Focus On: Hospital Outpatient Bundling: What Effect Will Outpatient Bundling Have on Hospital Labs? Verdict Still Out, but Executives Urged to Take Steps Now

While it’s still not entirely clear just how hospitals will be affected by new bundling regulations now in effect under Medicare, one thing is certain: Hospitals need to get a head start on estimating the impact and apportioning lab charges so they can effectively evaluate labs’ financial performance and budget intelligently for the coming year. Initial concerns that the bundling rule, finalized Dec. 10, 2013, would eliminate reimbursement for outpatient lab tests appear to be unfounded, says Barry Portugal, president, Health Care Development Services Inc. (HCDS; Nokomis, Fla.). HCDS is a management consulting firm to hospitals and hospital laboratories. However, hospital executives will need to do some extra work to figure out just how lab reimbursement should be allocated appropriately, and hospital lab executives may need to perform some lab-specific analysis. Under the bundling rule, five outpatient/clinic ambulatory payment classifications (APCs) are collapsed into one (APC 0634), and laboratory tests associated with a Medicare primary service visit will be bundled into this APC. As a result, hospitals will no longer be paid separately for those services. APC 0634 (Hospital Clinic Visits) will be reimbursed at $92.53 in 2014.

Bundling Policy Laboratory Specific Impact by Bed Size, Rural Hospitals (2013-2014)
NUMBER OF BEDS	NUMBER OF HOSPITALS	RECALIBRATION SPECIFIC TO OUTPATIENT LABORATORY PACKAGING (%)
0-49	363	-2.50
50-100	346	-1.10
101-149	133	-0.20
150-199	60	-0.60
200+	44	+0.40
Source: CMS Hospital Outpatient Prospective Payment System Rule, Dec. 10, 2013

 

Bundling Policy Laboratory Specific Impact by Bed Size, Urban Hospitals (2013-2014)
NUMBER OF BEDS	NUMBER OF HOSPITALS	RECALIBRATION SPECIFIC TO OUTPATIENT LABORATORY PACKAGING (%)
0-99	1037	+0.4
100-199	843	+0.2
200-299	458	+0.3
300-499	410	+0.3
>500	211	-0.2
Source: CMS Hospital Outpatient Prospective Payment System Rule, Dec. 10, 2013

  To be bundled, the lab tests would have to be provided on the same date of service as the primary service and ordered by the same practitioner who ordered the primary service. Molecular pathology tests and bypass tests are exempt from this bundling policy. According to the Centers for Medicare and Medicaid Services (CMS), additional money will be allocated to APC 0634 to account for the bundling policy. How hospitals are affected largely will depend on the type and size of hospital and the number of outpatient tests they perform. Rural hospitals and major teaching hospitals are likely to see the greatest reimbursement decrease, while nonteaching hospitals could actually see a slight increase in Medicare reimbursement as a result of the bundling regulations. Small rural hospitals could see Medicare reimbursement cuts to laboratory outpatient services of up to 2.5 percent. The problem, says Portugal, is not that hospitals won’t be paid for Medicare laboratory testing performed in outpatient settings; it’s that some hospitals may gain modest reimbursement while others may lose some Medicare reimbursement. More importantly, Portugal notes that under the bundling regs, there is no way to allocate the Medicare laboratory charges to the laboratory cost center; thus, laboratory charges will not be appropriately apportioned back to the lab. Without having this information, hospital and laboratory executives will be unable to effectively evaluate the lab’s financial performance and to intelligently budget for the coming year. Calculate Impact Now Because Medicare outpatient test volume, mix, and cost-to-charge ratio varies dramatically from one hospital to the next and the proportion of Medicare outpatient tests associated with a primary service differs between hospital type, the only way for hospitals and hospital labs to truly know how the bundling proposal will impact the organization’s bottom line is to perform an impact analysis specific to their hospital, says Portugal. He advises that hospitals follow a four-step process to estimate the impact of the bundling policy on Medicare outpatient laboratory charges:

1. Define historical baseline of Medicare outpatient lab charges associated with primary services;
2. Identify what percentage of first-quarter 2014 APC 0634 charges are laboratory specific;
3. Compare baseline total Medicare outpatient primary service charges to first-quarter actual; and
4. Track differences over time and reapportion charges from APC 0634 back to laboratory cost centers.

“Hospital leaders need to know how to reapportion charges so they can appropriately budget for capital expenses,” says Portugal. “Sooner rather than later, they will need to figure this out.” Hospital Groups Reviewing Models The American Hospital Association, the American Association of Medical Colleges, and the Federation of American Hospitals have commissioned an analysis to determine if CMS modeling of the impact of the bundling policy is correct. While it’s not entirely certain when that analysis will be completed, when the report is available, it may provide the basis to a challenge of the bundling regulations. “Until challenges are considered, APC payment mechanisms now in place will drive reimbursement for outpatient Medicare services,” notes Portugal. Takeaway: Hospital leaders need to work with hospital executives to determine how to appropriately allocate lab revenues under Medicare’s new primary care bundling policy. Side Box: Bundling Payment Policy Under the new policy that took effect Jan. 1, 2014, a laboratory test performed on a Medicare outpatient will be separately paid when it is the only service provided to a beneficiary on that date of service or the lab test is the same date of service as the primary service but is ordered for a different purpose than the primary service by a practitioner different than the practitioner who ordered the primary service. When a lab test is the only service provided to a beneficiary at the hospital, the hospital can receive separate payment for those lab tests by billing for these services on a 14x claim. Medicare will pay hospitals for those services based on the Clinical Laboratory Fee Schedule payment rate.