Shifts to new types of facilities where patients are treated provide clinical laboratories and pathology groups with new opportunities to add value to providers and patients

Two important trends have serious implications for the nation’s traditional hospitals. One is the ongoing shift of patient care from inpatient settings to outpatient providers. The other trend is to proactively manage patients so as to avoid the need for hospitalization. Both trends create challenges and opportunities for medical laboratories and anatomic pathology groups.

Thus, it is significant that one advisory group to the federal government on Medicare and health policy recognizes these trends with the recommendations it made to Congress. In June, the Medicare Payment Advisory Commission (MedPAC) released its “Medicare and the Health Care Delivery System” report to Congress. It includes proposals that support healthcare’s shift toward outpatient settings and away from in-hospital care. It also makes two recommendations that impact EDs based on their locations (rural versus urban) and proximity to parent hospitals.

MedPAC believes that shifting money/reimbursement toward different sites of care and for different services improves the ability of providers to be proactive and manage patients in ways that support earlier diagnosis and more active management of conditions—all in ways that help avoid acute events that would otherwise send patients to hospitals.

Thus, for clinical laboratories, the message with MedPAC is that other sites of service would get better reimbursement for the above reasons and would want lab services that support the objectives of their providers. And the recommended enrichment of reimbursement for ambulatory evaluation and similar management services would encourage providers to do a better job of ordering the right test and doing the right thing with the results. This gives labs an opportunity to add value.

Ensuring Access to ED Services in Rural Environments

MedPAC is a nonpartisan legislative branch agency that provides the US Congress with analysis and policy advice on the Medicare program. Most of the points the June report makes pertain to the Medicare program in general. However, chapter two of MedPAC’s report addresses payments to emergency departments specifically, including:

  • Increasing Medicare payment rates to isolated rural stand-alone EDs; and,
  • Decreasing payment rates to urban stand-alone EDs located near hospital-based emergency departments.

To ensure rural residents have access to ED services, MedPAC recommends allowing hospitals located more than 35 miles from another ED to convert to stand-alone EDs that would bill under the Outpatient Prospective Payment System (OPPS). Effectively they would become “outpatient-only” hospitals and would receive annual payments to assist with their fixed costs.

In contrast, MedPAC noted an oversupply of emergency services in urban areas, where stand-alone EDs—particularly those affiliated with nearby hospitals—may be shifting services from lower cost urgent care centers and physicians’ offices to higher cost 24/7 stand-alone EDs.

MedPAC reported that outpatient Medicare ED payments increased 72% per beneficiary between 2010 and 2016. A MedPAC press release attributed the growth in off-campus EDs in certain urban locations to “Medicare payment policy [rather] than unmet need for ED services.”

“I think [the MedPAC proposal] is a move in the right direction,” Renee Hsia, MD, MSc, Professor of Emergency Medicine and Institute of Health Policy Studies at the University of California-San Francisco, told Leaders in Health Care. “We have to understand there are limited resources, and the fixed costs for stand-alone EDs are lower.” Hsia co-authored a report titled, “Don’t Hate the Player; Hate the Game,” published in the Annals of Emergency Medicine. In it she argues that “freestanding EDs will continue to proliferate in areas in which there are few restrictions, potentially creating more supply than demand.” (Photo copyright: University of California San Francisco.)

75% of Freestanding EDs within Six Miles of Hospital EDs

In April, MedPAC published an analysis of five healthcare markets—Charlotte, Cincinnati, Denver, Dallas, and Jacksonville, Fla. In “Using Payment to Ensure Appropriate Access to and Use of Hospital Emergency Department Services,” MedPAC showed that 75% of the freestanding EDs were located within six miles of a hospital emergency room. The average drive time to the nearest hospital was 10.3 minutes.

In that report, MedPAC proposed cutting payment rates 30% for off-campus stand-alone EDs located within six miles of an on-campus hospital emergency room. This proposal means off-campus EDs, which have lower standby costs and typically treat patients with less acute medical problems, would receive Medicare payment rates on par with ED facilities open less than 24/7. If the rate change is enacted, MedPAC estimates Medicare would save between $50 million and $250 million annually.

MedPAC’s recommendation drew the ire of the American Hospital Association (AHA) and other hospital industry stakeholders who believe a payment cut could result in off-campus stand-alone EDs closing. The AHA in March submitted a “comment letter” to MedPAC Executive Director James E. Mathews, PhD, calling the proposal “unfounded and arbitrary.”

“The recommendation is not based on any analysis of Medicare beneficiaries, Medicare costs, or Medicare payments, and would make Medicare’s record underpayment of outpatient departments and hospitals even worse,” Joanna Hiatt Kim, Vice President of Policy at the AHA, told Modern Healthcare. “Even more troubling to us is that [the recommendation] has the potential to reduce patient access to care, particularly in vulnerable communities, following a year in which hospital EDs responded to record-setting natural disasters and flu infections.”

This latest report indicates MedPAC believes shifting reimbursement toward different sites of care and for different services improves the ability of providers to be proactive and manage patients in ways that support earlier diagnosis and active management of conditions.

Medical laboratories and anatomic pathology groups should use this opportunity to create lab services that support these objectives and add value to both providers and patients.

—Andrea Downing Peck

Related Information:

Report to the Congress: Medicare and the Health Care Delivery System

Medicare Payment Advisory Commission Releases Report on Medicare and the Health Care Delivery System

Using Payment to Ensure Access to and Use of Hospital Emergency Department Services

American Hospital Association Comment Letter

MedPAC Votes to Cut Payments for Free-Standing ERs

Congress Urged to Cut Medicare Payments to Many Stand-Alone ERs

Don’t Hate the Player; Hate the Game

MedPAC Issues June 2018 Report to Congress, Including Two Emergency Department Recommendations