AAMC Comment Letter to HCFA
on Outpatient PPS Interim Final Rule
June 6, 2000
Nancy-Ann Min DeParle, Administrator
Health Care Financing Administration
Department of Health and Human Services
Room 443-G
Hubert H. Humphrey Building
200 Independence Avenue S.W.
Washington, DC 20201
Attention: HCFA-1005-FC
Dear Administrator Min DeParle:
The Association of American Medical Colleges (AAMC or the
Association) welcomes this opportunity to comment on the Health
Care Financing Administration's (HCFA or the Agency) final
rule with comment period entitled "Prospective Payment
System for Hospital Outpatient Services," 65 Fed.
Reg. 18434 (April 7, 2000) (interim final rule). The AAMC
represents approximately 400 major teaching hospitals, all
125 accredited U.S. medical schools, 86 professional and academic
societies, and the nation's medical students and residents.
In addition to responding to comments associated with the
September 8, 1998, proposed rule, the interim final rule implements
provisions mandated by the Balanced Budget Refinement Act
of 1999 (BBRA).
Major teaching hospitals and health systems play a critical
role in providing outpatient services to Medicare beneficiaries.
Teaching hospitals' outpatient departments are a source of
specialized, unique, and referral/standby services. Their
clinics and emergency rooms serve as a primary source of health
care for low-income Medicare beneficiaries and other individuals.
In addition, teaching hospital outpatient departments provide
sites for clinical education of all types of health professionals,
and provide an environment in which clinical research can
flourish.
Financial Impact of the Outpatient PPS
Medicare outpatient payments are critical for major teaching
hospitals to continue to support their clinical, education,
and research roles. Consequently, the AAMC is extremely disappointed
that the outpatient prospective payment system (PPS) currently
does not include a payment adjustment that eliminates the
financial disparity in outpatient PPS payments between major
teaching hospitals and other hospitals. According to the interim
final rule, without the transitional corridor payments, major
teaching hospitals would lose, on average, 3.7 percent in
payments under the outpatient PPS, compared to gains of 1.6
percent and 0.5 percent for minor and non-teaching hospitals,
respectively. The transitional corridor payments will help
to alleviate some of these losses. However, these payments
are only temporary, lapsing after 2003. Moreover, we believe
HCFA's financial analysis may have underestimated the
level of payment losses that a number of teaching hospitals
will sustain under the outpatient PPS. 1
The AAMC urges HCFA to monitor closely the financial impact
of the outpatient PPS on major teaching hospitals during the
transitional corridor period. It is likely that a payment
adjustment for major teaching hospitals will continue to be
necessary to address the payment disparities between these
and other institutions.
Transitional Pass-Through Payments for Innovative Medical
Devices, Drugs, and Biologicals
The interim final rule implements the BBRA requirement that
certain items receive "pass through" payments for
a period of two to three years. These items include orphan
drugs; drugs and biologic agents use in cancer treatment;
and new medical devices, drugs, and biologicals that meet
specified criteria. For drugs and biologicals, the pass-through
amount will be the difference between 95 percent of the item's
average wholesale price and the portion of the ambulatory
payment classification (APC) amount determined by HCFA to
be associated with the item. For devices, the additional payment
will be the difference between a hospital's charges adjusted
to costs and the portion of the applicable APC amount associated
with the device.2 The pass-through
payments cannot exceed 2.5 percent of total outpatient payments
through 2003; for 2004 and beyond, these payments cannot exceed
two percent of total payments. If HCFA estimates that the
pass-through payments will exceed these amounts, it will reduce
the pass-through amounts accordingly. HCFA will collect cost
data during the 2-3 year pass-through period, after which
the item will be packaged into the service with which it is
clinically assigned, or a new APC will be created.
The pass-through payments are extremely important to major
teaching hospitals, because these institutions often are harbingers
for providing the most recent advancements in patient care.
The interim final rule states that HCFA will update the list
of items eligible for pass-through payments on a quarterly
basis, beginning October 1, 2000. It is critical that, as
they are developed, new items that meet the BBRA criteria
be added to this list as expeditiously as possible. Even with
HCFA's quarterly update schedule, hospitals that use new drugs
or items that have yet to be included on the list could go
unreimbursed for at least three months, and possibly longer.
The quarterly updates will require corresponding quarterly
changes to the Outpatient Code Editor (OCE) and Pricer. It
is important that HCFA implement the changes to these software
components on a timely basis to reduce administrative burdens
for hospitals and to ensure no disruptions in APC or pass-through
payments.
In the interim final rule, HCFA states that it cannot estimate
to what extent, if any, pass-through payments will exceed
2.5 percent of total payments in 2000 and 2001. Consequently,
the interim final rule includes no uniform reduction factor
to pass-through payments during this period. The Association
believes this is a prudent course of action.
The AAMC recommends that HCFA publish its methodology for
estimating future pass-through payments. This calculation
will serve as the basis for determining whether a uniform
prospective reduction in pass-through payments is necessary
in the future.
Transitional Corridor Payments
As required by the BBRA, the interim final rule provides
that hospitals may receive additional payments through 2003
to help limit outpatient PPS payment losses. These payments
will be made on an interim basis, beginning shortly after
the outpatient PPS is implemented. According to Medicare Program
Memorandum Transmittal A-00-23 (April, 2000), Medicare will
make interim payments that equal 85 percent of a transitional
corridor payment estimate that is calculated using an outpatient
payment-to-cost ratio of 0.8.
The transitional corridor payments will provide critical
funds to major teaching hospitals. Providing these payments
on an interim basis is especially important given the financial
uncertainties associated with the introduction of a new payment
system. The April 2000 program memorandum, however, does not
explain how HCFA concluded that the interim payments should
be based on a payment-to-cost ratio of 0.8 or that HCFA will
only pay 85 percent of its calculated estimate.
We believe HCFA should explain its rationale for these decisions.
In addition, we believe that if a hospital can demonstrate
that its outpatient payment-to-cost ratio is higher or lower
than the 0.8 level, the hospital should be permitted to have
its interim transitional corridor payments modified accordingly.
On a related issue, HCFA should describe the process for
determining retrospective payment adjustments, if interim
payments are higher or lower than hospitals' actual experiences.
This description should answer whether interim payments will
be compared to outpatient payments reflected on settled or
audited cost reports.
Inpatient Only Procedures
The interim final rule contains a list of services that HCFA
has designated "inpatient only." These services
will not be reimbursed if performed in an outpatient setting.
While HCFA made some changes to this list as it was initially
proposed, there are procedures that remain on the inpatient
only list that are commonly performed safely in the outpatient
departments of major teaching hospitals. Examples of such
procedures include Ablate heart dysrhythm focus (CPT code
33250), and Placement, bile duct support (CPT code 47801).
In addition, CPT codes 92977 (Dissolve clot, heart vessel)
and 92982 (Coronary artery dilation) often are done on the
same patient during the same outpatient session, however,
code 92977 is now considered "inpatient only."
We continue to believe that the determination of whether
a patient should be admitted as an inpatient or treated as
an outpatient should be based on the professional judgement
of the physician, as overseen by Medicare Peer Review Organizations.
HCFA's current policy penalizes beneficiaries because they
must be admitted as inpatients for these procedures rather
than receiving services safely in an outpatient setting and
then returning to their homes. The policy also distorts medical
practice patterns in teaching hospitals because it often is
these institutions that determine if inpatient procedures
can be safely performed in an outpatient setting.
We urge HCFA to select and convene its Outpatient PPS Advisory
Panel (see below) and address this issue as soon as possible.
Outlier Payments
The interim final rule provides that hospitals may receive
outlier payments when the costs of an outpatient service are
more than 2.5 times the corresponding APC payment (including
pass-through payments). The outlier payment will equal 75
percent of the costs in excess of the threshold. Until 2002,
HCFA will determine outlier payments on a claim basis, rather
than a specific service basis.
HCFA must provide more information concerning the cost-to-charge
ratios that will be used to determine whether an outpatient
claim (prior to 2002) or individual service (after 2002) meets
the outlier threshold. According to the interim final rule
preamble (page 18498), a hospital's overall cost-to
charge (CCR) ratio will be used to calculate claim costs,
while Program Memorandum A-00-23 states that an outpatient
CCR will be used. It is important to clarify these conflicting
statements because hospitals' overall and outpatient CCRs
vary, which would impact the number of services that will
qualify for outlier payments.
After 2002, it appears that HCFA will use department-level
CCRs to determine whether a particular outpatient service
meets the outlier threshold. It is unclear, however, which
department of a hospital will be used to identify the
hospital's CCR for a particular outpatient service. For a
variety of reasons, the departments to which hospitals assign
costs for particular outpatient services vary. Ideally, for
each hospital, HCFA should use the CCR of the department in
which the hospital assigns the costs for the service in question.
If HCFA decides to use a national CCR mapping procedure to
determine which department CCR will apply, hospitals should
be permitted to request outlier payments if they demonstrate
that the actual department CCR to which they assign the costs
for a service results in a cost calculation that meets the
outlier threshold.
In both the claims level and service-level outlier determinations,
it is important that HCFA publish the year that corresponds
to the CCRs that will be used. In addition, HCFA should explain
how it will derive CCRs for hospitals that have merged or
been acquired.
Outpatient PPS Advisory Panel
The BBRA requires HCFA to consult with an expert outside
advisory panel when annually reviewing and updating the APC
groups and relative group weights. The interim final rule
preamble also states that this panel will be consulted concerning
decisions about "inpatient only" procedures.
The AAMC would be pleased to participate in this process
and help identify individuals that possess the expertise needed
to serve on such an important panel. We believe it that it
is imperative that this panel include representative(s) from
teaching hospitals. As discussed earlier, teaching hospitals
play key roles in the outpatient arena, ranging from providing
large numbers of routine clinic visits to performing unique
and specialized outpatient procedures. In addition, teaching
hospitals often provide the setting within which developmental
activities relating to the efficacy and safety of new drugs
and procedures occur. For all these reasons, we believe a
teaching hospital perspective would enrich the Advisory Panel's
discussions and subsequent recommendations.
Provider-Based Location Determinations
One of the requirements for being a provider-based entity
is that the entity be located in the immediate vicinity of
the main provider. HCFA defines "immediate vicinity"
as being on the same campus, or meeting a rather complicated
formula, presumably designed to ensure that both the main
provider and the provider-based entity primarily serve the
same patient population. The "75 percent criterion,"
as it is known, is quite confusing to AAMC members. Many are
concerned that they do not even have available the data that
are necessary to meet the requirement.
A further concern is that as group, teaching institutions
may be disadvantaged by the 75 percent rule. It is not unusual
for patients to travel long distances to receive the special
services that may be available only at a teaching hospital.
The diverse patient populations served by many teaching hospitals
may make it impossible to meet the 75 percent test. It is
unreasonable to fail to take into account the special needs
of teaching institutions. The AAMC believes it is imperative
that HCFA urgently develop a more flexible approach to defining
"immediate vicinity."
If you have questions regarding our comments, please contact
Robert Dickler, Senior Vice President of the Association at
202-828-0491, or Karen Fisher, Assistant Vice-President at
202-862-6140.
Sincerely,
Jordan J. Cohen, M.D.
1. This can occur because of
HCFA's inherent difficulties in estimating pre-PPS payments
on a national basis. In developing the Agency's outpatient
database, HCFA staff made national-level decisions to identify
the department to which a hospital's department-level cost-to-charge
ratio (CCR) would be applied to each of the charge amounts
on an outpatient claim. If this department designation was
different than the actual department to which a hospital assigned
the outpatient costs associated with a claim's charges, the
level of costs that HCFA derived would also differ. If the
department-level CCR that HCFA used was lower than the particular
hospital's actual CCR for a particular outpatient service,
the resulting cost level (and hence pre-PPS payment amount)
would be lower that the hospital's actual costs or pre-PPS
payments. Consequently, when HCFA's derived pre-PPS payments
are compared to PPS payments, the financial losses would appear
lower than they are in actuality.
2. For the current time, HCFA
will pay the full cost amount (for devices) or 95 percent
of AWP (for drugs) and will not reduce these amounts by a
portion of the APC payment.
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