CMS is considering a selective review of potentially excessive DRG payments for cardiac, orthopedic and surgical procedures that could be spurring physicians to form specialty hospitals.

"It is possible specific DRGs have high variation in resource costs and that a better recognition of severity would reduce incentives for hospitals to select the least costly and most profitable patients within these DRGs," the agency states in a May 12 report to Congress on specialty hospitals. The report was mandated by the Medicare Modernization Act.

CMS Administrator Mark McClellan informed the House Energy & Commerce/Health Subcommittee on May 12 that the agency plans to improve the accuracy of the inpatient prospective payment system reimbursement rates. CMS will publish changes in the FY 2007 proposed rule, set for April 2006 release.

Cardiac procedures commonly performed in specialty hospitals that could be included in the DRG review involve: abdominal aortic aneurysm repair; coronary artery bypass graft; angioplasty; carotid endarterectomy; congestive heart failure; and acute myocardial infarction.

The hearing was held to address concerns with specialty hospitals, including allegations that physicians can "cherry-pick" the least severe cases within a patient population. Critics have further suggested that physician owners are more likely to refer patients to their own facilities, even though concrete evidence backing those allegations are lacking.

Stressing the need for a "balanced" approach to the issue, McClellan noted that "specialty hospitals provide high patient satisfaction, high quality of care and patient outcomes in some important dimensions and greater predictability in scheduling and services."

To improve the DRG payment structure, McClellan suggested that the groups should better reflect illness severity, with particular attention to the possibly outdated list of complications or co-morbidities, which often are associated with higher DRG payments.

The CMS report elucidates that the agency will evaluate the use of all-patient refined DRGs, which contain a greater number of DRGs and could make payment rates closer to patient resource needs. The agency is considering basing DRG weights on the estimated cost of providing care.

After the Medicare Payment Advisory Commission suggested identical recommendations in its March report to Congress, AdvaMed urged CMS to move slowly in adopting such changes. AdvaMed contends that the changes "have the potential to cause enormous and unpredictable effects" to inpatient reimbursement (¹ Also see "AdvaMed Provides CMS With New Technology Add-On Payment Wish List" - Medtech Insight, 11 April, 2005., p. 11).

McClellan also stated that ambulatory surgical center reform will "help ensure that payments more accurately reflect the costs of providing care in an ASC and thereby reduce incentives for physicians to provide care in either an ASC or an outpatient department simply to realize higher profits." CMS has pledged to implement the ASC payment reforms in January 2008.

Energy & Commerce Committee Chair Joe Barton (R-Texas) voiced skepticism with the movement to impede the growth of specialty hospitals. He challenged the idea of imposing laws that would discourage physician self-referral, a tradition on which he claimed modern medical practice is constructed. With a current moratorium on self-referral set to elapse June 8, "doing nothing wins in this case," Barton opined.

Meanwhile, on the Senate side, Finance Committee Chair Chuck Grassley (R-Iowa) and Ranking Member Max Baucus (D-Mont.) introduced legislation (S 1002) May 11 that would prohibit physician self-referral to new specialty hospitals. Referred to the Finance Committee, "The Hospital Fair Competition Act of 2005" would allow existing specialty hospitals to continue operating under certain restrictions.

The bill essentially builds on MedPAC's recommendations to Congress (² Also see "MedPAC DRG Reform Proposals May Impact Specialty-Hospital Cardiac Trends" - Medtech Insight, 14 March, 2005., p. 17). Under the measure, HHS Secretary would be tasked with overseeing changes to the IPPS system by "ensuring that diagnostic-related groups appropriately capture the difference in severity of illness of patients" over a phased-in period that should occur during a three-fiscal-year period beginning in FY 2007.

Further, the bill would allow gainsharing arrangements between hospitals and physicians to foster improved physician-hospital efficiency (see ³ Also see "Gainsharing Could Gain Momentum Under Senate’s Specialty Hospital Bill" - Medtech Insight, 16 May, 2005. ).

CMS Advocates DRG Payment Changes To Check Overpaying Certain Services

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