New Year: New Rules — Understanding Hospital And Physician Payment Changes In 2016
By Edward Black, founder and principal, Reimbursement Strategies
As 2016 dawns, it’s time for the Centers for Medicare and Medicaid Services (CMS) to implement new rules for the device, drug, and health care provider industries. We’ll take a look here at how those changes will impact hospitals, physicians, and consumers — none of them will be very pleased.
Let’s look first at what the U.S. Department of Health and Human Services (HHS) has in mind for hospitals as a result of the Bipartisan Budget Act of 2015, which was signed into law by President Obama in November. The implications of this legislation are important for device manufacturers, because payment changes — in part — drive hospital and physician economic considerations for new product and technology adoption.
Hospital Outpatient Services Redefined
Q. When is a hospital outpatient department no longer a hospital outpatient department? A. Jan. 1, 2017 — at least for some hospitals. In rank order, hospitals get paid the most, followed by ambulatory surgery centers (ASCs) and then physicians, for the same services. The payment differentials were created primarily to account for differences in fixed and operating expenses among the three provider types. These differentials have been baked into payment methodologies since President Lyndon B. Johnson signed Medicare into law in 1965. Commercial payers have adopted similar methodologies and formulas.
Payers have always been good at making rules, and providers have always been equally adept at adjusting to them, therein requiring new rules to be promulgated in the continual game of healthcare cat-and-mouse. In recent years, hospitals have been opening new off-campus “outpatient departments” to serve patients and to build feeder systems for inpatient care while protecting and expanding their service areas. For most services, these outpatient departments function as urgent care centers or physician offices, but get paid higher rates because of their licensure as hospital departments. That will change on Jan. 1, 2017, for new facilities that opened after Nov. 2, 2015. These outpatient departments will receive only the physician professional fee or the ASC fee for comparable services. They will no longer receive the additional facility fee otherwise payable under the Medicare Hospital Outpatient Prospective Payment System (HOPPS).
The payment scale has a much lower practice expense incorporated into it. For off-campus hospital “outpatient departments,” this change will strip out payment for overhead expenses that in many cases didn’t really exist anyway. For surgical services, these facilities will be paid the same rate as ASCs, which is consistently 40 percent less than is received by true hospital outpatient departments. The new directive requires that hospital outpatient departments be within 250 yards of the main hospital campus to be paid the more favorable HOPPS rates, if they were opened after Nov. 2, 2015. Private payers, as well as Medicare and Medicaid, will expect to benefit from this ruling.
Payment For Physician Services Holds The Line
ASC procedure volumes continue to grow and the complexity of cases is increasing. Most ASCs opened in recent years are owned by physician consortiums who are seeking to better control their schedules and the procedures they can perform, while generating revenue in a lower cost setting. Recent studies also show some of these more complex cases to be performed more efficiently. Payment reform is always a threat to one organization and an opportunity for another. It’s the reason hospitals, especially those that are members of an accountable care organization (ACO), have been acquiring ASCs — to protect their patient base and revenues. Look for more equalization of these payment rates in the future, meaning outpatient hospital-based surgery payments will go nearer the level of ASCs, and not the other way around.
Physician fees have been paid under the resource-based relative value scale (RBRVS, also referred to as the “Really Bad Relative Value Scale” by physicians) by Medicare and by most private insurers for many years. Each procedure defined by a CPT code has a corresponding relative value unit (RVU), which is intended to compare the relative complexity, skill, knowledge, and practice expense for a physician to perform one procedure compared to another.
The RVU is multiplied by a conversion factor that is unique to every payer. The American Medical Association (AMA) and CMS try to review key procedures every five years to determine if changes in the RVUs are necessary. For 2016, there is one big winner and one bigger loser. RVUs for procedures performed by pathologists will increase by 8 percent, while gastroenterologists will see a 4 percent reduction (due to re-evaluations of gastroenterology/endoscopy services), according to calculations by the AMA. In the first quarter of 2016, these RVUs will get multiplied by a conversion factor of $35.83, which is ten cents less than in 2015. Overall, this translates to no increase in payment for physician services.
Patient Out-Of-Pocket Costs, New Medicare Enrollee Premiums Rise
Patient out-of-pockets costs will be on the rise again in 2016, as well. New Medicare beneficiaries will be particularly hard hit. Most beneficiaries will pay Medicare Part B premiums of $104.90 per month in 2016. Since Social Security beneficiaries won’t see a cost-of-living increase in 2016, they are entitled by law to a zero increase in premiums over 2015. However, about 30 percent of the 52 million baby boomers expected to be enrolled in Medicare Part B in 2016 will pay higher premiums.
Retirees who first sign up for Medicare in 2016 will pay $121.80 for Medicare Part B. This includes people who will turn 65 in this year and employees who worked past age 65 at a job with group health insurance. The Bipartisan Budget Act prevented a much higher premium increase to $159.30 (a 52 percent increase) for these new beneficiaries. General tax revenue will be used to cover the costs of the premium reduction, but all Part B enrollees will repay this amount over time through small surcharges added to their premiums until the money gets repaid.
Health care consumers under age 65 also will see out-of-pocket healthcare costs continuing to exceed the Consumer Price Index (CPI). Spending on health care for the privately insured in the U.S. grew at a steady rate over the past five years, increasing 3.4 percent in 2014, according to the most recent report by the Health Care Cost Institute (HCCI). This increase occurred even though use of health care services continued to fall in 2014, while prices for all categories of services rose. Per capita health care spending reached $4,967 in 2014; per capita out-of-pocket costs reached $810 and are expected to continue rising. As this trend continues, watch for patients to act more like consumers and challenge hospitals, physicians, health plans, and the technology industry about the costs they plan to pass through the system.
All of this points to the reality that new medical technologies must demonstrate cost effectiveness when compared to current therapies, or their prospects for coverage will be dim. Or, if they are covered, payers will squeeze the price down to a level where they may no longer be profitable to develop. Stay tuned for more of the same.
About The Author
Edward Black specializes in reimbursement strategy, payer relations, and health economics for medtech and biotech companies in the U.S. and abroad. Before founding Reimbursement Strategies, LLC in 2008, Mr. Black worked over 25 years in health and provider network management within the Blue Cross Blue Shield system and served on two national advisory boards responsible for leading consistency in medical, benefit, and payment policy. From 1994 to 2002, Mr. Black served as the executive director of three managed care business partnerships with large multispecialty clinics for which he was awarded the 1995 Outstanding Contribution to the Healthcare Industry Citation by LifeScience Alley.