A last-minute buying binge will not permit hospitals to escape the proposed phase-out of the Medicare capital pass-through program (SCAN 2/13/91). Payments for old medical equipment will be protected only if the equipment was purchased prior to October 1990.
The Health Care Financing Administration, which runs Medicare, released the details of a plan last month to fold capital reimbursement into the prospective payment system. The proposed effective date of Oct. 1 had been expected. The surprise was in the definition of "old capital" that would remain covered under the current 85% reimbursement rule.
Analysts had speculated that equipment installed, or purchased but not yet installed, just prior to the effective date would be grandfathered into the current plan. It was thought that such grandfathering might prompt a surge in purchases aimed at beating the deadline for the new rules.
Anticipating such a buying spree, HCFA threw the industry a curve. To be considered old capital--and to have interest payments and depreciation covered under the current reimbursement systems--capital purchases must have been on the books by the end of the government's fiscal year 1990, which ended Sept. 30. The effect of that strategic move on the makers of high-tech, high-cost equipment is not certain.
"It's premature to say that capital equipment purchases will suffer, because it depends on the individual hospital and how well the administrators are managing capital right now," said Robin Wiley, a spokesperson for the diagnostic imaging and therapy systems division of the National Electrical Manufacturers Association. "Some hospitals may actually increase their capital expenditures because they are going to get more than under the current system."
Rather than paying 85% of hospital capital costs, HCFA proposes to give hospitals an allowance that administrators can spend any way they choose. HCFA analysts have used a mathematical model to predict the effect of such a plan on hospitals and to forecast which hospitals would be winners and which would be losers.
Proprietary hospitals and others with high capital costs, those with a heavy teaching load and those in urban areas will be hit the hardest. About 37% would lose more than $100 per case in fiscal 1992; about 16% would gain more than $100 per case.
Hospitals with low capital costs, such as government hospitals, those in rural areas and urban hospitals in New England where state restrictions have slowed capital purchases, would likely do better. About 52% of these hospitals are expected to gain more than $100 per case; less than 2% are expected to lose more than that amount.
Such win/lose scenarios are still a long way off. A public comment period is now under way.
"HCFA has been very reasonable in their efforts to reach out to interested parties," Wiley said. "They've indicated that there's some flexibility in the definition of existing capital. I think it's clear that this is just step one in the process and that HCFA is willing to negotiate on some of these points."
HCFA has not had direct contact with equipment vendors but would be glad to discuss implications with those manufacturers, said director Gail Wilensky.
"We believe that, because this regulation is budget-neutral, it gives the incentive to be more prudent in purchases, rather than to shut them off," Wilensky said.
The target of the proposed rule change is the hospital industry, not manufacturers of medical equipment, Wiley said. Radiologists purchasing equipment for use outside the hospital will not be affected by the changes.
AN ANALYSIS RELEASED BY HCFA specifically cited MRI as exemplifying the high-cost equipment that hospitals have bought unnecessarily in the past. The analysis implies that hospitals might be better served under the new plan by contracting for services, ostensibly through the use of mobile providers of high-cost equipment or equipment leasing.
That concerns NEMA because the regulation is vague about how leased equipment will be handled. Some hospitals consider leased equipment as capital equipment, particularly if it is financed with a lease-to-buy program, Wiley said.
"A major concern is that leased equipment does not appear to be covered under the definition of existing capital," Wiley said. "However, further analysis is needed before NEMA states a formal position on the regulation."
Concerns over the proposed regulations may prove to be moot in the face of what is shaping up as a frontal assault against the proposed regulation by the hospital industry. The American Hospital Association began criticizing the plan even before all details of it were known.
In an attempt to blunt objections from hospitals, HCFA has devised a number of formulas to ease the pain of transition from the current to the proposed system. These include groupings, special exceptions and contingency equations that attempt to consider the individual circumstances of hospitals. A 10-year transition to the nationally calculated federal rate is also part of the proposed transition.
Nonetheless, hospitals are expected to fight the proposal.
"It's (posssible) that the hospital industry will be able to kill it like they have other attempts to regulate hospitals," Wiley said.
