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Provider Payments: How They Work, Implications for Cost & Quality and
Creating a Consumer/Purchaser Policy Agenda
Peter V. Lee
Consumer-Purchaser Disclosure Project
Invitational Working Session
July 26, 2006
© Consumer-Purchaser Disclosure Project, 2006 2
Agenda
• Introduction and Context
• The “Basics” – Medicare Physician and Hospital Payments
• Private Sector Payment
• Policy Options for Payment Reform to Promote Value
© Consumer-Purchaser Disclosure Project, 2006 3
Goals of Payment Reform: Build on Consumer-Purchaser Medicare Value Purchasing Consensus
• Valid performance measurement
• Public reporting
• Pay for performance
© Consumer-Purchaser Disclosure Project, 2006 4
Issues for Consumer, Purchaser and Labor Consideration
• Comments requested on reform of Medicare physician payments to bolster payments for primary care – due 8/21/06
• Annual review of SGR – without change, physician payments will be cut 4.2%
• Consider longer term payment reform to promote quality and value
© Consumer-Purchaser Disclosure Project, 2006 5
MedPAC’s “Payment adequacy framework”
MedPAC, March 2006
© Consumer-Purchaser Disclosure Project, 2006 6
General Context to Physician and Hospital
Payment
© Consumer-Purchaser Disclosure Project, 2006 7
Context: Source of Payment for Health Care
© Consumer-Purchaser Disclosure Project, 2006 8
Context: Medicare’s market share varies by sector
MedPAC, March 2006
© Consumer-Purchaser Disclosure Project, 2006 9
Context: Changing Medicare Spending –1995 to 2005
MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 10
Physician Payment:Context and How it Works
in Medicare
© Consumer-Purchaser Disclosure Project, 2006 11
Context: Sufficiency of Payment – Physicians Accepting New Patients
MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 12
Physician Payment MethodologyPhysician Payment Methodology
• Resource-Based Relative Value Scale Resource-Based Relative Value Scale (RBRVS) system was adopted by Medicare in (RBRVS) system was adopted by Medicare in 1991 and copied by many private insurers.1991 and copied by many private insurers.
• Designed to lessen the historical disparity Designed to lessen the historical disparity between office visits – bread and butter of between office visits – bread and butter of primary care – and procedures provided by primary care – and procedures provided by specialists. specialists.
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 13
Medicare Physician Payment Issues to Medicare Physician Payment Issues to ConsiderConsider
#1: How RVUs are determined#1: How RVUs are determined
#2: How RVUs are updated (the “RUC”)#2: How RVUs are updated (the “RUC”)
#3: Volume of Services#3: Volume of Services
#4: Role of SGR#4: Role of SGR
#5: Impact on private insurance#5: Impact on private insurance
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 14
#1. How RVUs are determined#1. How RVUs are determined
• 2005 Medicare fee for CPT code 99214: 2005 Medicare fee for CPT code 99214: 30 minute office visit30 minute office visit (Evaluation & management -- E/M -- code)(Evaluation & management -- E/M -- code)– Relative value unit (RVU): 2.18Relative value unit (RVU): 2.18– Conversion factor:Conversion factor: 37.9 37.9– Fee 2.18 x 37.9 Fee 2.18 x 37.9 = = $82.62 (Varies with $82.62 (Varies with
location)location)
• 2005 Medicare fee for CPT code 45378: 2005 Medicare fee for CPT code 45378: colonoscopycolonoscopy (takes about 30 minutes) (takes about 30 minutes) – RVU: RVU: 5.465.46– Conversion factor: Conversion factor: 37.937.9– Fee 5.46 x 37.9 Fee 5.46 x 37.9 = = $206.93$206.93
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 15
Why is the gastroenterologist paid Why is the gastroenterologist paid 274% of the family physician’s 274% of the family physician’s payment for 30 minutes of work?payment for 30 minutes of work?
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 16
#1. How RVUs are determined#1. How RVUs are determined
• 3 factors go into the RVU3 factors go into the RVU– Work (about 50%) Work (about 50%) – Practice expense (about 45%)Practice expense (about 45%)– Malpractice insurance costs (about 5%)Malpractice insurance costs (about 5%)
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 17
#1. How RVUs are determined#1. How RVUs are determined
• Most of the difference between the office visit and the Most of the difference between the office visit and the colonoscopy is in the work portion of the RVUcolonoscopy is in the work portion of the RVU
• Colonoscopy has a work portion of the RVU over 300 Colonoscopy has a work portion of the RVU over 300
times that of the work portion of the office visittimes that of the work portion of the office visit
• Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 18
30 minutes does not = 30 minutes30 minutes does not = 30 minutes
• The work portion of the RVU includes The work portion of the RVU includes – TimeTime– Intensity (amount of work per unit time)Intensity (amount of work per unit time)
• 99214 Office visit vs. colonoscopy, time is the same. 99214 Office visit vs. colonoscopy, time is the same. Intensity is much higher for colonoscopyIntensity is much higher for colonoscopy– Even though a GI specialist has done 800 Even though a GI specialist has done 800
colonoscopies and can do them almost without colonoscopies and can do them almost without thinking, thinking,
– It is considered more intense than caring for an It is considered more intense than caring for an elderly patient with CHF, diabetes, depression and elderly patient with CHF, diabetes, depression and acute dizzinessacute dizziness
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 19
#2. How RVUs are updated (the “RUC”)#2. How RVUs are updated (the “RUC”)
• Medicare mandates that RVUs be updated every 5 Medicare mandates that RVUs be updated every 5 yearsyears
• CMS has delegated the update process to the CMS has delegated the update process to the Relative Value Update Committee (RUC)Relative Value Update Committee (RUC)
• The RUC is a committee of the AMAThe RUC is a committee of the AMA• It recommends RVU changes to CMS, which must It recommends RVU changes to CMS, which must
approve themapprove them
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 20
#2. How RVUs are updated (the “RUC”)#2. How RVUs are updated (the “RUC”)
• The RUC has 29 members, most named by specialty The RUC has 29 members, most named by specialty societies, including primary care specialtiessocieties, including primary care specialties
• Specialty societies request changes in RVU values; Specialty societies request changes in RVU values; survey at least 30 of their members to find out of a survey at least 30 of their members to find out of a certain service should receive a higher or lower RVU certain service should receive a higher or lower RVU valuevalue
• Primary care represents 14% of the seats on the Primary care represents 14% of the seats on the RUC (and provide about half of all Medicare visits)RUC (and provide about half of all Medicare visits)
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 21
#2. How RVUs are updated (the “RUC”)#2. How RVUs are updated (the “RUC”)
• If you are an ophthalmologist, and cataract surgery If you are an ophthalmologist, and cataract surgery which used to take 50 minutes now takes 30 minutes, which used to take 50 minutes now takes 30 minutes, one might expect the RVU value should go down one might expect the RVU value should go down (and it did go down when RBRVS was put into effect)(and it did go down when RBRVS was put into effect)
• But if your specialty society surveys you to ask what But if your specialty society surveys you to ask what you think the cataract surgery RVU should be, are you think the cataract surgery RVU should be, are you going to say it should go down? you going to say it should go down?
• Of course not. You recommend that the RVU go upOf course not. You recommend that the RVU go up• How do you justify that? How do you justify that? • Since we do in 30 minutes what we used to do in 50 Since we do in 30 minutes what we used to do in 50
minutes, clearly each minute is more intense, so the minutes, clearly each minute is more intense, so the work portion of the RVU should go upwork portion of the RVU should go up
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 22
#2. How RVUs are updated (the “RUC”)#2. How RVUs are updated (the “RUC”)• This update method strongly biases toward increasing RVUs This update method strongly biases toward increasing RVUs
rather than decreasing RVUs. rather than decreasing RVUs. • The 86% of RUC members who are not primary care tend to The 86% of RUC members who are not primary care tend to
vote together on RVU updatesvote together on RVU updates• In the 2000 update process, the RUC recommended 469 In the 2000 update process, the RUC recommended 469
increases in RVUs and only 27 reductionsincreases in RVUs and only 27 reductions• In the 2000 update process, E/M codes were not discussed In the 2000 update process, E/M codes were not discussed
at all. Procedure and imaging codes went up and office at all. Procedure and imaging codes went up and office codes remained the samecodes remained the same
• CMS historically has accepted virtually all RUC CMS historically has accepted virtually all RUC recommendationsrecommendations
• 2006 proposed changes to increase work value of E/M 2006 proposed changes to increase work value of E/M represents CMS breaking RUC logjamrepresents CMS breaking RUC logjam
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 23
#3. Volume of Services#3. Volume of Services• E/M visits make up 80% of primary care incomeE/M visits make up 80% of primary care income• E/M Medicare volume increased 15% 1999-2003E/M Medicare volume increased 15% 1999-2003• Imaging Medicare volume increased by 45% Imaging Medicare volume increased by 45% • Income = price (fee) x volume. Income = price (fee) x volume.
– Fee = $300Fee = $300 You do 100 in a year, income = $30,000You do 100 in a year, income = $30,000You do 150 in a year, income = $45,000. You do 150 in a year, income = $45,000.
• Primary care physicians cannot do E/M visits in shorter Primary care physicians cannot do E/M visits in shorter time; it reduces quality and increases physician stresstime; it reduces quality and increases physician stress
• Specialists can do procedures in shorter time Specialists can do procedures in shorter time – Technology improves Technology improves – The more you do a procedure, the faster you becomeThe more you do a procedure, the faster you becomeAdapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 24
Increases in volume of Medicare services, 1999-2003
Type of service Volume
increase Evaluation and management services 15% Major surgery 14% “Other procedures” (chemotherapy, endoscopy, minor surgery)
26%
Diagnostic tests 36% Imaging 45% These trends continued in 2004-2005These trends continued in 2004-2005
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 25
Context: Physician Services – Some Areas Growing More Rapidly
MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 26
Context: Growth of Physician Spending Higher growth in procedures, imaging and tests MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 27
#3. Volume of Services#3. Volume of Services• A major contributor to the widening income gap between A major contributor to the widening income gap between
primary care and specialties is volume of services primary care and specialties is volume of services delivereddelivered
• Many procedural specialists and physicians performing Many procedural specialists and physicians performing imaging services (mainly radiologists and cardiologists) imaging services (mainly radiologists and cardiologists) had huge income gains by providing a higher volume of had huge income gains by providing a higher volume of servicesservices
• In many cases this was possible because the services In many cases this was possible because the services could be provided in less timecould be provided in less time
• Volume increased only slightly for primary care office Volume increased only slightly for primary care office visits. Without reengineering (e.g. group visits, on online visits. Without reengineering (e.g. group visits, on online care – which generally are NOT reimbursed by Medicare) care – which generally are NOT reimbursed by Medicare) visits cannot be done faster without reducing quality and visits cannot be done faster without reducing quality and physician/patient satisfaction (which drop with shorter physician/patient satisfaction (which drop with shorter visit times)visit times)
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 28
#4: Role of the SGR#4: Role of the SGR
• The total amount of money that Medicare pays The total amount of money that Medicare pays physicians each year is based on a formula called the physicians each year is based on a formula called the SGR = Sustained Growth RateSGR = Sustained Growth Rate
• Total Medicare physician payment rises based on Total Medicare physician payment rises based on number of Medicare beneficiaries, physician practice number of Medicare beneficiaries, physician practice expense rise, and increase in gross domestic productexpense rise, and increase in gross domestic product
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 29
#4: Role of the SGR#4: Role of the SGR
• If the volume of Medicare physician services goes up If the volume of Medicare physician services goes up faster than the SGR, then the conversion factor is faster than the SGR, then the conversion factor is reduced the following yearreduced the following year
• Example: If SGR formula allows total Medicare Example: If SGR formula allows total Medicare physician payment to rise by 5% in 2005, but total physician payment to rise by 5% in 2005, but total Medicare physician payment rose 10% in 2005 due Medicare physician payment rose 10% in 2005 due to increases in volume, then the conversion factor to increases in volume, then the conversion factor (and thereby physician fees) go down by 5% in 2006(and thereby physician fees) go down by 5% in 2006
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 30
#4: Role of the SGR#4: Role of the SGRPrimary Care Perspective…Primary Care Perspective…• Volume growth in procedures, diagnostic tests, and imaging Volume growth in procedures, diagnostic tests, and imaging
are the reason why Medicare physician payments have are the reason why Medicare physician payments have exceeded the SGR limit. Growth in primary care office visits did exceeded the SGR limit. Growth in primary care office visits did not contribute to exceeding the SGR limit.not contribute to exceeding the SGR limit.
• Even though primary care did not cause the excess Medicare Even though primary care did not cause the excess Medicare physician payments, primary care physicians fees are reduced physician payments, primary care physicians fees are reduced the same percentage as fees for physicians responsible for the the same percentage as fees for physicians responsible for the volume growth in procedures, diagnostic tests, and imaging.volume growth in procedures, diagnostic tests, and imaging.
• While specialist income benefits from the volume growth, and While specialist income benefits from the volume growth, and primary care income does not, primary care fees are cut the primary care income does not, primary care fees are cut the same amount as specialist fees under the SGR.same amount as specialist fees under the SGR.
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 31
#4: Role of the SGR#4: Role of the SGR
• The 2006 conversion factor is 1% below the 2001 The 2006 conversion factor is 1% below the 2001 conversion factorconversion factor
• If the SGR formula is not changed, the conversion If the SGR formula is not changed, the conversion factor is expected to drop by 5% per year for the next factor is expected to drop by 5% per year for the next 6 years6 years
• Thus even though office visit will get a substantial Thus even though office visit will get a substantial increase from the 2005 RUC 5 year update process, increase from the 2005 RUC 5 year update process, that increase will be eroded by reductions in the that increase will be eroded by reductions in the conversion factorconversion factor
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 32
#5: Impact on Private Insurance#5: Impact on Private Insurance
• For Medicare, the conversion factor is the same for all For Medicare, the conversion factor is the same for all CPT codes (37.9 in 2006) CPT codes (37.9 in 2006)
• Payment = RVU x conversion factorPayment = RVU x conversion factor• Big difference!! For many private insurers, the conversion Big difference!! For many private insurers, the conversion
factor varies factor varies • Specialists often enjoy conversion factors higher than Specialists often enjoy conversion factors higher than
primary care conversion factorsprimary care conversion factors
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 33
#5: Impact on Private Insurance#5: Impact on Private Insurance• 2002 survey of 34 large commercial insurance plans in different geographic 2002 survey of 34 large commercial insurance plans in different geographic
regions (HMO, PPO, traditional insurance)regions (HMO, PPO, traditional insurance)• On average On average
– Office visits received Office visits received 104% of Medicare fee 104% of Medicare fee– Surgery, dx procedures, imaging: 120% of Medicare feeSurgery, dx procedures, imaging: 120% of Medicare fee
• In highest paid marketsIn highest paid markets– Office visits: Office visits: 147% of Medicare fee 147% of Medicare fee– Surgeries:Surgeries: 330% of Medicare fee 330% of Medicare fee– Dx procedures/imaging: Dx procedures/imaging: 250% of Medicare fee 250% of Medicare fee
Deckman and Associates, Washington DC, August 2003Deckman and Associates, Washington DC, August 2003
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 34
#5: Impact on Private Insurance#5: Impact on Private Insurance
Another survey (2001): Another survey (2001): • Private insurers paid Private insurers paid
– Office visits:Office visits: 104% of Medicare fee104% of Medicare fee– Procedures, imaging: Procedures, imaging: 133% of Medicare fee133% of Medicare fee
Direct Research, LLC. Vienna, VA. August 2003Direct Research, LLC. Vienna, VA. August 2003
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 35
#5. Impact on Private Insurance#5. Impact on Private Insurance• 2005 Medicare fee for CPT code 99214: 30 minute office visit2005 Medicare fee for CPT code 99214: 30 minute office visit
– Relative value unit (RVU): Relative value unit (RVU): 2.182.18– Conversion factor:Conversion factor: 37.937.9– Fee 2.18 x 37.9 Fee 2.18 x 37.9 = = $82.62 $82.62
• 2005 Medicare fee for CPT code 45378: colonoscopy (30 minutes)2005 Medicare fee for CPT code 45378: colonoscopy (30 minutes)– RVU: RVU: 5.465.46– Conversion factor: Conversion factor: 37.937.9– Fee 5.46 x 37.9 Fee 5.46 x 37.9 = = $206.93$206.93
• 2005 private insurance fee for CPT code 45378: colonoscopy 2005 private insurance fee for CPT code 45378: colonoscopy – RVU:RVU: 5.465.46– Conversion factor Conversion factor 45.5 (120% of Medicare)45.5 (120% of Medicare)– Fee 5.46 x 45.5Fee 5.46 x 45.5 == $248.43$248.43
• Markets in which gastroenterologists are well organized: colonoscopy feeMarkets in which gastroenterologists are well organized: colonoscopy fee– RVU:RVU: 5.465.46– Conversion factorConversion factor 75.8 (200% of Medicare)75.8 (200% of Medicare)– Fee 5.46 x 75.8Fee 5.46 x 75.8 == $413.87$413.87
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 36
Context: Private Insurer Payments to Physicians Compared to Medicare far Higher for Imaging, Procedures and Tests
Direct Research, LLC, for MedPAC, August 2003
© Consumer-Purchaser Disclosure Project, 2006 37
Implication of Current System: Implication of Current System: Primary Care PerspectivePrimary Care Perspective
Unequal payment for equal time benefits procedural Unequal payment for equal time benefits procedural specialistsspecialists
Many procedure RVUs have increased in the RUC’s Many procedure RVUs have increased in the RUC’s 5 year reviews, but primary care RVUs did not increase 5 year reviews, but primary care RVUs did not increase
1995 – 2006 (1995 – 2006 (BUT – CMS has issued rules for changes!)BUT – CMS has issued rules for changes!) Rapid growth in volume of procedures and imaging has Rapid growth in volume of procedures and imaging has
increased some specialist incomesincreased some specialist incomes Private insurers tend to pay specialists at a higher percent Private insurers tend to pay specialists at a higher percent
of the Medicare fee than they pay primary care physiciansof the Medicare fee than they pay primary care physicians Under the SGR system, while the drivers of increased Under the SGR system, while the drivers of increased
Medicare physician payments are procedures, testing, & Medicare physician payments are procedures, testing, & imaging volume growth, primary care physicians are imaging volume growth, primary care physicians are penalized even though they did not contribute to the penalized even though they did not contribute to the volume growthvolume growth
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 38
Physician Payment – Future IssuesPhysician Payment – Future Issues
• Proposed rule to increase payment Proposed rule to increase payment evaluation and management servicesevaluation and management services
• SGR reform will be major issue for end SGR reform will be major issue for end of 2006/early 2007of 2006/early 2007
• Payment changes to promote care Payment changes to promote care coordination and higher value still on coordination and higher value still on horizonhorizon
© Consumer-Purchaser Disclosure Project, 2006 39
Hospital Payment: Context and How it Works in
Medicare
© Consumer-Purchaser Disclosure Project, 2006 40
Context: Hospital Payments Growing for Medicare
MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 41
Context: Hospital length of stay declining far more rapidly in Medicare
MedPAC, March 2006
© Consumer-Purchaser Disclosure Project, 2006 42
Context: Hospital Occupancy Flat (significant local variation) MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 43
Context: Overall Medicare margins – drivers of cost shift…1. Includes outpatient, medical education, rehab., psych…2. Wide variation (25% of hospitals have margins over 5.5%; 25% had margins of -14.5% or lower3. MedPAC estimates 2006 overall margin of -2.2% if no adjustments
MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 44
Context: Hospital margins from all payers
Wide variation, with 72% of hospitals having positive margins MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 45
Medicare Payments for Inpatient Hospital Services
Source: MedPAC Presentation, Senate Finance Committee, April 2003
© Consumer-Purchaser Disclosure Project, 2006 46
Medicare Hospital Inpatient Payments
© Consumer-Purchaser Disclosure Project, 2006 47
Medicare Hospital Inpatient Payments
© Consumer-Purchaser Disclosure Project, 2006 48
Medicare Hospital Inpatient Payments
© Consumer-Purchaser Disclosure Project, 2006 49
Medicare Hospital Inpatient Payments
© Consumer-Purchaser Disclosure Project, 2006 50
Medicare Hospital Inpatient Payments
© Consumer-Purchaser Disclosure Project, 2006 51
Context: Ten DRG’s are 30% of discharges and over 20% of Medicare hospital costs MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 52
Medicare Hospital Inpatient Payments
See Appendix for Details on Cost Related Payment Adjustments
© Consumer-Purchaser Disclosure Project, 2006 53
Medicare Hospital Inpatient Payments
© Consumer-Purchaser Disclosure Project, 2006 54
Medicare Hospital Inpatient Payments
© Consumer-Purchaser Disclosure Project, 2006 55
Medicare Hospital Outpatient Prospective Payment System
Source: MedPAC Presentation, Senate Finance Committee, April 2003
© Consumer-Purchaser Disclosure Project, 2006 56
Hospital Outpatient Prospective Payment System
© Consumer-Purchaser Disclosure Project, 2006 57
Hospital Outpatient Prospective Payment System
© Consumer-Purchaser Disclosure Project, 2006 58
Hospital Outpatient Prospective Payment System
© Consumer-Purchaser Disclosure Project, 2006 59
© Consumer-Purchaser Disclosure Project, 2006 60
Hospital Outpatient Prospective Payment System
© Consumer-Purchaser Disclosure Project, 2006 61
Hospital Outpatient Prospective Payment System
© Consumer-Purchaser Disclosure Project, 2006 62
Hospital Outpatient Prospective Payment System
See Appendix for Details on Adjustments to Base Payments
© Consumer-Purchaser Disclosure Project, 2006 63
Hospital Outpatient Prospective Payment System
© Consumer-Purchaser Disclosure Project, 2006 64
Hospital Outpatient Prospective Payment System
CMS 2006 Proposed Changes to Hospital Inpatient Payment – Background
CMS determines Medicare’s payment to hospitals for different types of admissions (“Diagnostic-Related Groups” or DRGs), e.g., heart attack, hip replacement, pneumonia
Updated annually based on changes in hospitals’ average charges for various procedures
Goal of proposed rule to have payment more accurately reflect patient complexity and relative cost of the service
© Consumer-Purchaser Disclosure Project, 2006 66
CMS 2006 Proposed Rule to Revise Hospital Payments Shifts payment from average charges to average estimated
costs (2007) Major changes (“severity adjustment”) in the DRG
classification system designed to more accurately reflect costs of individual patient (2008) Replaces 526 DRGs with 861 CMS-DRGs (“CDRGs”) Subdivides CMS-DRGs into from one to four severity levels Several thousand new patient categories: creates new
DRGs, eliminates or subdivides some old DRGs, further divides DRGs by disease severity, including co-morbidities, and other characteristics such as age
Does NOT address shifting payments to reward outcomes (comments solicited separately on this issue – see Letter to Secretary Leavitt and from Consumer-Purchaser Disclosure Project, June 12, 2006)
© Consumer-Purchaser Disclosure Project, 2006 67
MedPAC’s Perspective – Kudos to CMS for Taking “Great Strides” to Improve Accuracy of Payments
Need some technical refinements
Movement from DRG to CDRG payment system substantially increases payment accuracy
Encourage implementation of both cost-based weighting and CDRGs in 2007
Future need to reform outlier payments
© Consumer-Purchaser Disclosure Project, 2006 68
Device Manufacturers’ Perspective -- Problems with Proposed Changes to Hospital Payment
Shifts payment from advanced technology to routine care Massive cuts in some of the most advanced, effective
treatments Penalizes new technology and treatments as the result of
three to five year data lags Creates rapid, excessive shifts in payment by introducing one
major reform in 2007 and another major reform-that often moves payment in the opposite direction-in 2008
Major sources of inaccuracy Inadequate time to review, analyze, and correct problems Hence – proposes delayed implementation
© Consumer-Purchaser Disclosure Project, 2006 69
Background Appendix
Physician and Hospital Payments
© Consumer-Purchaser Disclosure Project, 2006 70
Context: Medicare Payments by Service – 2004 to 2010
© Consumer-Purchaser Disclosure Project, 2006 71
Context: Increasing number of physicians serving Medicare
MedPAC, March 2006
© Consumer-Purchaser Disclosure Project, 2006 72
Composition of the RUC MedPAC, March 2006
© Consumer-Purchaser Disclosure Project, 2006 73
Increases in Medicare volume 2001-2004Increases in Medicare volume 2001-2004
-10%
0%
10%
20%
30%
40%
50%
60%
70%
D Column 1-3 8% 42% 67% 20% 44% 32% 39% 30% 5%-
New PtOV
CT MRI Hip
ReplKnRepl
DiscSurg
ArthrColonos
copyColecto
my
Adapted from T. Bodenheimer, M.D., UCSF, May 2006
© Consumer-Purchaser Disclosure Project, 2006 74
Context: Private Insurer Physicians Fees about 20% Higher than Medicare
Direct Research, LLC, for MedPAC, August 2003
© Consumer-Purchaser Disclosure Project, 2006 75
Context: Medicare’s Share of Expenditures by Service Type
© Consumer-Purchaser Disclosure Project, 2006 76
Context: Distribution of Medicare Payments
© Consumer-Purchaser Disclosure Project, 2006 77
Context: Inpatient margins – drivers of cost shift…1. Reduced after BBA in 19962. Wide variation (25% of hospitals have margins over 10% and 47% had positive margins; but 25% had margins of -14.5% or lower and 53% had negative margins.
MedPAC, June 2006
© Consumer-Purchaser Disclosure Project, 2006 78
Medicare Hospital Inpatient Payments: Cost-Related Adjustments
© Consumer-Purchaser Disclosure Project, 2006 79
Medicare Hospital Inpatient Payments: Cost-Related Adjustments
© Consumer-Purchaser Disclosure Project, 2006 80
Medicare Hospital Inpatient Payments: Cost-Related Adjustments
© Consumer-Purchaser Disclosure Project, 2006 81
Medicare Hospital Inpatient Payments: Cost-Related Adjustments
© Consumer-Purchaser Disclosure Project, 2006 82
Medicare Hospital Inpatient Payments
© Consumer-Purchaser Disclosure Project, 2006 83
Medicare Hospital Inpatient Payments: Cost-Related Adjustments
© Consumer-Purchaser Disclosure Project, 2006 84
Hospital Outpatient PPS: Adjustments to Base Payments
© Consumer-Purchaser Disclosure Project, 2006 85
Hospital Outpatient PPS: Adjustments to Base Payments
© Consumer-Purchaser Disclosure Project, 2006 86
Hospital Outpatient PPS: Adjustments to Base Payments
© Consumer-Purchaser Disclosure Project, 2006 87
Hospital Outpatient PPS: Coinsurance and Buy-downs
© Consumer-Purchaser Disclosure Project, 2006 88
Hospital Outpatient PPS: Case Example
© Consumer-Purchaser Disclosure Project, 2006 89
Context: Medicare Beneficiary Use of Services
© Consumer-Purchaser Disclosure Project, 2006 90
Context: Utilization in Medicare – Few People, Big Dollars
© Consumer-Purchaser Disclosure Project, 2006 91
The Disclosure Project
The Consumer-Purchaser Disclosure Project is a coalition more than 50 of the nation’s leading consumer, labor, and employer organizations that working to advance publicly reported, nationally standardized measures of clinical quality, efficiency, equity, and patient centeredness for health plans, hospitals, medical groups, physicians, other providers, and treatments. The Disclosure Project is supported by financial and in-kind support of participating organizations and by financial support from the Robert Wood Johnson Foundation.
For more information:
Visit our website: http://healthcaredisclosure.org/
Contact: Katherine BrowneManaging DirectorEmail: [email protected](202) 238-4820