Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Overhead Payments for Procedures in Physician Offices

Background: six years ago, Congress provided in Section 1833 for Medicare payments to hospitals, free-standing centers, and physician offices for the overhead component of procedures. Although regulations emerged for the other two locales, the section on physician offices was never implemented. We can only speculate on the reasons for this, but the environmental change impelling a reopening of the issue is obvious: the overhead charges for most such procedures in the first two locales are proving to be so high they are difficult for outsiders to understand. Numerous physicians have commented that they would be willing to accept 2/3 of the hospital outpatient rates without further discussion. Presumably, HCFA would want to examine the possibility of such significant cost savings to the program.

Furthermore, physicians find themselves receiving conflicting signals from Society as to whether there is a real wish for medical care to be conducted in less expensive setting. HCFA policies are causing hospital employment to increase, almost exclusively in the ambulatory departments, at the same time that the argument is set forth that physicians should not duplicate existing facilities. At the same time, PROs are continually prodded to encourage a migration out of the inpatient setting.

PROBLEMS. Presumably, we can set aside the issue that office facilities are presently inadequate for increased procedure intensity since that would be quickly remedied if reimbursement policy changed. The Duke Private Sector Conference recently examined the reasons in 1870 for the migration of procedures into the hospital after the example of Lister and NIghtingale, hoping to see whether the underlying premise had changed, or whether there were significant lessons to be learned. No one at the conference seemed to have enough historical grounding to respond to the issue at that level.

Th two main concerns expressed by physicians have been: the possibility that such reimbursement would open the door to expensive and disruptive detailed cost-accounting, and the possibility that poor quality would result from lack of peer oversight in an unsupervised environment.

SUGGESTED APPROACHES. A pilot program is always an attractive beginning for breaking new ground. Some progress has been made in Pennsylvania with the Philadelphia Blue Cross and the State Welfare Department on this concept, and Pennsylvania would probably make a suitable place for a demonstration program. Philadelphia Blue Cross has indicated a preference for a short list of (perhaps five) payment categories, with the inclusion of a procedure in a category by some relative-value scaling of the fifty or so common procedures. PBC was not greatly concerned with the accuracy of such pricing, so long as the price was comfortably less than what was paid hospitals for the same procedure.

Nor was the issue of quality control thought to be important so long as the volume of the procedures did not change greatly, and an area-wide tissue committee examined the specimens. PBS regarded the matter as roughly comparable to the performance of dental procedures, where the issues are the necessity of the service (x-rays, tissue committee, second opinion) and satisfaction by the unanaesthetized patient with the result. The unanaesthetized patient guarantees that the procedure was actually performed. If one considers the analogy with dentistry, it seems likely the quality issues have been overblown.

It seems best to begin with the premise that case-by-case supervision is impractical in any setting, and that it is only useful to examine training qualifications and pattern analysis, increasing the intensity of review for a cause. There is an antitrust implication to requiring hospital credentialing of non-hospital activities, but surely to be qualified in any hospital is unchallengeable as a starting point in proving that qualifications are no less than hospital requirements. There may possibly be legitimate issues here, but there is so little experience that it would seem best to proceed quickly with a pilot study to learn what they are.


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