What hospitals can & should do about the CMS Outpatient and ASC final payment rules - right now!

In CY 2019, clinic visits will be paid 70 percent of the OPPS rate, and in CY 2020 and beyond, 40 percent of the OPPS rate.

The clinic visit is the most commonly billed service under the OPPS, and CMS estimates that its policy will reduce Medicare expenditures by $380 million in CY 2019.

The response of the American Hospital Association was that "Today’s misguided final rule will have negative consequences for the patients we serve...”

?How's that? The AHA's position is that the cuts will hit patients in rural and vulnerable communities especially hard.

Back in 2015, Congress recognized the crucial role of hospital outpatient departments in the communities they serve and specifically protected existing facilities from unwarranted payment reductions.

The AHA believes that the new rates could stifle hospitals’ ability to modernize care to meet the needs of their patients and communities. That's not really something new. Rural hospitals and vulnerable community healthcare outlets have always struggled with access to capital and reimbursement for provider-based departments that are located off the hospital's main campus.

The Bipartisan Budget Act of 2015 included this revision to the OPPS:

● Effective January 1, 2017, certain items and services furnished by off-campus provider-based departments were not considered covered outpatient services for purposes of OPPS payment.

The items and services excepted from application of this payment change were those furnished:

1. By a dedicated emergency department (ED)
2. By an off-campus provider-based departments billing for covered Outpatient Department (OPD) services furnished prior to November 2, 2015 (the date Section 603 of the Bipartisan Budget Act of 2015 was enacted), and has not impermissibly relocated or changed ownership, or
3. In a provider-based department that is on the campus, or within 250 yards, of the hospital or a remote location of the hospital

Non-excepted items and services furnished in a non-excepted off-campus provider-based departments on or after January 1, 2017, were to be paid under the Medicare Physician Fee Schedule.

The OPPS applies to designated hospital outpatient services furnished in all classes of hospitals, with the exception of:

● Hospitals providing only Part B services to inpatients (very rare)

● Critical Access Hospitals (CAHs)

● Indian Health Service (IHS) and Tribal hospitals, including IHS Tribal CAHs

● Hospitals located in American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands and in the Virgin Islands, and

● Hospitals in Maryland (paid under Maryland waiver provisions)

Some of that will change with this final rule.

The double edged sword - the impact isn't only to hospitals

For years, private clinics argued with Medicare Advantage and contracted managed care plans that they had a competitive advantage because payers that based their fee schedules on a percentage of Medicare Reimbursement rates paid them less than hospital-owned and operated, off-campus, provider based departments. This was due to the fact that their services were not eligible for the payments related to charges for Revenue Code 510 (the facility fee). But many health plans pushed back on that argument of competitive advantage because they refused to pay the RC 510 to the hospital, so the competitive pricing argument was a non-issue.

How will rural patients and vulnerable communities respond?

The way that they always have. When you live 3-5 hours from the hospital or clinic you need to access for services, you get in the car and drive there. Or you hire a driver to drive you there, or you prevail upon a friend or a relative to take you and bring you back. It often involves an overnight stay at a hotel or with a friend or relative or at an AirBnB outlet.

In the lovely, warm, picturesque, rural community where I reside (St George, Utah), people have access to excellent healthcare for much of what they need. But they travel to Las Vegas, Salt Lake City, and other locations for the services that are unavailable in town or with too long a delay. Many of my neighbors in this gated, exclusive country-club community maintain two homes. They keep a summer location up north and a winter location here in Southern Utah and Mesquite, Nevada or Northern Arizona. So if they need to travel to Salt Lake City, they may just open up their summer home and stay there for a few nights. People choose to live here and elect to deal with the healthcare access issues.

Sometimes, if the water and heat are shut off and the house is closed up, it may be less hassle to check into a hotel for a few nights than to go to the trouble of turning on the water, the water heater, and the heat and cable TV and other suspended utilities to stay only a few nights. Nonetheless, they travel and think little of it. They assume it comes as a part of the package in where they've chosen to live. If they were more concerned about it, they would choose a different place with a wider array of local health services.

Now, I get that not every rural area has these amenities and some are just a huge farm in an area of lots of agricultural business. But the point I am making here is the same. People are accustomed to driving or traveling to access care. They mostly drive because the airport may not offer the convenience to fly where they want to go without driving 2-3 hours to the nearest airport (or more).

This willingness to drive to care qualifies under the definition of domestic medical travel and health tourism. But in no way does it equate to a willingness to travel to Costa Rica, Mexico, India, Dubai, China, Malaysia, Brazil, Argentina, or other medical tourism destinations that require flights and passports.

Beyond 3-5 hour drives in one direction, if they are going to board a flight to access care for services covered by Medicare or Medicare Advantage plans, they might travel to where relatives live in a bigger city, or travel to an Academic Medical Center or Center of Excellence -- in the USA -- because the only difference in cost of the health services per se, is the geographic adjustment factor that is applied by the payer that is factored into the maximum allowable charge. They have the time to travel, the freedom to take the dog or the cat or the parakeet with them in the car, or find a neighbor kind enough to pet sit, or they hire a kennel or a pet sitter.

If the geographic adjustment factor changes the price by $100, the financial impact to the senior for the care portion of the expense is $20. That's just not a big enough deal to support or even consider the argument from the American Hospital Association about "stifl[ing] hospitals’ ability to modernize care to meet the needs of their patients and communities. At least, not until an emergency arises and the services they need are unavailable. When that happened in Moab, where my father-in-law suffered a bradycardia event and his pulse dropped to 20BPM, he crashed the car when he lost consciousness and the ambulance took him to the closest hospital. they had no cardiologist or cardiology technology. That meant they could not admit him to their hospital. They offered a ground ambulance to someplace else or a flight in a helicopter to the closest hospital in Colorado that could help. He chose the 4-hour ground ambulance ride back to Provo and Medicare paid most of the bill.

An average air ambulance ride in Utah is 52 miles and costs between $12,000 and $25,000 in billed charges. In calendar year 2016 the ground ambulance mileage rate was $7.10 per statute mile, the FW (fixed wing (planes)) mileage rate was $8.50, and the RW (rotor wings (helicopter)) mileage rate was $22.68. The geographic adjustment factor applies, and a surcharge applies for advanced life support services compared to basic life support and there is a rural allowance as well. Assuming a 190 mile driving distance, then, even if the rate was $8 per mile, the ambulance charge was covered by Medicare for an allowable rate of about $1600, of which he had to pay 20%.

But how many people experience this need on an emergency basis? While the AHA argument is "true", the reductions can and will impact rural and small critical access hospitals, the question becomes one of materiality. The materiality has been analyzed by the Office of the Actuary at CMS and they've decided that incidence frequency for the big transfer bills in an emergency was acceptable risk and that the higher volume cuts and savings in eliminating the RC 510 was an acceptable and preferable tradeoff.

Without a win in the lawsuit, the final rule and cuts will stand and the public will "make do" until the hospitals and their charitable foundations (and the philanthropic seniors and local businesses and family charitable foundations who donate to the foundation) come up with the cash to fill the gaps in the "hospitals’ ability to modernize care to meet the needs of their patients and communities." And people will drive or fly to the Centers of Excellence and the big city healthcare outlets as the need arises.

None of this will happen overnight, and the effect of these cuts will be felt, but over time.

I equate this to the "boiling the frog" effect. The Trump Administration is showing signs that the boiling the frog effect is part of their strategy to take credit for wins they did not create, and duck accountability for the longer term problems they create. The boiling frog is a fable describing a frog being slowly boiled alive. The premise is that if a frog is put suddenly into boiling water, it will jump out, but if the frog is put in tepid water which is then brought to a boil slowly, it will not perceive the danger and will be cooked to death. The problems caused by implementation of their strategies will be realized over a longer period than the Administration will be around.

Many citizens don't realize or don't care about such things enough to rally or vote about it until something changes in their situation and it affects them directly. This consumer behavior is why so many "energy savings" consultants who perform heat envelope and infrared testing find it hard to get people engaged in saving money on their HVAC expenses. They can afford their electric bill so they don't spend money to cut the costs with these preventive tests because the cost differentials aren't significant enough to matter and probably won't be realized in their lifetimes.

So what's a hospital to do?

Well, there are a few issues here:

1. Stop buying so many physician practices. The jig is up. Revenue Code 510 is going away so the scheme is foiled. Without RC510, is it worth owning and operating so many PBDs? Probably not. The answer is in the data and the math.
2. Diversify revenue opportunities. Find other ways to attract patients. Innovate now while there's still cash in the bank. Be more selective. Repurpose what you already have. Maximize its revenue potential with some new strategies. Be the chosen medical travel destination provider for a wider catchment area. Build the necessary medical travel infrastructure through resources planning and management and partnership collaborations. There's far more to medical travel than the appointment and the medical focus.
3. Reduce dependence on Medicare as a principal payer and as the benchmark for all other commercial payer contracts.
4. Negotiate rates basic formulas for charges and payments on the basis of care delivery and activity based costs and contractual performance requirements, not just as a comparison to what Medicare pays. Oh, but that might mean you have to know your costs. Hmm. Well...? Isn't it time you had a better grip on activity-based costs in healthcare delivery and operations? Well Get busy! Time's a-wastin'. You are going to get boiled, so do what you can while the water is still only tepid.
5. Boost your development of bundled case rate pricing and start contracting with more employers, labor and trade unions, and associations without waiting for HMOs and PPOs, ASOs and TPAs to do it for you. Through disintermediation, you'll have better deals that make sense for your facility and PBDs. If you wait for the HMOs, PPOs, TPAs and ASOs they will get the best deals with employers -- for themselves -- and treat you as a commodity supplier. If you want input over destiny, the time to explore direct with employer contracting is today.