MedPAC To Weigh Recalibrating Cardiac DRGs To Improve Payment Accuracy

Cardiac DRG payment accuracy will be evaluated by MedPAC as part of a Congressionally mandated report on physician-owned specialty hospitals.

Given that "heart hospitals and heart services [within] general hospitals have been more profitable than other services...since 1983," the diagnosis-related group "recalibration doesn't work quite as well," commissioner Ralph Muller, University of Pennsylvania Health System, noted.

"My sense is that if the charges are higher in certain areas within a year or two, the DRGs should be recalibrated to take that into account," he added during a Sept. 10 Medicare Payment Advisory Commission meeting in Washington, D.C.

Altering the DRG recalibration, for example, likely would result in lower payments for CABG surgery, which ultimately could increase drug-eluting stent usage. Johnson & Johnson/Cordis ( Cypher ) and professional societies contend that some physicians are performing CABG procedures in lieu of the less-invasive stenting due to the more favorable reimbursement (¹ (Also see "Drug-Eluting Stents Unlikely To Dramatically Reduce CABG Demand – ECRI" - Medtech Insight, 15 Sep, 2003.), p. 12).

Muller urged the commission to study why specialty hospitals have proliferated in some fields - such as cardiac and orthopedic - but not in other areas such as birthing and neurosurgical. "My sense [is that] some of it has to do with volume and some...has to do with the thesis of where the payment system may be skewed."

MedPAC staff should explore whether "the way that we're paying for patients [is] creating opportunities for selection of certain types of patients, [resulting in] exceptionally large profits," chair Glenn Hackbarth, an independent consultant, agreed.

While excessive payments may have contributed to the growth of specialty hospitals, commissioner Alan Nelson, American College of Physicians, noted that technological advances also have played a role. "I have no doubt that payment policy is a factor, but it's certainly not the only factor," he postulated.

Under the Medicare Modernization Act, MedPAC is required to compare costs of care in physician-owned specialty hospitals with those of community full-service hospitals. The report, due next March, also will compare whether specialty or community hospitals are more likely to treat patients in specific DRGs and examine to what extent the inpatient prospective payment system should be revised to better reflect the cost of care.

MMA mandates MedPAC to conduct 16 reports, with roughly six due by December. Consequently, the commission will discuss the reports during its fall meetings, instead of preparing update recommendations for the March 2005 report.

During the meeting, MedPAC staffer Carol Carter presented findings from a study comparing physician-owned specialty hospitals with their competitors, defined as non-physician-owned specialty hospitals and other hospitals in their region performing similar services, as well as community hospitals.

Overall, 66% of heart cases at specialty hospitals are surgical compared with 40% of their competitors and 29% of community hospitals. Approximately one-third of cases at physician-owned specialty hospitals involve CABG and angioplasties, compared with 19% and 14% at competitor and community hospitals, respectively.

Specialty hospitals also comprised a greater share of surgeries and procedures conducted in their markets, when compared with overall market share. Heart hospitals, for example, performed only 4.5% of cases in their markets, but treated more than 25% of the local angioplasties and CABGs, according to Carter.

Based on interviews conducted in three specialty hospital markets, MedPAC staff found that physicians at most specialty hospitals "accept restrictions on the range of supplies, stents [and] implant devices" that they initially resisted when working at community hospitals, Carter noted.

Separately, staffer Chantal Worzala, PhD, said that MedPAC plans to "model CMS' approach to setting payment rates under the outpatient PPS," including looking at alternative approaches for determining payments that eliminate the effect of charge compression - the practice of marking up lower-cost items more than higher-cost items. With charge compression, high-cost items, such as defibrillators, are consistently underpaid. AdvaMed has urged CMS to accept external data to ensure more accurate payment until CMS develops a more accurate methodology.