HCFA to unveil revamped plan for bundling outpatient exams

February 12, 1992

The Health Care Financing Administration will soon unveil a revampedversion of a 1988 proposal geared to rein in Medicare costs foroutpatient care. The proposal, slated for publication this spring,is the latest installment in the agency's bid to develop

The Health Care Financing Administration will soon unveil a revampedversion of a 1988 proposal geared to rein in Medicare costs foroutpatient care. The proposal, slated for publication this spring,is the latest installment in the agency's bid to develop a prospectivepayment system for ambulatory care.

The rule could dramatically alter the way hospitals and radiologygroups interact, and could spur conflicts over referrals for imagingexams.

In the draft final rule, hospitals would assume financial liabilityfor all outpatient exams and services. Referrals and billing forradiology and other outpatient exams would be managed by hospitals.All charges related to a given episode of care would be bundled,much like inpatient diagnosis-related groups.

In order to satisfy the requirements of the rule, hospitalswill need to establish special arrangements with outpatient centers.But in so doing, hospitals will be hard-pressed to avoid violatingstrict Medicare anti-kickback and antitrust regulations.

To complicate matters, the Inspector General will impose a$2000 fine on hospitals that refer patients to facilities otherthan those with which there is a special arrangement. And physicianswho bill Medicare directly instead of the referring hospital willalso be penalized.

The regulation is particularly confusing in light of the Septemberdecision rendered in Key Enterprises of Delaware, Inc. v. VeniceHospital. The Florida hospital had engaged in a joint venturewith a durable medical equipment vendor, allegedly draining businessfrom competing facilities. The court ruled that recommending patientsto obtain services at the joint-ventured center constituted "channeling"patient choice.

"Clearly, the outpatient bundling proposal conflicts withthe spirit of the Key case," noted Linda M. Magno, directorof regulatory affairs for the American Hospital Association. "Amere recommendation by the hospital to its staff was sufficientto find anticompetitive conduct."

The AHA has already registered its protests over the proposalwith a position paper representing 13 hospital organizations.In addition to the legal concerns, the association anticipatesmassive paper-trail problems for hospitals that try to complywith the rule.

For example, hospitals typically do not have set arrangementswith outpatient facilities for coordinating referrals and billing,said George Argus, director of financial services for the AHA.

"In addition, what if patients visit a facility otherthan the one the hospital recommends?" he said. "Thehospital has no control over where patients actually have examsperformed. There are bound to be problems about who will pay forthe services rendered."

There are other troubling issues of import to radiologists,said Thomas Greeson, internal legal counsel for the American Collegeof Radiology.

"How will this affect relationships between radiologistsand hospitals?" he asked. "To what extent will the hospitalbe constrained to refer patients only to a facility that is operatedby physicians who either have an exclusive contract or have medicalstaff privileges at the hospital?"

The proposal raises numerous other concerns. Some of the theoreticalproblems include:

  • In a community with more than one outpatient imagingcenter, how will the hospital determine which receives its referrals?

  • If the hospital has an exclusive contract with oneradiology group for inpatient services, will it only refer patientsto the outpatient facility owned by that group?

  • Will hospitals that refer patients to a facility operatedby radiologists who do not have staff privileges ultimately requirethe physicians to obtain "courtesy" privileges?

  • Finally, will the Joint Commission on Accreditationof Hospital Organizations require radiology group practices topass accreditation as ambulatory care facilities?

"We have a lot of questions," Greeson said. "Butbecause the rule is in a draft stage, it is not yet ripe for officialcomment. The ACR will definitely be talking with HCFA and theOIG on the issue."

The final rule will be published in the Federal Register withinthe next few months, said Matt Plonsky, a HCFA representativein the agency's regulatory division. The original proposal tobundle outpatient and inpatient services was first published inAugust 1988. HCFA has been tinkering with the idea ever since.

Previous HCFA policies turned a blind eye on unbundling ofoutpatient services. As a result, Medicare payments for outpatientcare have skyrocketed since 1980, when DRGs forced hospitals tolook outside for revenues. Outpatient disbursements increased17% annually between 1986 and 1989, and now consume nearly 8%of its total budget.

The new rule is the first step toward developing a consistentpayment policy for ambulatory care, noted Inspector General RichardKusserow. The IG's comments appeared in a bootleg copy of a memodistributed to Department of Health and Human Services staff.

"So that we may be able to develop a prospective paymentsystem for ambulatory surgery and other hospital outpatient services,it is necessary to have clear rules about the range of servicesthat would be included," Kusserow wrote. "Congresshas recognized the inconsistencies of the current payment systemand has required rebundling as the first step toward payment reform."