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Date: March 20, 1995
FOR IMMEDIATE RELEASE
Contact:  Anne Verano, HCFA (202) 690-6145

"This report, which had been requested by Congress, offers concepts for a system that would make hospitals more efficient and attentive to cost containment," Secretary Shalala said.

If Congress decides to establish a new payment system for hospital outpatient services, legislation would be required.

Medicare spending for those services has been growing at double-digit rates. Outlays in fiscal year 1994 amounted to $10.5 billion, more than double the amount spent seven years earlier.

The options presented would create groups of related medical procedures with similar costs, each group having a payment rate based on the national median cost for providing the services.

"Hospitals with costs running above the payment rates would have a strong incentive to become more efficient," Secretary Shalala said.

"The current system, based largely on hospital costs for treating Medicare beneficiaries in outpatient departments, does not offer much motivation for cost-effective operations," she said.

Bruce C. Vladeck, administrator of the Health Care Financing Administration, said the report suggested that changes be phased in. Prospective payment rates could first be established for groups of surgical and radiological services and other diagnostic procedures.

These account for almost half of hospital outpatient charges billed to Medicare. Other groups of outpatient services would be brought under the payment system as appropriate methodologies are developed and refined.

Vladeck described the current Medicare system of paying for hospital outpatient services as "excessively complicated and difficult to administer.

"Our goal is a more efficient system in which prospectively determined rates would be paid for providing quality outpatient care to Medicare beneficiaries," he said.

The payment for an outpatient procedure would cover facility services, but not physician services, for which payment is made under the Medicare physician fee schedule.

Research on the design of an outpatient prospective payment system started in the early 1980s. Legislation enacted in 1990 required the HHS secretary to submit a proposal for the outpatient system to Congress.

The Medicare prospective payment system for hospital inpatient care, which sets rates for diagnostic related groups, was established in 1983. The Medicare physician fee schedule was implemented in 1992.