HIMA Comments on Medicare
Hospital Outpatient Department PPS

July 28, 1999

Ms. Nancy-Ann DeParle
Administrator
Health Care Financing Administration
Department of Health and Human Services
Room 443-G
Hubert H. Humphrey Building
200 Independence Avenue, SW
Washington, DC 20201

RE: Notice of Proposed Rulemaking -- HCFA -- 1005-P -- Prospective Payment System for Hospital Outpatient Services

Dear Ms. DeParle:

The Health Industry Manufacturers Association (HIMA) appreciates the opportunity to comment on the Health Care Financing Administration's rule proposing a new system of prospective payment for care provided in hospital outpatient departments (63 Federal Register, No. 173, pages 47552-48036, September 8, 1998). Our comments are based on the proposed regulation, as well as on statements by, and discussions with, HCFA officials regarding the proposed system.

HIMA is the largest medical technology trade association in the world, representing more than 800 manufacturers of medical devices, diagnostic products, and medical information systems. HIMA's members account for nearly 90 percent of the $55 billion in annual U.S. sales of medical device technology, and more than 50 percent of the $130 billion in annual global sales. As such, the proposed system holds significant implications for our members and for the Medicare beneficiaries who rely upon their products.

As you know, remarkable advances in technology and medical practice over the past decade have supported the shift of many medical diagnostic and therapeutic procedures from the hospital inpatient setting to the more economical and clinically appropriate hospital outpatient department. Our comments address the need for HCFA's proposed new hospital outpatient department prospective payment system to keep pace with these advances, thus assuring continued Medicare beneficiary access to quality enhancing services in a delivery setting that is of critical importance to patients, health providers, and medical technology manufacturers.

Before presenting our detailed comments, we would like to stress several threshold issues. First, in order for patients to enjoy timely access to beneficial technologies and procedures, HCFA needs to better coordinate the various aspects of the Medicare program that affect patient care-especially the coverage, coding, and payment systems. This requires confronting directly the question of making fair payment for cases involving costly-but quality-enhancing-medical technology, timely integration of new medical treatments into the prospective payment system, the prompt assignment of procedure codes, and the careful grouping of medical cases by the patient classification system. Our detailed comments will touch on these issues in more depth.

A second threshold issue involves the powerful effect of the proposed outpatient payment system on the incentives of providers. To be clear, HIMA remains a supporter of an outpatient prospective payment system to improve efficiencies and economy in health care delivery in this important setting. But HIMA also believes that care must be taken to ensure that the changes that are being proposed do not harm Medicare beneficiary access to appropriate medical treatment-and the medical technology that is the essence of that care. Without sound and innovative design, such changes might well introduce financial barriers that prevent beneficiaries from receiving the care they need and create perverse incentives that hinder worthwhile technologies from being adopted and utilized by practitioners. Moreover, if poorly designed, changes in the hospital outpatient department payment methodology may lead those who manage these facilities to make inappropriate medical decisions regarding the particular types of medical services that should be made available to patients, as well as the site where these services should be provided.

The third overarching issue that we raise to your attention is the fact that any system of this magnitude holds enormous implications for the future of innovation in medical technology. Given the system's size and complexity, the effects of Medicare hospital outpatient PPS will extend well upstream into the device innovation process itself-from the types of products developers choose to pursue and bring to market, to the size and type of company that is able to develop medical technologies. In this sense, the outpatient PPS system -perhaps more so that any Medicare payment policy since DRGs of the early 80s-holds the power to alter not just the care that patients receive today, but also the kind of treatment and medical advances that will be available in the coming years.

For that reason, one final key point must be stressed at the outset: The proposed payment system presents clear and direct threats to certain critical kinds of technology simply because internal mechanisms within the payment structure itself are inadequate. Here we refer primarily to:

For these technologies, as we will describe in detail, we propose that payment be made on a reasonable cost basis for a period of three years (from system implementation or new technology introduction, as applicable) until HCFA can develop systems that ensure equitable payment and, thus, greater likelihood of prompt availability of such technologies for patients.

All of these issues suggest the need for great care and deliberation in constructing this system. Toward that end, we have provided detailed comments that are attached. We wish to point out, as noted earlier, that these comments respond to issues raised in the September 8, 1998, proposed regulation, but also to comments offered both before and after the original proposal by HCFA officials. We believe that such comments, interpretations, analyses, and conjectures are legitimate areas for response given the potential breadth of the proposed system and the key role that the views and interpretations of HCFA officials will play in setting its ultimate course.

In summary, HIMA's comments make the following overall points:

As HCFA contemplates the detail of this proposed payment system, HIMA also recommends strongly that the agency ensure that the system is fully and appropriately funded. Given the sweep of hospital outpatient PPS, we believe that shortchanges now will reverberate throughout the entire health care sector and the U.S. economy for many years to come; and, without question, will influence the development and direction of medical technology. While we understand and support the need for economy and fiscal discipline, we urge HCFA to utilize Medicare trust fund money to make up the 5.7 percent underpayment that this system proposes for hospitals. We believe that this underpayment was not intended by Congress when it passed the Balanced Budget Act of 1997.

We appreciate your time and consideration of these thoughts. HIMA and its members stand ready to provide any further detail you may seek. We are also willing to work with you in refining and developing more precisely any of these recommendations.

Sincerely,

Ted Mannen

Attachment: Detailed Comments On the Proposed Medicare Hospital Outpatient Department Prospective Payment System

Detailed Comments of the
Health Industry Manufacturers Association
On the Proposed Medicare Hospital Outpatient
Department Prospective Payment System
(As Published in the September 8, 1998, Federal Register)

1. Data Used to Establish Payment Rates

The prospective payment rates for hospital outpatient department services are based on old data that reflect, in some cases, obsolete practice patterns and, in some cases, outdated technology. HIMA recommends that HCFA take steps to obtain the best data possible and to consider alternative measures when such data are totally unavailable to ensure that the system reflects current medical practice and technology.

Background

When the outpatient prospective payment system is implemented in late 2000, it will be based on program data from 1995-1996-in other words, information that is more than four years old. In addition, HCFA does not plan to update the APC groups and rates until after it has collected and analyzed data from 2001, the first full year of experience under the new system. As a practical matter, this means that the first update will be in 2003, at the earliest. By then, hospital payments will be based on data, technology, and practice patterns that are at least seven years old.

In contrast, innovation cycles in medical technology are very rapid. For some technologies, new models can emerge monthly; with other products, new innovations may appear every year or two. As such, the methods HCFA has proposed for gathering data on medical technology, and adjusting payment levels and groups accordingly, lag well behind real-world development cycles, threatening both innovation and patient access.

Another important factor relates to the quality of data that serve as the foundation of the proposed payment system. Weights for the payment categories have been set based on single-procedure claims only. Almost half of the claims data were removed because they reflected multiple procedures. Thus, questions arise as to whether the data reflect the true nature of practice patterns and health care utilization.

HIMA Recommendations

To address these problems, HCFA must find new ways to generate current and reliable data and, in those cases where current data are totally unavailable, establish innovative mechanisms that will pay appropriately for recent technologies nonetheless.

2. Payment Rates and Adjustments

A true measure of an effective payment system lies in the soundness of its payment levels and payment categories and in its ability to adjust with the dynamics of medical advance. The proposed outpatient PPS falls short on both counts. HCFA must take steps to ensure that payment rates and categories are adequate from the start, that they are adjusted frequently to accommodate new medical technologies, and that efforts to control overutilization do not harm well-justified and appropriate use of technologies.

Background

Under the proposed regulation, the initial structure of the APC groupings and payment levels does not adequately recognize the cost of medical equipment. As the system is now proposed, medical equipment can dominate or exceed the amount of payment made for an APC. This is especially true for such equipment as high-tech surgical equipment, implantable devices, equipment used for radiation therapy and diagnostics, other diagnostic equipment, and nuclear medicine.

Use of the median cost to set the payment weights also inappropriately biases the payment toward the low-cost procedures grouped in the APC. For example, one low-cost procedure accounting for 51 percent of the volume for a particular APC would solely determine the payment rate. Other, higher-cost procedures included in the APC would have absolutely no effect on the payment rate. To illustrate, the median costs of plasma and/or cell exchange (CPT 36520, median cost $837.34), photopheresis (CPT 36522, median cost $1,673.53), and stem cell collection (CPT 38231, median cost $669.31) far exceed the median cost of other procedures assigned to APC 369 (proposed payment rate $325.49). This is because the vast majority of the cases assigned to this APC are for transfusion (CPT 36430) with a median cost of only $323.33.

Not only is the initial payment for new treatments unacceptably low, but-under the proposed system-it would take several years before an adequate payment is made. This is due to varied problems, including delays in getting new procedure codes, gapfilling methods for setting initial payment rates, and HCFA's unwillingness to use non-Medicare data sources-all topics that we have already addressed or will address in other portions of these comments. But one of the primary reasons that the outpatient PPS will take so long to "catch up" with changing medical treatment is that neither its payment levels nor its payment categories will be adjusted frequently enough to account for such advances.

Finally, HCFA's proposed volume control adjustment-in an attempt to limit overutilization and unjustified increases in intensity of services-threatens legitimate utilization, including care that has shifted appropriately from the traditional inpatient setting to the outpatient department. Stated in simpler terms, hospitals could well be punished in future years for providing high-quality, well-justified care in the outpatient setting simply because such care has been deemed to fall mathematically into the category of "overutilization." In fact, this formulaic approach is in violation of the statute, which contemplates a carefully targeted mechanism for determining and eliminating that element of utilization which is unnecessary and inappropriate.

HIMA Recommendations

HIMA recommends that HCFA make several changes in how it creates payment rates and groups and how it adjusts them to reflect changes in medical technology or its use.

The expenditure target that HCFA proposes for services furnished in CY 2000 fails to identify and account for those factors included in the agency's estimate of "changes in the volume and intensity of outpatient services." Moreover, the agency fails to make a specific determination of unnecessary volume increases, and instead simply relies on rising expenditure levels in excess of the target amount as a proxy for such increases. Finally, HCFA discusses several approaches for establishing a volume control measure for years 2001 and beyond. Here again, all of the proposed methods fail to account for the broad range of factors that may contribute to changes in the volume of outpatient services. We urge the agency to pursue a delay in implementing a volume control mechanism for the first few years of the payment system, thus allowing opportunity to address these important issues.

3. Patient Classification System

HCFA's proposed patient classification system for outpatient PPS force-fits medical care into payment groupings that are too few in number to offer true homogeneity either in the clinical or cost characteristics of countless procedures. HIMA believes that this narrow and arbitrary architecture threatens patient care and medical innovation, and HIMA urges HCFA to seek a system that is more flexible, logical, and-in its individual groupings-more uniform and cohesive.

Background:

One of the biggest challenges facing HCFA in creating the hospital outpatient PPS is assigning thousands upon thousands of medical procedures to some 340 APC payment categories. By definition, this is an arbitrary task, forcing hard judgments that mingle clinical and economic considerations. But HCFA's approach raises serious concerns. First, HCFA has limited itself unnecessarily to a relatively small number of APC categories. Second, this arbitrary limit means that there is a lack of internal homogeneity within categories, leading to mismatches of resource-need and resource-availability. We point again to the example of APC 369-with a proposed payment rate of $325.49, despite the fact that many procedures are included within that category that cost well above that level. Finally, HCFA does not make clear its criteria for assigning procedures to payment groups-though this action is of vital importance to the nature of care patients ultimately receive. MedPAC echoes some of these same concerns in its March, 1999, Report to the Congress: Medicare Payment Policy, stating that "certain design elements of HCFA's proposed [outpatient] system could cause significant disruptions in hospitals' willingness or ability to provide Medicare beneficiaries with necessary ambulatory care services."

HIMA Recommendations

HIMA urges HCFA to create a much more complete system of payment categories that permits more logical and uniform grouping of similar cases. HIMA also seeks clarification of the criteria HCFA uses in assigning or re-assigning procedures to APC groups.

4. Integration of New Technology

The proposed payment system is unfriendly to new, emerging technology in many ways-from faulty database mechanisms to inappropriate incentives to unreasonably low payment levels. HIMA urges HCFA to adopt a number of specific policies to correct these problems in an effort to ensure that emerging technologies will be integrated into Medicare smoothly and promptly.

Background

As proposed by HCFA, hospital outpatient PPS will be a harsh and unforgiving environment for many new technologies now in clinical testing. Such technologies face enormous hurdles, even after they have endured the gauntlet of Medicare coverage. They face difficulty in securing appropriate APC assignment and reasonable payment levels because HCFA's systems take years to capture data on new technologies and reflect them in procedure codes and payment rates. In addition, it is our understanding that HCFA intends to assign new technology and medical procedures (those that do not yet have a new HCPCS code) to the lowest paying group related to the treatment or condition, thus creating powerful financial incentives for providers to avoid the newest treatments. And because the outpatient system is based on smaller bundles of services than inpatient PPS, it is not as easy for hospitals to recover the costs of new technologies, as under the inpatient PPS. All of these factors, and others, will discourage the research and innovation that is the prerequisite for future advances in health care.

Recommendations

HIMA urges HCFA to adopt a number of specific provisions that will make the new system much more technology friendly for new and emerging innovations:

5. Specific Technologies and Treatments

HCFA's approach in paying for technologies that present unique clinical or cost characteristics is overly rigid and increases the likelihood that important technologies-including those already available-will not be available in the future for Medicare patients cared for in the hospital outpatient setting. HIMA urges HCFA to consider alternative techniques for paying for such products and, more broadly, to ensure that the payment structure does not create incentives that discourage appropriate use of such products for patients.

Background

The regulation includes provisions that propose unique methods of treating specific technologies under the outpatient PPS:

Though the regulation proposes unique methods of handling the above technologies, it makes no provision for another category of technology that also presents unique circumstances. These are technologies that may substantially increase costs-perhaps well above the payment level of an APC-but also substantially improve quality. Such breakthrough technologies often offer longer and healthier lives for patients who previously had little hope. These technologies are especially at risk in the type of rigid payment system that HCFA has proposed. Consider, for example, APC 960, cardiac electrophysiologic tests/procedures. These procedures are performed in specialized cardiac catheterization laboratories involving highly sophisticated imaging and other capital equipment. The procedures require significant clinician time and resources (it takes 4 to 8 hours to perform) and involve the use of multiple disposable catheters with costs often totaling well in excess of $1,000. Yet HCFA's proposed payment rate for APC 960 is only $247.

HIMA Recommendations

HIMA urges HCFA to seek solutions to pay for technologies that pose unique clinical or cost circumstances.

6. Monitoring, Evaluation, and Implementation

Outpatient PPS is an extraordinarily complex system that utilizes many new, problematic approaches and that will have a sweeping impact on patient care and health care delivery. HIMA urges HCFA to monitor the effect of the system on medical technologies and to delay final implementation of outpatient PPS until all of its systems are fully tested and found to be operating properly.

Background

HCFA first published its regulation proposing a hospital outpatient PPS in September 1998, with comments due in November. In response to requests by many groups, including HIMA, HCFA has extended the comment deadline on three occasions. The reason is simple: Hospital outpatient PPS presents a highly complicated, untested, yet sweeping system that will remake vast portions of the U.S. health care delivery system. Without question, it will have a dramatic impact on medical technology innovation, development, and utilization. It will also touch patients, providers, and a significant portion of the U.S. economy.

With regard to hospitals in particular, the system will clearly lead to a substantial redistribution of Medicare funds among types of hospitals in the U.S. Major teaching hospitals are among those that are particularly vulnerable. They are projected to lose more than nine percent of their Medicare outpatient payments under the proposal. Here alone is a substantial threat to medical innovation because these hospitals are often the incubators of innovation. They serve as one of the primary sources of significant new technologies, they play a central role in testing technologies undergoing clinical trials, and they train specialists whose knowledge is critical in providing the latest advances for patients.

HIMA Recommendations

HIMA urges HCFA to make sure all systems are working before outpatient PPS is implemented. Once it goes into effect, HIMA urges HCFA to keep a close watch on how well it works in key areas related to medical technology.