar amount; however, the CF also incorporates a congressionally-mandated budget constraint that limits how much Medicare can spend each year. This spending limit, as implemented, is called budget neutrality. The formulas for calculating non-facility and facility reimbursements are as follows:

1. [(Work RVU * Work GPCI) + (non-facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)]

2. [(Work RVU * Work GPCI) + (facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)]

Part II: Ambulatory Surgery Centers

Ambulatory surgery centers (ASCs) first emerged as the brainstorm of two surgeons wanting to establish an outpatient surgery clinic as an alternative to inpatient services provided by hospitals (reviewed by Manchikanti and Boswell, 2007). When Medicare first recognized ASCs as providers in 1982 the number of procedures covered was 97. By 2006, Medicare was covering over 2,500 procedures in over 4,700 ASCs across the U.S.

In 1996 the amount being reimbursed by Medicare for ASC services totaled $1 billion dollars, but due to the growth of both the number of procedures and ASC facilities billing was expected to reach $2.9 billion by 2006 (Manchikanti and Boswell, 2007). The amount recovered by ASCs through Medicare is dwarfed by the amount recovered by hospitals; totaling $18 billion in 2001 and increasing to $35 billion in 2008. Due to rising costs the Healthcare Financing Administration at CMS recommended in 1998 limiting the number of ASC services eligible for coverage and the size of the reimbursements. Both providers and Congress felt otherwise and the proposed rule was put on hold.

The Medicare Modernization Act (MMA) of 2003 required the Government Accountability Office (GAO) and CMS to work together and move ASC reimbursement to the Hospital Outpatient Department (HOPD) system (Manchikanti and Boswell, 2007). Prior to the enactment of the MMA, ASC reimbursements were calculated using ASC estimates of costs for each procedure. These reimbursement rates were last reviewed and revised in 1990 and were therefore a bit outdated by the time MMA was signed into law. One of the advantage of moving reimbursement for ASC services to the HOPPS/OPPS system is that reimbursement rates are revisited annually. Hospitals are required to submit annual reports to CMS containing the necessary data for making reimbursement rate revisions. Under the MMA, the GAO and CMS are required to compare the costs of procedures performed by ASCs and hospital clinics.

Accordingly, CMS proposed a new rule that would place ASC payments under HOPPS/OPPS and significantly expand the number of procedures that can be performed at ASC facilities (Manchikanti and Boswell, 2007). This transition was expected to increase the reimbursement rates for many procedures and be lower for others. The average reimbursement rate for ASC services was predicted to be about 62% of that for hospitals under the HOPPS/OPPS system in 2008. The Final Rule for transitioning ASC payments to the HOPPS/OPPS system was published by CMS on October 30, 2008 and would go into effect for the calendar year 2009 (Health Capital Consultants, 2008). A total of 40 additional CPT codes would be covered at ASC facilities and reimbursement would increase and decrease for 2,475 and 92 ASC procedures, respectively. The rate of reimbursement was changed gradually over a four-year period so that payment would be 25/75% for 2008, representing 25% of the new rates and 75% of the 2007 ASC rates. In 2009 and 2010 the ratios would be 50/50 and 75/25, respectively, and be 100% transitioned to the new rates by 2011.

The overall effect of this policy change was to encourage surgeries to be performed in an outpatient rather than an impatient setting (Health Capital Consultants, 2008). Reimbursement for ASC services was expected to increase 11.4% between 2008 and 2009. By comparison, Medicare reimbursement for hospital surgeries under HOPPs/OPPS is expected to increase only 5.6% during the same period. In addition, ASC services were being reimbursed at 80% of what a hospital would receive for the same services in 2003, but this difference was expected to decline to 59% by 2009. In other words, the ability of ASCs to stay in business will be reduced as the rule is implemented.

Everyone appears to be a loser under the new CMS rule for ASC payments. Hospitals will lose surgery business to ASC clinics and ASC facilities will find it increasingly difficult to provide high quality care as reimbursement rates fall (Health Capital Consultants, 2008). The biggest losers, however, will be gastroenterology and pain management, which were expected to lose 11% and 6% in payment amounts under Medicare, respectively. Although it may seem like these areas of medicine represent only a small percentage of procedures handled by ASCs, two-fifths of the top ACS procedures performed could be classified as interventional pain management (Manchikanti, Singh, and Hirsch, 2012).

A recent study examined the urological services performed at ASC clinics in the state of Florida and found evidence that ASC facilities will continue to grow at the expense of hospital-based inpatient clinics and be relatively insulated from changes in reimbursement rates (Strope, Daignault, Hollingsworth, Wei, and Hollenbeck, 2008). This study also revealed that the main concern for ASC physicians should be the mix of services provided, because common procedures will continue to experience reimbursement declines. Strope and colleagues (2008) suggested that ASC clinics should supplement the cost of common procedures with the income generated by less common ones, since the reimbursement rates for the latter is expected to increase. These findings suggest that ASCs will remain viable, thrive even, if they diversify and offer both rare and common procedures.

A more recent analysis predicting the winners and losers during the 2009 calendar year suggested that the losers will be gastrointestinal (-6%), neurological (-3%), and ophthalmology (-1%) (Editors, 2008). By contrast, the winners were expected to be integumentary (7%), genitourinary (11%), respiratory (14%), cardiovascular (16%), musculoskeletal (19%), and auditory (25%). Since eye procedures represent the highest volume surgeries performed by ASCs facilities this prediction tends to validate the claim by Strope and colleagues (2008) that common procedures will tend to experience declines in reimbursement rates over time.

Part III: MS-DRG System

The Deficit Reduction Act (DRA) of 2005 contained provisions mandating a shift of focus for Medicare and Medicaid reimbursement toward improving the quality of the healthcare services (McNutt et al., 2010). This was addressed in part by implementing Medicare severity diagnosis-related groups (MS-DRGs) and 'present on admission' (POA) codes. The POA codes are used to document any conditions a patient may have when admitted to inpatient care so that hospital acquired conditions (HACs) can be more readily identified. Should a HAC occur, then the CMS reimbursement level for HAC diagnosis and treatment is reduced compared to reimbursement levels for the same condition identified as POA. The intended effect is to penalize hospitals for providing substandard care. HAC metadata for any given hospital can then be used to assess institutional performance.

The MS-DRG classification system allows hospitals to document the severity of conditions a patient presents with in admissions (Editors, 2007). There are three levels of severity that can be assigned, from most to least severe. At the severe end of the scale a patient can be classified as having a major complication and/or comorbidity (MCC). The category for less severely ill patients with a complication and/or comorbidity is CC and finally the least ill patients have no MCC or CC. There are 750 MS-DRGs and most allow documentation of disease severity, but 40 do not. For example, MS-DRG 192 codes for chronic obstructive pulmonary disorder (COPD) without a CC or MCC and the reimbursement rate was $4,480 in 2008. The reimbursement rate for COPD with a CC (MS-DRG 191) was $5,173 and with MCC (MS-DRG 190) $6,127. These differences in reimbursement levels are intended to create an incentive to accurately document the severity of patient illness during the admissions process and reduce the practice of subsidizing treatment of severely ill patients with the profits made from treating less ill patients (Altman, 2012).