Payment Under the Hospital Outpatient PPS OPPS

1
Payment Under the Hospital Outpatient PPS (OPPS)

• Institute for Molecular Technologies2003
  Washington Symposium
• Dan Mendelson
• September 4, 2003

2
General Concepts in Payment Policy for New
Technology

• Adherence to statutory intent
• Protection to ensure beneficiary access
• Prevention of inappropriate use
• Clarity in coverage, coding, payment
• Clinical autonomy in appropriate choice
• Incentives for appropriate adoption
• Responsiveness to the market

3
PET Reimbursement Issues
4
Reimbursement Drives Practice

• Preventive care (prostate screening)
• Imaging (digital mammography)
• Surgery (percutaneous alternatives)
• Pharmaceutical usage (Epo in dialysis)
• Smoking cessation
• Hospital LOS relative to DRGs
• Home health Medicare payments

5
OPPS A Story of Balancing Competing Interests

• Acknowledgement of importance for payment for new
  technology
• Limits on overall scope of adjustments
• Agendas Beneficiaries, CMS, Hospitals,
  Technology companies
• Fundamental issue lack of credible data

6
OPPS History Shows Tensions Between Cost Saving,
Technology

• Inpatient PPS implemented in 1983
• Viewed as a success in controlling costs
• Push-back on quality issues was relatively
  minimal
• Reimbursement for outpatient services remained
  reasonable cost based
• Little incentive to provide services efficiently
• Advances in technology and changes in practice
  patterns shifted care to outpatient setting

7
Congress Acted Early to Protect Technology With
Cost Controls

• Proposed rule published 9/8/98
• Comment period extended 4 times and closed on
  7/30/99
• BBRA 1999 contained major provisions protecting
  technology, but with limits on costs
• Limitation on variation of costs within APCs
• Outlier adjustments and transitional corridor
  payments
• New Technology APCs
• Transitional pass-through payments
• Budget neutrality for outlier and pass-through
  payments
• Final rule published 4/7/00 implemented 7/1/00

8
Implementation of Technology Protections has been
Challenging

• Pro Rata Reductions in Pass-through payments in
  2002
• Payments projected to exceed cap in 2002
• CMS made 63.6 reductions in pass-through
  payments
• Movement off pass-through status in 2003
• Integrating pass-through technologies into the
  APC system after 2 years highlighted major
  problems with the claims data
• Severe cuts were experienced, with minimal
  mitigation by CMS
• CMS also set precedent of moving services out of
  New Technology APCs after 2 years or less
• CMS has introduced other policy (functional
  equivalence, device categories,
  radiopharmaceutical policy)

9
Data Poses Special Problems for High-Cost
Technologies

• OPPS claims data contain many inaccuracies,
  particularly for high-cost technologies
• Cost allocation on claims and cost reports
• Listing appropriate charges for high-cost
  products
• Billing proper number of units
• Using correct codes
• Hospitals have little incentive to improve
  billing
• Billing is an administrative cost
• Hospital leadership concerned about bottom line,
  not payments for individual services
• Problems not apparent to hospitals in short-term

10
Unique Issues for Technology With High-Cost
Capital Equipment

• Major determinant of hospital costs is
  depreciation of capital equipment
• Hospital accounting highly variable regarding
  depreciation
• Allocation of depreciation costs to appropriate
  cost centers also variable
• Cost reporting may not allocate sufficient costs
  to appropriate cost centers
• Cost-to-charge ratios often an inadequate
  reflection of mark-ups for these technologies

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Hypothetical Example of Overhead Allocation
Problems
OPPS Payment Calculations for 2 Radiology Items
10 x 12Film
RadiologyDepartment CCR
Acquisition cost 80

20.00
.32
6.45
Charge

2,400 markup
ImagingAgent
Acquisition cost 500
RadiologyDepartment CCR
650.00
.32
208

Charge

30 markup
12
PET Medicare Payment History
4/1/01 update to implement BIPA provisions.
Due to errors in the 11-30-01 final rule, CMS
delayed implementation of 2002 rates until April
1st,, after a correction. Payment for PET in the
11-30-01 final rule was 875.
13
CMS Flexibility Has Created Fair Payment Rates
for PET

• PET maintained in New Tech APC
• Changes between proposed and final rules in 2002
  and 2003 acknowledged data and coding problems
• 2002 Separate payment for FDG
• 2003 Inability to distinguish coincidence
  scanners (non-covered) lowers average cost in
  claims
• Maintaining PET in New Tech APC in 2004 proposed
  rule acknowledges ongoing claims data issues

14
Future Payment Issues

• Large scale data collection / analysis
• Targeted data collection on specific tech
• Modeling approach
• Adjustments to basic methodology
• Importance of flexibility (B/N)

15
Who Should Demonstrate and Correct Data Problems?

• Data collection is a significant burden
• Collecting hospital cost/accounting data is
  difficult
• Cost reports require extensive expertise to audit
• Hospitals have no incentive to cooperate with
  data requests outside of payer (CMS) requests
• Medicare beneficiaries rely on appropriate
  payment for new technology
• Government should spearhead data efforts to
  improve data

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Options Require Diverging from Claims Data-Based
Payment

• It will take years for problems with claims data
  to resolve
• Time lag in cost report auditing
• Hospital reluctance to change billing practices
• Precedent of inpatient PPS
• Alternatives are available in the interim

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Modeling ApproachThe Keppler/Conti Example

• Authors developed a model based on a multi-year
  evaluation of the costs of providing PET services
• Financial data on capital expense and global
  operating costs were collected
• Model calculates average cost to hospital of
  providing PET
• Major assumption is throughput the amount of
  times a PET machine is used each year
• This is a key determinant of the capital
  equipment depreciation calculation, a major cost
  driver for PET

Source Keppler JS and Conti PS. A Cost Analysis
of Positron Emission Tomography, American Journal
of Roentgenology 177, July 2001.
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Illustration of Keppler/Conti Approach
Keppler/Conti 2.9 scans/year for throughput
The cyclotron is also used to distribute FDG to
other hospitals, therefore lowering the cyclotron
cost for the PET scanner at the hospital site
with the cyclotron.
2003 Medicare Payment 1,357 (PET) 395 (FDG)
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Other Potential Adjustments

• Applying an adjustment to the CCRs for high-cost
  items
• Using a percent AWP or other price for (drugs)
  and list price (devices)
• Phase in of price reductions after Pass-Through
  and New Tech status expires
• Extending time on New Tech / Pass-Through list,
  to ensure accuracy of data

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Summary

• Paying for new technology such as PET requires
  special consideration
• Protect beneficiary interests
• Encourage appropriate adoption
• CMS has paid fairly for covered PET indications
  to date
• More flexibility and ultimately better data will
  be required going forward