R.Ph.s guarded over changes to IPPS

June 19, 2006

Reactions from health-system pharmacists to proposed rule changes regarding the Inpatient Prospective Payment system (IPPS) can best be described as cautiously optimistic.

The proposed changes would be the first significant revision of IPPS since it was implemented in 1983. Comments on the proposal closed on June 12, and a final rule will be published later this year.

When full implementation of the revised IPPS is complete by 2008, Centers for Medicare & Medicaid Services officials expect improvement in the accuracy of payment rates for inpatient hospital stays by basing the weights assigned to diagnosis-related groups (DRGs) on hospital costs rather than charges and adjusting the DRGs for patient severity.

CMS administrator Mark McClellan, M.D., Ph.D., said the proposed hospital payment reforms would mean that payments for hospital inpatient services will more accurately reflect the costs of providing the services.

CMS is also proposing to increase the outlier threshold for 2007 to $25,530, up from $23,600 in 2006. According to CMS, the proposed 2007 threshold is expected to keep aggregate hospital outlier payments within the target of 5.1% of total payments under IPPS.

In addition to accurate payments for existing technologies, CMS is committed to ensuring that Medicare beneficiaries have rapid access to new technologies by providing for temporary add-on payments for appropriate technologies.

How do health-system pharmacists feel about the proposed rule changes and their potential impact on their facilities? Jim Stevenson, Pharm.D., director of pharmacy services at the University of Michigan Hospitals & Health Centers, told Drug Topics that it all depends on how CMS plans to assess what hospital costs actually are. "I don't know how CMS knows what our costs are. They get charges from us. How they will determine an appropriate cost-to-charge ratio for each individual hospital is a mystery to me."

Stevenson pointed out that CMS gets aggregate data by sampling and finding out what the average cost-to-charge ratio would be in hospitals. "And as hospitals submit their charges, they would apply that cost-to-charge ratio and determine what the real cost is." And that's part of the problem, he said. The way that DRGs get adjusted is based on the charges hospitals submit. "The problem is that CMS doesn't really know what the associated costs are, they just know the charges that they are getting."

Stevenson said he hopes that the methodology CMS uses with the new revisions is appropriate. "Otherwise it could be a hidden way for them to reduce our reimbursement." He noted that, in the meantime, he expects hospitals to have people who are expert in reimbursement review the proposed revisions and provide appropriate comments. He believes that hospital pharmacists need to work with their reimbursement departments to assess the impact of these proposed changes and make sure that they comment on any concerns they have regarding the impact on pharmacy.

For William Gouveia, Pharm.D., director of pharmacy at Tufts-New England Medical Center in Boston, the proposed changes are all about reimbursement. "The government has no interest or obligation in improving reimbursement. They might improve the methodology, but the increased reimbursement is something I don't think they want to do."

Gouveia explained that the problem is that a lot of cost-accounting systems aren't well defined and developed, and, as a result, hospitals are still grappling with what their true cost of doing business is. "How do you allocate overhead, health benefits to drug costs, medication safety, and quality? It never covers true costs-it just doesn't."