[Congressional Record Volume 142, Number 135 (Thursday, September 26, 1996)]
[Extensions of Remarks]
[Pages E1714-E1715]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 MEDICARE AND OUTPATIENT PHARMACEUTICAL BENEFITS: PROVIDING INCENTIVES 
             FOR COST-EFFECTIVE MEDICALLY APPROPRIATE CARE

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                     Wednesday, September 25, 1996

  Mr. STARK. Mr. Speaker, Medicare's limited outpatient pharmaceutical 
coverage is inhibiting the implementation of cost-effective outpatient 
treatments that could benefit patients. Over the past decades, a shift 
of healthcare from the inpatient to the outpatient setting has 
occurred. The implementation of Medicare's Prospective Payment System 
in 1983 provided a strong incentive for hospitals to decrease patients' 
lengths of stay. Outpatient treatment, when appropriate, is generally 
much more cost effective than inpatient treatment. Although further 
shifts in inpatient to outpatient treatment for some conditions may be 
medically appropriate, the lack of Medicare coverage for the necessary 
outpatient treatment seems to be inhibitory. Medicare policy needs to 
facilitate medically appropriate, cost-effective treatments in order to 
keep pace with the 1990's and set the course for the next century. For 
this reason, I am introducing a bill which directs a review of Medicare 
payments in order to identify conditions for which provision of an 
outpatient pharmaceutical benefit would facilitate outpatient rather 
than inpatient treatment and be cost effective.
  An example of Medicare's limited pharmaceutical coverage having an 
inhibitory effect on cost-effective care is the lack of general 
coverage for home intravenous antibiotic therapy. Numerous studies have 
shown that patients with certain diseases requiring prolonged 
antibiotic therapy can start their treatment in the hospital and then 
safely and effectively continue it at home. A hospital in Danbury, CT, 
recently published a cost-benefit analysis of a home intravenous 
antibiotic therapy program established for Medicare patients but paid 
for by the hospital itself; the savings to the hospital was found to be 
$6,111 per patient on average. If the hospital had not taken the 
initiative to start the home therapy program, these patients would have 
had to remain in the hospital, resulting in substantially increased 
costs.
  Although Medicare generally reimburses hospitals on the basis of 
fixed diagnosis-related group [DRG] payments, it also reimburses an 
extra amount for patients who stay in the hospital much longer than 
average and qualify as outliers. Thus for certain patients, some costs 
due to prolonged hospitalization are shifted to Medicare. 
Alternatively, the hospital could cut its costs by transferring the 
patient to another inpatient facility such as a skilled nursing 
facility to finish treatment. In this case, Medicare still pays extra 
because it reimburses both the hospitals's DRG payment and the 
receiving facility's expenses for the patient's post-hospitalization 
extended care.

[[Page E1715]]

  Many hospitals need an incentive to take the kind of initiative shown 
by the Danbury Hospital. The effort and startup costs involved in 
organizing certain outpatient programs may provide a disincentive. 
Also, the transfer of patients to extended care facilities may already 
provide a cost-saving option for the hospital, leaving Medicare to bear 
the loss. Although not all patients with a particular condition are 
medically appropriate candidates for outpatient therapy in place of 
continued inpatient therapy, many patients are probably lingering in 
inpatient facilities who could more cost-effectively be treated as 
outpatients. Medicare policy needs to be modified to address this 
problem by providing incentives for inpatient facilities to initiate 
cost-effective alternatives.
  One such incentive is the coverage of pharmaceuticals that facilitate 
the treatment of patients in the outpatient rather than inpatient 
setting. Currently for most home intravenous antibiotic therapy the 
hospital or beneficiary must shoulder the cost. This policy contains a 
built-in disincentive because the beneficiary may not have the means to 
pay for it, and the hospital may find it more cost-saving to use one of 
the strategies I outlined earlier resulting in a significant loss to 
Medicare. Adding a pharmaceutical benefit with appropriate payment 
safeguards could facilitate outpatient treatment and result in a gain 
to Medicare, the hospital, and the patient.
  Are there other diseases besides infections for which an outpatient 
pharmaceutical benefit would provide an incentive for cost-effective 
outpatient therapy? I suspect there are. Some strategies may be 
implementable now; in addition, as new drugs and technologies 
are developed, more outpatient therapies might be possible in the 
future. I welcome a thoughtful evaluation of this issue by health 
experts. We need to develop a policy that is flexible enough to 
accommodate future cost-saving strategies as they are developed.

  The bill I am introducing today provides the groundwork for 
determining how Medicare policy may be modified to facilitate shifts in 
health care from the inpatient to the outpatient setting, when 
medically appropriate. Inherent in the bill is a strategy to ensure 
that Medicare, not just the hospital, captures the savings. The bill 
directs the Secretary of Health and Human Services to review and report 
to Congress within 6 months, all disease categories for which inpatient 
payments might be able to be reduced if an outpatient pharmaceutical 
benefit is provided. Coverage for pharmaceuticals will include 
appropriate payment safeguards. The bill acknowledges that 
reimbursement not only for the drug, but also for supplies, appliances, 
equipment, laboratory tests, and professional services needed for 
appropriate outpatient treatment will need to be factored into the 
cost-effectiveness analysis.
  Specifically, the bill directs the Secretary to report which DRG 
payments can be reduced by refining the DRG or adjusting the DRG 
weighting factor, if an outpatient pharmaceutical benefit is provided. 
Implementation of this strategy could take a variety of forms. For 
example, reductions in DRG payments could be accomplished by using a 
formula to discount the payment for an individual patient, and 
providing only the individual patient with the outpatient benefit. In 
this strategy, the hospital could request a discounted DRG payment for 
a particular patient via a billing code. Potentially, the hospital 
could also specify the number of days of outpatient treatment it wishes 
to substitute for inpatient treatment. This substitution would ensure 
that Medicare's costs in providing the outpatient benefit do not exceed 
its savings in reducing the DRG payment. A financial incentive for the 
hospital can be built into the formula used for discounting the DRG 
payment.
  Another strategy is to split certain DRG categories into one payment 
for patients who continue treatment in the hospital and a reduced 
payment for patients who continue treatment as an outpatient.
  Alternatively, the DRG payments for all patients in a specific 
disease category could be reduced, even though some patients will 
remain hospitalized throughout their treatment while others will have a 
shortened hospital stay and continue treatment as outpatients.
  Post-hospitalization outpatient therapies and home services are 
sometimes provided by the hospitals themselves, but may also be 
provided by independent agencies. When the inpatient and outpatient 
providers are the same, it will be easy to ensure that Medicare 
payments are contained. Outpatient reimbursement could be conditional 
on inpatient payment reductions, and a financial incentive for 
hospitals to chose the more cost-effective treatment could be built 
into the reimbursement. However, when the inpatient and outpatient 
providers are unrelated, it will be more difficult to ensure that 
Medicare payments will be less than they would have been if the patient 
had remained in the hospital. This is not, however, an insurmountable 
problem. One possible strategy that has been suggested is the use of 
lump sum payments per patient for the outpatient treatment of certain 
conditions. Certain DRG payments could be split into an inpatient 
component and a lump sum outpatient component; as long as the sum is 
less than the original inpatient payments, Medicare saves money. 
Medicare's inpatient payments for a disease category include the DRG 
payment, and any applicable outlier or extended care facility payments. 
Decisions about the percentage that should go to each provider, and 
incentives that lead to cost-effective care are difficult but 
potentially resolvable.
  The bill also directs the Secretary to determine which outlier 
payments can be reduced in number, and the disease categories for which 
these outlier payments are made, if an outpatient pharmaceutical 
benefit is provided. Similarly, the Secretary is directed to determine 
whether patient transfers to post-hospitalization extended care 
facilities can be avoided, thereby reducing payments, if an outpatient 
pharmaceutical benefit is provided. Strategies similar to the ones I 
described for reducing DRG payments could potentially be applied to 
these payment areas.
  By reviewing these types of payments, disease categories which have 
potential for Medicare cost-savings will be identified. As I described 
previously when I introduced a bill addressing outpatient parenteral 
antimicrobial therapy, certain infections are likely candidates. 
However, there may be a number of other areas of medicine, where cost-
saving outpatient treatment could appropriately be substituted for 
inpatient treatment, now or in the future.
  The bill directs the Secretary to determine the savings that can be 
obtained by reducing inpatient payments while providing coverage for 
beneficiaries' outpatient drugs and services. In addition to potential 
savings from reduced DRG, outlier, or extended care payments, savings 
may accrue from the decreased risk of hospital-acquired infections. 
This is because the longer patients remain in an inpatient setting, the 
more at risk they are for a nosocomial infection which generally 
lengthen hospital stay, increase costs, and result in increased 
morbidity and mortality. Modernizing Medicare to provide incentives for 
cost-effective medically appropriate care holds promise for benefiting 
patients, providers, and Medicare.

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