Medicare officials are changing the way hospitals get paid to provide cardiac care in an effort to level the playing field between general hospitals and cardiac specialty hospitals.
Proponents of specialty hospitals are welcoming the move, saying it will show that physician owners aren't skimming the cream off the system and are providing efficient care.
However, opponents object that the payment changes, which went into effect on Oct. 1, don't address the apparent underlying conflict of interest when physicians refer to hospitals in which they have an ownership interest.
Officials at the Centers for Medicare and Medicaid Services are replacing 9 current cardiovascular diagnosis-related groups (DRGs) commonly billed by specialty hospitals with 12 new DRGs that the agency says will better recognize the severity of illness of the patient.
The changes affect DRGs for coronary artery bypass graft surgery, permanent pacemaker implantation, percutaneous vascular procedures, and “other” vascular procedures.
In the 2006 Inpatient Prospective Payment System final rule, published in August, CMS said that the changes will address a portion of the “inappropriately higher payments” to specialty hospitals under the current system.
Compared with the current DRGs, the new DRGs have higher average standardized charges for procedures in patients diagnosed with a major cardiovascular condition (MCV), as identified in the ruling, and lower charges for procedures in patients without an MCV diagnosis.
For example, CMS has replaced DRG 107, for coronary bypass with cardiac catheterization, which had average standardized charges of $82,398, with two new DRG codes: New DRG 547 will be used for procedures in patients with an MCV diagnosis carrying a charge of $92,542 (up 12.3%), and new DRG 548 will be used for procedures in patients without an MCV diagnosis, valued at $71,906 (down 12.7%).
The changes to the DRGs are expected to decrease the case-mix index and the resulting payments by an average of 1% among specialty hospitals, according to CMS. On average, the impact of the changes on any particular hospital group will be small. Urban hospitals are expected to see a 0.1% increase and rural hospitals should see a 0.1% decrease, CMS said.
“We believe these new DRGs are an improvement over the existing DRG structure because they better recognize a patient's severity of illness and, accordingly, permit us to make higher payments for more severely ill patients who require more resources while lowering our payments for less severely ill and less resource-intensive patients,” CMS said in its final ruling.
In the meantime, CMS officials are continuing to examine the specialty hospital issue and could propose further changes to the DRG system for fiscal year 2007.
Samuel Wann, M.D., chairman of cardiovascular medicine at the Wisconsin Heart Hospital, said he has no objection to changes that make payments more accurate. “I'm against gaming the system, too,” he said.
Even if payments for some services decrease, Dr. Wann predicts that his hospital will do fine, because it can rely on efficiency and economies of scale.
Regina Herzlinger, a professor at Harvard Business School who has analyzed the issue of specialty hospitals for a number of years, agrees. The more accurate the reimbursement is, the more institutions that provide cost-effective care will thrive, she said.
“My bet is that this will be very good for the specialty hospital.” The changes will weed out the less cost-effective providers, whether they are in general hospitals or specialty hospitals, she said. “They should be competing because they are better and cheaper.”
Richard Coorsh, a spokesman for the Federation of American Hospitals (FAH), also supports the reexamination of DRGs as a way to improve the system overall. But he doesn't see it as addressing the main objection that community hospitals have to physician-owned specialty hospitals—self-referral. FAH has urged CMS to prohibit physician owners of specialty hospitals to self-refer patients.
And FAH is supporting the Hospital Fair Competition Act of 2005 (S. 1002), which was introduced by Sen. Charles Grassley (R-Iowa) and Sen. Max Baucus (D-Mont.). The legislation would, among other things, prohibit certain physician self-referrals to physician-owned specialty hospitals.
Congress imposed a moratorium on physician-investor referrals of Medicare or Medicaid patients to new specialty hospitals, effectively freezing their development. That moratorium expired on June 8, but CMS has established a sort of administrative moratorium by halting processing of Medicare participation applications from specialty hospitals until January 2006.
The Grassley-Baucus legislation is a “step in the right direction,” Mr. Coorsh said.
He said FAH officials are hopeful that it will be acted on before the administrative moratorium expires in January 2006.