Chapter 9.E.2--Prospective Payment Methods and Rate Regulation

See generally Rick Mayes & Robert Bereneson, Medicare Prospective Payment and the Shaping of U.S. Health Care (2006). 

As of 2002, the base rate per hospital admission is about $4500, and conversion factor for the RBRVS is about $40.

Two of the new technologies listed in the problem at the end of section E.3 -- PTCA and shock-wave lithotripsy -- now have specific DRG categories assigned to them in order to avoid the payment anomalies the problem suggests.  The problem of adjusting DRG categories to reflect new technologies was also addressed in the Medicare Modernization Act of 2003, which requires DRG categories to be re-evaluated each year and provides for "add-on" payments when current categories fail to adequately compensate for new technologies.  Daniel H. Orenstein, Changes in Medicare Reimbursement for New Medical Technology, Health Lawyers News 30 (June 2004).

The Medicaid Act requires states to provide physicians reimbursement that is “consistent with efficiency, economy, and quality of care” and “sufficient” to ensure that Medicaid patients' access to services is equivalent to privately insured patients' access.  Reviewing the litigation this produces, see Comment, 73 U. Chi. L. Rev. 673-704 (2006):

 In deciding those cases, the circuit courts have offered inconsistent interpretations of the Medicaid statute. While the Fifth and Seventh circuits have measured rates' adequacy by reference to access outcomes, the Third, Eighth, and Ninth circuits have measured rates' adequacy by reference to rate-setting methodologies. This Comment analyzes the circuit split that has arisen as courts have confronted challenges to Medicaid payments. Part I provides background on the Medicaid program and the circuit split, and it identifies and explicates two competing rules for measuring adequacy of Medicaid payments: the Fifth and Seventh circuits' “access metric” and the Ninth Circuit‘s “cost metric.” Parts II and III identify problems with these two rules, and criticizes them as inconsistent with the statute's text, purpose, and intent. Part IV proposes a new rule, an “MCO metric,” and explains why that rule is the best interpretation of Medicaid's reimbursement provision.

Medicare's resource-based relative value scale is widely regarded has having failed to correct the inequities between specialist and primary care reimbursement.   See John Goodson, Unitinended Consequences of Resource-Based Relative Value Scale Reimbursement, 298 JAMA 2308 (2007).  There is also wide-spread dissatisfaction with the approach to updated average physician payments under Medicare.  See Joseph P. Newhouse, Medicare Spending on Physicians: No Easy Fix in Sight, 356 New Eng. J. Med. 1883 (2007).  See generally http://healthaffairs.org/blog/2008/02/25/the-need-to-aggregate-what-should-come-next-for-medicare-physician-payment/

Attempts to pay physicians by episode of treatment have foundered on the complexity of specifying appropriate episodes and payment amounts.  Also, when this is done privately, there are legal barriers under the laws restricted so-called "gainsharing."  See http://healthaffairs.org/blog/2007/01/19/physicians-and-hospitals-can-they-cooperate-to-control-costs/

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