Medicare May Slash Payments for High-Tech Outpatient Care

Medicare is planning to slash its payments for some innovative and frequently used outpatient procedures, including the implanting of pacemakers such as the one Vice President Dick Cheney got in June to keep his heart rhythm steady.

The proposed cutbacks, which would cover devices and drugs, are driven by a congressional edict to limit spending on high-tech medical care in an attempt to restrain soaring costs for outpatient treatments.

Congressional and industry sources say the federal Center for Medicare and Medicaid Services will issue new rules within the next few days. They would take effect Jan. 1 and mandate substantial reductions in payments for a wide range of services, including chemotherapy treatments for cancer and the implantation of pacemakers.

But medical experts warn that the move to save money could backfire: Hospitals might merely opt to keep these patients overnight to collect the larger amounts of federal reimbursements allowed for inpatient care.

The result could mean that millions of Medicare patients might stay in the hospital unnecessarily, and the taxpayers’ total bill for Medicare would go up anyway because of the increased cost of keeping someone in the hospital.

The potential clash of federal regulations and medical needs is the latest episode in the perennial government struggle to control Medicare costs. As medical care gets more sophisticated and more expensive, consumers demand the latest treatments, and Congress tries to keep voters happy without busting the federal budget.

But the effort to save money on outpatient care could have a perverse effect, warned Dr. Michael Karpf, vice provost of the UCLA Hospital Systems and director of the UCLA Medical Center.

If the rules take effect and UCLA suffers big financial losses on outpatient procedures, “we will have to admit the patients” for a hospital stay, he said. “It’s the wrong direction to go. Our patients have understood it is better to go home than to stay in the hospital, and we agree with that.”

Having a procedure performed when a patient stays in the hospital can double or triple the bill for the same procedure performed on an outpatient basis, he said.

UCLA isn’t alone in its worries. Many hospitals “will be facing a very difficult situation,” said Tom Nickels, senior vice president for federal relations at the American Hospital Assn.

In an unusual bipartisan appeal, key members of Congress have sought a delay in issuing the new rule until more information is available about the costs of the 1,100 high-tech items affected by the cutbacks. They hope regulators will take a closer look at how the new technology is used and determine whether some of these procedures should be reclassified as standard medicine.

It is vital to “prevent any train wreck in hospital outpatient payments for services using drugs or devices,” said the letter from Rep. William M. Thomas (R-Bakersfield), chairman of the House Ways and Means Committee, Rep. Nancy L. Johnson (R-Conn.), chairman of the health subcommittee, and Rep. Pete Stark (D-Hayward), the ranking Democrat on the subcommittee.

“We must ensure that seniors have access to efficacious health care treatments and innovative technologies,” they said in the July 27 letter to Thomas Scully, the administrator at the Center for Medicare and Medicaid Services.

But Scully’s staff is in a squeeze created by Congress itself, which in 1999 limiting high-tech Medicare spending to a ceiling of 2.5% of all outpatient spending. Now, spending is breaking through that limit, forcing a cutback, regulators say.

“We are still evaluating what the congressionally mandated caps mean for next year,” said Bill Pierce, a spokesman for the Department of Health and Human Services, which administers the Medicare program. “We intend to work with Congress to protect Medicare beneficiaries’ access to quality care and technology.”

Medicare, which covers 35 million people over 65 and 5 million disabled people, has a complex reimbursement system that is adjusting very slowly to the rapid movement of medical care away from the hospital bed and to the outpatient clinic.

Charges for patient care within a hospital are “bundled,” with payments designated in advance, depending on the type of ailment or condition. There is a fixed payment, for example, when someone gets coronary bypass surgery. If the hospital can treat and discharge the patient for less than the government payment, it makes a profit. Otherwise, it loses money.

The inpatient payment schedule is adjusted each year and is financially generous enough to accommodate developments in rapidly changing technology such as newer-model pacemakers and cancer drugs that might cost $3,000 a dose.

Until 1997, the outpatient system was largely unrestrained, with hospitals reimbursed on a cost-per-service basis for each procedure and piece of equipment. Then Congress decided to create a fixed payment in advance for each procedure, a system similar to that used for inpatient bills.

The new system began operating a year ago. Yet, because Congress wanted to give outpatients coverage for the high-tech care, it permitted extra payments for such services. The catch was that those payments were not allowed to exceed more than 2.5% of the total budget for outpatient spending by Medicare.

Now, the cost of those items are apparently running at as much as 10%, sources said. To keep total spending under control for the coming year, Medicare officials said they had no choice but to cut spending on these devices and products.

The new rule will not contain a single across-the-board percentage cut for everything. However, there’s concern that some individual products may suffer deep cuts.

For example, a simple pacemaker may cost $5,000 and the hospital now receives full reimbursement of $5,000, according to Carol Kelley, executive vice president of AdvaMed, which represents the manufacturers of high-tech medical devices. If the rule takes effect, she predicted, the payment might be reduced to $1,000 and the hospital would suffer a loss of $4,000 on that piece of equipment.

To avoid losing money, UCLA and other hospitals would probably encourage doctors and patients to have the procedures done on an inpatient basis. But a sophisticated facility such as UCLA costs $2,500 or $3,000 a day just for its basic overhead for a patient. “We’re an expensive hotel,” Karpf joked.