The Reagan administration yesterday issued detailed rules designed to save the government money by revolutionizing the way the nation's 5,300 hospitals are reimbursed for the care of Medicare patients.
Starting Oct. 1, almost every hospital will get paid an amount fixed in advance for each of 467 illnesses or injuries, no matter how much or how little it costs the institution to treat most patients.
"We believe this will be a guidepost for other payers"--meaning Blue Cross-Blue Shield and private health insurers--to adopt for all hospital patients, said Dr. Robert J. Rubin, assistant secretary for planning and evaluation of the Department of Health and Human Services. "And we think that's something that will take place."
The federal plan will be phased in over three years. At first, the fixed rates will differ among regions, but eventually they will be uniform across the nation.
The system will not save any money in 1984 and 1985. But Congress has passed legislation to save $1.5 billion a year those years. These controls will gradually be phased out as the new system takes effect, according to HHS officials.
Starting in fiscal 1986, however, HHS said, there will be the opportunity for more substantial savings by paying almost every hospital prices based on national averages.
The officials would not estimate how much the government may ultimately save. "But if the payments are ratcheted down really hard we think the savings could be in the billions, and they'll have to be if Medicare is to survive," said one HHS official.
New Jersey already requires all insurers to pay hospitals only such fixed, area-average rates, and Rubin reported that Kansas City's Blue Cross plan expects to start doing the same.
Some high-cost, inefficient hospitals might even have to close, Rubin added, "and with over-bedding in certain areas, that would not be" a loss.
Above all, said Rubin and Carolyne K. Davis, head of HHS' Health Care Financing Administration, the plan will not only help keep health care costs from rising but also encourage both good care and efficient care to save hospitals money.
For example, Rubin said, it will "make sense" for a hospital that performs open-heart operations economically and well to concentrate on them, while dropping some other service, say radiation treatment for cancer, that some other hospital can do better and cheaper.
There are many doubts in the health community. There are fears that hospitals might force doctors to skip essential tests and procedures to save money, for example, and that paying only average rates might force the most advanced hospitals to cut back.
Some observers think hospitals might learn to practice "diagnosis creep"--allowing patients' diagnoses to creep up into more profitable categories--or charge non-Medicare patients more to make up for Medicare losses.
Rubin and Davis said that in states, Maryland among them, that have been controlling hospital rates by other methods, studies have shown no losses in quality of care, whether measured by hospitals' death rates or any other standard. The government will monitor hospitals to prevent cheating and check up on care.
Both the American Hospital Association and the Federation of American Hospitals, the organization of investor-owned hospitals, have supported the plan. Alex McMahon, AHA president, yesterday saw some "problems" in the way the rules are written, but did not alter his group's support.
Hospitals will still have 45 days, by law, to urge changes in the proposed rules being printed in the Federal Register today. But the changes are not expected to be substantial, at least at the outset. The first 1,500 hospitals, those with fiscal years starting Oct. 1, will be under the plan in just over four weeks.
The new system was voted by Congress as part of the Social Security amendments which President Reagan signed April 20. Under it:
* Each hospital will be given 467 categories--"Diagnosis Related Groups" or DRGs--into which all patients must fit to tell it how much it will collect for a cataract operation or the care of a heart patient.
* In the plan's first year, 25 percent of each payment will be based on a regional average that also takes account of area wage rates and whether the hospital is urban or rural, and 75 percent on the hospital's current charges. Each year the regional average part of the calculation will be increased, until in the fourth year it becomes the total payment, calculated nationally.
* Some exceptions will be made, such as larger payments for extraordinarily sick patients. A few major cancer and referral centers will be exempted. So, for now, will all psychiatric, long-term care, children's and rehabilitation hospitals, as well as all hospitals' psychiatric and rehabilitation services. Four states with rate-control plans--Maryland, New Jersey, New York and Massachusetts--will be exempted.
* Additional payments may be made to hospitals for approved remodeling or new building, medical education and bad debts.
Medicare patients will still have to pay part of their bills, just as they do now, but, said Davis and Rubin, the new system should keep this amount, too, from rising at the steep rate of recent years.