APA Helps Shape Reform of Medicare Hospital Reimbursement System

A sweeping change in the way inpatient psychiatric facilities will be reimbursed by the government under the Medicare program—from cost-based reimbursement to a prospective-payment system—will occur under a rule expected to be proposed by the Centers for Medicare and Medicaid Services (CMS).

CMS planned to issue the proposed rule as this issue went to press.

Joseph T. English, M.D., a leader in APA’s negotiations with the government around reimbursement for inpatient psychiatry for the past two decades, emphasized the landmark nature of the change and the vital role APA has played—a role that he called “unprecedented” for a broad-based membership organization.

“APA is taking the lead in shaping how Medicare is going to finance hospital-based care of the mentally ill for the early part of this century,” said English.

He is a past president of APA and current chair of the mental health and substance abuse committee of the Greater New York Hospital Association, as well as chair of psychiatry at St. Vincent Catholic Medical Centers and professor and chair of psychiatry at New York Medical College in New York City.

It was English who led the effort two decades ago to exempt inpatient psychiatry from prospective payment according to a system of diagnosis-related groups (DRGs) used for general hospitals and other health care facilities. That exemption spared hospital-based psychiatry a reimbursement system that would have cost the hospitals roughly $200 million a year in lost funding, or $4 billion over the 20-year period, English told Psychiatric News.

More recently, English has been instrumental in helping to derive a method of determining hospital reimbursement under a prospective payment system that is again expected to save hospitals money—and much time—over a method proposed by the government.

He explained that APA has partnered with the Health Economics and Outcomes Research Institute (THEORI), a consultant group linked to the Greater New York Hospital Association, in developing a prospective payment method using existing Medicare claims data.

That method replaces a government proposal that would have required psychiatric hospitals to use a lengthy, costly, and time-consuming “new patient assessment” instrument to collect data, APA leaders said.

“Psychiatrists should know that the method the government had under consideration before we offered another alternative would have been disastrous for hospital-based psychiatry,” said English. “It would have involved extraordinary data collection on each patient, taking nurses away from patients for an extraordinary amount of time.

“The outcome of the method we are recommending is of much greater benefit to patients and the people trying to care for patients.”

Exemption From DRGs Won

APA’s leadership in the arduous process by which a methodology for a new reimbursement system has been developed goes back 20 years, when the organization was instrumental in persuading the government to exempt psychiatric hospitals from a prospective payment system using DRGs.

General hospitals were the first to have to use the DRG system, beginning in 1984. They were followed over the years by skilled nursing facilities, home care services, outpatient hospital services, inpatient rehabilitation services, and long-term care hospitals.

English explained that the DRG system—by which an average per-case fee is calculated for groups of patients having similar diagnoses—was likely to have been wildly inaccurate for psychiatric patients since the method’s explanation of variance in length of stay for any one diagnosis was substantially deficient. A patient with psychosis, for instance, might stay three days or 23 days, depending on the stage of the illness and many other factors.

English was lead author on a landmark report in the February 1986 American Journal of Psychiatry titled “Diagnosis-Related Groups and General Hospital Psychiatry: The APA Study.”

The report described APA’s purchase of a large hospital-discharge database to study the potential impact of DRGs on psychiatric patients and inpatient psychiatric units in general hospitals.

“There was substantial inaccuracy in the psychiatric DRGs’ prediction of resource use, which could lead to inappropriate discharge of patients and financial risk to hospitals that treat more severe cases,” English and colleagues concluded in the study.

The persuasiveness of the APA study was instrumental in earning psychiatry an exemption from the DRG system, English said.

Per-Diem Prospective Payment

Yet prospective payment by some formula was inevitable, as the government sought to move away from a cost-based reimbursement system that was believed to reflect inaccurately the real value of services provided and to foster inefficiency: As long as facilities could count on being reimbursed for costs incurred—so the reasoning goes—they had no incentive to be efficient.

As part of the Balanced Budget Refinement Act of 1999, Congress mandated prospective payment for psychiatric hospitals based on a per-diem, rather than a per-case, basis.

Irvin (Sam) Muszynski, J.D, director of APA’s Office of Healthcare Systems and Financing, said that change is expected to improve markedly the accuracy of matching payment to resources consumed, by eliminating much of the variance in length of stay.

“The issue is no longer how much patients consume over a total stay, but how much they use on a given day,” Muszynski explained. “There is less variation on a per-day basis than on a per-case basis.”

Hospital-Specific Analysis

Karen S. Heller, executive director of THEORI, said hospital-based psychiatrists should be prepared to offer comments during the public comment period.

“Clinicians are accustomed to having a certain annual budget to work with,” she told Psychiatric News. “That budget is likely to change next year when the new system takes effect, and the effect will be more or less significant depending on the hospital.”

The change to prospective payment will not alter the total budget available for inpatient psychiatric facilities under Medicare, which is fixed by Congress, but will redistribute approximately 10 percent of that total to facilities around the country. Muszynski said that for a fee THEORI will offer hospital-specific analysis to determine approximately how the new system will affect individual hospitals.

More information about the change to prospective payment can be obtained by contacting Muszynski by phone at (703) 907-8594 or by email at [email protected]. More information about THEORI’s hospital-specific analysis of the federal ruling is available by calling Karen Heller at (212) 506-5408.

Once issued, the proposed rule will be posted on the Web site of the Federal Register at www.gpoaccess.gov/fr/index.html. Additional information will also be published in Psychiatric News as it becomes available. ▪