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Tuesday, Mar 19, 2024
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Hospitals See Another Medicare Hit Coming



New Outpatient Fee Structure Will Cut Revenue, Add Paperwork

Orange County hospital administrators are bracing for new federal regulations that will change how their institutions get paid for delivering Medicare outpatient services, such as X-rays or emergency care.

The U.S. Health Care Financing Administration’s rules, due to take effect Aug. 1, are expected to nip into facilities’ bottom lines by cutting their revenue and forcing them to increase staffing to handle new paperwork, all at a time when equipment and drug costs are rising.

The federal agency, which funds and regulates Medicare, is switching to a reimbursement system based on standardized fees for more than 500 procedures, rather than on cost reports submitted by individual hospitals. In most cases, the standardized fees will be less than what the hospitals have been used to receiving.

Under the new system, patients will have to pay 20% of the standardized fee, rather than the 20% of billed charges they pay now. Analysts say the change will result in lower patient out-of-pocket costs for some procedures.

For hospitals, however, the payment shift will squeeze finances.

“There will be a reduction. Clearly, there will be less revenue,” said Karen Testman, chief financial officer at Saddleback Memorial Medical Center in Laguna Hills. Testman said, however, she hasn’t yet calculated a specific dollar amount.

Barry Arbuckle, Saddleback Memorial’s chief executive, said the new rules are another effect of the 1997 Balanced Budget Act, which dramatically cut Medicare payments to hospitals. Arbuckle said the regulations will place financial pressure on facilities because expenses, such as for medical equipment, aren’t going down.

“Half of the hospitals in Southern California are running in the red. They’re technically bankrupt,” Arbuckle said. “They have margins in the single digits.”

Saddleback Memorial’s parent company is Memorial Health Services, a not-for-profit entity.

Hoag Memorial Hospital Presbyterian in Newport Beach estimates it will lose approximately 2% of its revenue as a result of the changes, said Sheri Hughes, director of business services. “It would have been much larger, but we got pass-through payments for high-tech equipment and cancer treatments.”

UCI Medical Center also will see negative financial consequences, said Stan Greengard, director of patient financial services at the Orange hospital.

Added Costs

“The concern is not just less revenue to be collected from Medicare, but there’s more handling of claims, more paperwork. The cost of processing claims will be higher, too,” Greengard said.

He added, however, that UCI Medical Center might be less vulnerable to financial hits than other hospitals because Medicare makes up only around 10% of its business and “a number of hospitals are around 30%.”

Shelle Diehm, chief financial officer at San Clemente Hospital and Medical Center, said she’s received estimates of a 3% to 17% effect on hospitals’ revenue at seminars she’s attended on the subject.

“Medicare outpatient is not a high area for us, but this also affects ER,” Diehm said.

By contrast, Saddleback Memorial Medical Center derives about 32% of its total business from outpatient Medicare, Testman said.

Hospital officials emphasize that the reimbursement changes won’t affect healthcare services. “Patient care will not be impacted. That’s the general theme,” Arbuckle said.

Even with the changes, federal officials have pledged to help hospitals during a transitional period with offset monies. The payments will be available for, among other areas, current orphan drugs, cancer therapy drugs and new medical devices.

New Projections Needed

Hoag’s Hughes said she thinks the federal agency will have to do more cost analysis, because its initial projections were based on 1996 data.

“The technology changes have been so dramatic. They’ll have to figure out how they are going to pay for a new drug that costs 15 times the reimbursement,” she said.

Hospitals also are making operational changes to cope with the new rules. Such changes include buying software that incorporates the new reporting requirements that go along with the new fees. The institutions also are looking at adding more billing and coding personnel to handle the increased workload.

“One of our biggest areas of concern is the load on our staff. It’s very likely we will add more people,” Greengard said.

But getting more coders may be tricky.

Shortage of Expertise

“There’s a shortage of that expertise,” Arbuckle said, noting Orange County’s low unemployment rate.

“The main thing is whether the hospitals can react quickly enough to see if their coding is correct,” said Kelly Styles, director of healthcare advisory practice with KPMG Peat Marwick’s Costa Mesa office, which has more than 100 clients, including Orange-based St. Joseph Health System.

Analysts say, however, that the outpatient Medicare changes are similar to what the federal agency did in the 1980s, when it introduced a similar payment system for inpatient services. As for today, Styles said the regulations would affect everyone in healthcare from “physicians, nurses to billers and coders.”

Styles added he and his team have met with “40 different skill sets” of people in order to prepare them for the changes.

Readiness Questioned

Several hospital professionals interviewed wonder if the agency actually will be ready to implement its 700 pages of final regulations by its Aug. 1 deadline. It had originally set July 1 as the startup date for the regulations, but pushed it back.

“There was a long lead time, (but) a lot of changes that providers have not been able to prepare for,” said Barbara Jones, senior vice president of economics and finance for the California Hospital Association. “There are a lot of unanswered questions,coding, operating procedures.”

“We are not assured on any level that this will be glitch-free,” Jones said. She said some reports she’s seen have 30% of all Medicare outpatient hospital payments up for settlement because of the new regulations.

“That’s very significant,” Jones said, adding that Medicare outpatient monies make up approximately 25% of all California hospitals’ revenues.

“We’re worried that HCFA put out its final regulations late. The intermediaries have had very little time,” UCI’s Greengard said.

Intermediaries, in Medicare terminology, are entities that contract with the federal government to actually process Medicare claims. Blue Cross of California is an example of a Medicare intermediary.

“We hope they recognize the lack of ability to do it (on time) and they’ll keep delaying,” Diehm said. n

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