Medical Device Daily Associate

Among a laundry list of proposed changes to policies and payment for hospital outpatient services unveiled on Tuesday, the Bush administration, via the Centers for Medicare & Medicaid Services (CMS; Baltimore), asked for a cut of 5.1% across the board in Medicare payments for services provided by doctors to elderly and disabled patients in the outpatient setting in 2007.

It said the reduction is necessary because spending for these services has been increasing faster than expected and faster than the annual goals set by a statutory formula.

The increase will directly affects beneficiaries because their premiums are set each year to cover about 25% of projected spending under Part B of Medicare, which pays for doctors' services and other outpatient care.

Mark McClellan, MD, CMS administrator, said in a Tuesday conference call on the proposed changes that the premium would probably rise to $98.40 next year, up $9.90, or 11% over this year's premium. These figures do not include separate premiums paid by many beneficiaries for prescription drug coverage.

Budget estimates are based on the assumption that doctors' fees under Medicare will be cut in 2007 and later years, as required under the statutory formula. Congress often steps in to block or moderate such cuts, but it normally looks for some way to offset the cost of its action, often by trimming payments to other healthcare providers.

McClellan said it would cost the government roughly $13 billion over five years if it blocked the cut scheduled for 2007, without giving doctors any allowance for inflation.

“It's a lot of money, and that's why we think it's so important not just to put more money into a payment system that is clearly broken and clearly not sustainable but rather, to make some real progress now towards a more sustainable quality-focused payment system for physicians,” McClellan said.

He noted that hospital outpatient payments have increased substantially over the past few years, and that between 2005 and 2006, hospital outpatient expenditures grew by nearly 12%.

“Our current projections are for growth of close to 10% between 2006 and 2007,” he said, adding: “this is a real challenge for the program and a challenge for beneficiaries who pay more in copays and pay for 25% of these expenditures in their premiums.”

“Our current system of paying for physician services is simply not sustainable, from the point of view of taxpayers or Medicare beneficiaries,'' McClellan said. He added that the alarming increases in hospital outpatient service payments “is clearly showing that our hospital outpatient perspective payment system is not doing the job when it comes to maintaining a sustainable rate of growth, and so we're going to be looking diligently and urgently at alternatives.”

CMS also proposed the payment system for services provided in ambulatory surgical centers (ASCs) that, if adopted, would be implemented in 2008.

In what McClellan termed a “budget neutral” proposal for calendar year 2008, CMS would add 14 procedures to the list of surgeries for which Medicare would make a facility payment to ASC's.

ASC payment rates under the revised system for the expanded list of approved surgical procedures would range from $3.68 to $16,146.03, reflecting 221 groups of surgical procedures under the revised system. In contrast, the nine current payment rates are based on a 1986 survey of ASC costs that range from $333 to $1339.

“The goal is to help beneficiaries get the outpatient care they need in the most appropriate setting by addressing the payment differences that may inappropriately favor one outpatient setting over another and that consequently may lead to overall increases in Medicare costs,” McClellan said. This will be achieved, he said, by aligning “the payments between the ASC system and the hospital outpatient system to encourage the most efficient and appropriate choices of outpatient care for beneficiaries.”

As part of a final report to Congress on implementing a strategic plan for so-called specialty hospitals, the Bush administration said that it would require hospitals to provide the government with information on their “investment and compensation relationships with physicians.'' Hospitals that specialize in cardiac, orthopedic or surgical care will have to inform patients if any staff doctors have “an investment interest'' in the hospital.

Hospitals look to doctors as a source of referrals. But Medicare officials said doctors could be violating federal law if they received financial returns out of proportion to their investments

Hospitals that do not comply with the new disclosure requirements will face civil fines of up to $10,000 a day.

In response to traditional full-service hospitals who have expressed concern that specialty hospitals can promote better coordination between the facility and the staff physicians because of the opportunity for physician ownership, CMS has proposed “leveling the playing field” by enabling hospitals to provide better financial support for high quality, low-cost care via gainsharing initiatives.

“We're going to implement demonstration programs to support hospital/physician collaboration, CMS will implement demonstration programs to support better hospital-physician collaboration” via gainsharing, MClellan said. “We're entering a new era in terms of disclosure and transparency and oversight of the specialty hospitals.”

More than 42 million people are insured by Medicare. Officials estimate that the program will pay $61.5 billion to 875,000 doctors and other healthcare professionals next year.

Such spending has increased sharply in recent years, McClellan said, because of “increases in the number and complexity of services furnished to Medicare beneficiaries, including more frequent and intensive office visits, and rapid growth in the use of imaging techniques, laboratory services and physician-administered drugs.''