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The trend is clear: ambulatory care is in, and inpatient care is out. Medicare has long had a two-tier rate system for payment. Even when the same room and supplies are used, for example, a surgical facility fee might be $1,800 if the procedure takes place in a hospital but just $900 if it conducted in an ambulatory surgery center. Anthem has even gone so far as to announce that they will not pay hospitals for use of their inpatient imaging machines (http://www.healthcaredive.com/…/anthem-will-no-long…/503706/). Medicare has attempted to provide clarity on its website, providing guidance for patients to determine whether they were treated in an inpatient or outpatient facility. Some “observation” status conditions are not paid for by Medicare. This was a factor that caused Community Health Services to pay $150 million to settle fines for billing (https://www.medicare.gov/…/par…/inpatient-or-outpatient.html).

What this means to patients: Hospitals provide observation care for patients who are not well enough to go home but not sick enough to be admitted. This care requires a doctor’s order and is considered an outpatient service. The hospitalization can include short-term treatment and tests to help doctors decide whether the patient meets the medical criteria for admission. Medicare officials have issued the so-called “two-midnight rule” (https://www.cms.gov/…/2015-Fact-sheets-it…/2015-07-01-2.html): patients whose doctors expect them to stay in the hospital through two midnights should be admitted. Patients expected to stay for less time should be kept in observation.

Let’s say you go to a hospital for an outpatient surgery, but they keep you overnight because of high blood pressure. Your doctor does not write an order to admit you as an inpatient. You go home the next day. You are an outpatient and your Part A Medicare pays nothing. Your Part B covers hospital outpatient services and your physician and lab work. Even if you had been admitted by doctor’s order, that status may be revoked by the hospital with the doctor’s agreement and you will be notified before you leave. This is important to know because the services you received while under observation may be expensive and without your expected coverage. You will pay your deductible, coinsurance, and copayment.

What this means to hospitals: The rules are complex, as demonstrated by this long list of Medicare payment requirements developed by the American College of Emergency Physicians (https://www.acep.org/…/Observation-Care-Payments-to-Hospi…/…). The bottom line is that hospitals will be paid less for what may be identical services provided under inpatient vs. outpatient “status.” In fact, CMS has a proposal to differentiate between payments for cancer drugs and for imaging between inpatient and outpatient sites. The trend is clear for both insurers and government programs.

Ultimately, hospitals will be paid less–and, as a result, it may be less likely that they will replace old equipment. Locally, for example, we are told that at Dupont Hospital MRI and CT machines, now a dozen years old and running on Pentium computer chips, will not be replaced as previously planned. Also, it will become more likely that patients will be diverted to sites for optimal reimbursement.

At the time of this writing, NICHE is aware that the quality of imaging machines may differ from location to location. Certainly, these insurer and government policies will require a new look at equipment replacement policies and matching of staff to new patient-service volumes.

Hospitals across the country face growing financial pressure. The numbers of Medicaid and Medicare patients have increased, and payments through those plans often fall short of covering costs by as much as 20%. Patients who have insurance often lack resources to pay higher copayments and deductibles, causing bad debt to increase. And, pharmaceutical and instrument costs have increased faster than hospital earnings. The new MACRA program, under Obamacare, brings incentives to keep patients out of hospitals. NICHE will report more on this, but for now, it is clear that the trend is for earnings to be down and costs to rise.