Medicare Compliance & Reimbursement

 MedPAC: DRG scheme still riddled with financial incentives

The Medicare Payment Advisory Commission will recommend that Congress extend its moratorium on new physician-owned specialty hospitals  set to expire in June 2005  for 18 months, to Jan. 1, 2007. The extension will give lawmakers and the Department of Health and Human Services time to change hospital payment rules and rules on physician-hospital gainsharing to eliminate incentives for physician owners to skim off lucrative services.

Specialty hospitals per se aren't necessarily a problem and in fact might inject a useful dose of competition into local health-care systems, said Commissioners Jan. 12. However, current payments under Medicare's diagnosis-related-group scheme for inpatient care make it too easy for physician-owned facilities in specialties like orthopedics and cardiac care to ferret out and serve mostly patients who will bring in higher-than-average profits.

Accordingly, MedPAC voted to recommend that HHS refine DRG payments to fully capture differences in the severity of illness among patients. In addition, Congress should give HHS authority to adjust the relative weighting of DRGs to account for differences in the prevalence of high-cost outlier cases, the panel agreed. Currently, DRGs that generate a high number of outliers get overpayments for non-outlier cases, while DRGS for which few outliers occur are underpaid.

Specialty facilities argue that doctor ownership gives physicians a vested interest in providing care more efficiently. However, skeptics argue that giving physicians the power to self-refer to a surgical facility, for example, may interfere with clinical judgment that might otherwise opt for medical management. As a compromise, MedPAC will recommend that Congress give HHS authority to develop and regulate physician-hospital gainsharing arrangements, allowing doctors to share in financial savings when they help hospitals provide care more efficiently.