Leveling the playing field through site-neutral payment

Our recent article, “Implementing a Site-Neutral PPS,” published in the HFMA journal, highlights the potential for a reform currently making its way through the legislative process. The proposed legislation—referred to as a Medicare site-neutral Prospective Payment System (PPS)—recognizes the clinical fact that many more inpatient procedures are now routinely and safely performed on an outpatient basis and calls for certain procedures to be paid the same rate regardless of where they are delivered (e.g., inpatient or outpatient setting). As such, the purpose of the reform is to remove the artificial financial barrier between a number of inpatient and outpatient procedures, which was established at the inception of the Medicare Inpatient Prospective Payment System (IPPS) and maintained ever since. 

This financial barrier is entrenched in no small part due to the distinct billing requirements of inpatient and outpatient claims. Inpatient claims are submitted using ICD-10 PCS coding while outpatient claims are submitted using the Healthcare Common Procedure Coding System (HCPCS). Moreover, in contrast to IPPS, which incorporates diagnoses in a detailed manner, the current use of ICD-10 CM diagnosis codes have, at most, a very limited impact on outpatient visit payments.

Despite the persistence of this barrier, as the health system moves toward greater efficiency and a focus on outcomes, it is essential that evaluations of outcomes and efficiency be based on what was done not where it was done. Lowering the informational barrier to provide direct comparison of case types, separated only by where care was delivered, enables one to compare all outcomes.

We believe that there is a path by which we can carefully transition the competing hospital payment systems, which are currently distinguished only by site of service, into a common system. This is a complex undertaking, requiring an evolutionary approach rather than a simple dismantling of both systems. Most importantly, we need to avoid creating perverse financial incentives that might encourage physicians to perform procedures in the most financially rewarding setting rather than most appropriate one. Clinical input into defining circumstances in which an admission should routinely be considered suitable for inclusion within a site-neutral PPS is essential.

There is strong interest in seeing artificial barriers between settings mitigated or eliminated and the playing field leveled. We have, over many years, heard similar requests from both payers and providers seeking to track the flows of cases within service lines across settings to help understand how their business has evolved. There remains a lot to be done but proposals such as this are a first step to achieving that goal.

Richard Averill is senior healthcare policy advisor for 3M Health Information Systems.

Richard Fuller, MS, is an economist with 3M Clinical and Economic Research.