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Policy briefs

From the December 1997 ACP Observer, copyright 1997 by the American College of Physicians.

New bundled fee will put some Medicare PHOs at risk for hospital costs

In what could be a big test for physician-hospital organizations (PHOs) as cost-effective alternatives to HMOs, a new Medicare demonstration program will pay six PHOs one sum to cover all doctor and hospital services during a Medicare patient's inpatient stay.

The new demonstration of a "bundled payment" for both hospital and physician services will take effect Jan. 1 at six sites: The Chester County PHO Inc. in West Chester, Pa.; Crouse Irving Memorial PHO in Syracuse, N.Y.; JFK Medical Center PHO in Edison, N.J.; The PHO of Pennsylvania Hospital in Philadelphia; St. Barnabas Health Care System Provider Partnership in Livingston, N.J.; and St. Peter's PHO in Albany, N.Y. The demonstration will run for three years, with a possible extension of up to six years.

The sites were chosen because they are in areas that have relatively high medical costs and low Medicare managed care penetration. According to HCFA, the sites have the greatest potential for better coordination of clinical care and program savings.

The bundled payment will replace the separate fees currently paid to hospitals, physicians and other health care professionals for services during a hospital stay. The new bundled payment will be calculated by combining hospital and doctor payments for inpatient DRGs and discounting the total by 5%.

Analysts note that for the first time, Medicare will put doctors at risk for high hospital costs. "It's important to align the incentives so physicians and hospitals can coordinate services and provide high-quality, cost-effective care," said Howard B. Shapiro, PhD, the College's Vice President for Public Policy.

Lawsuit calls teaching hospital audits unconstitutional

Groups representing doctors, hospitals and medical schools have filed a lawsuit against the federal government to end what they are calling unfair and retroactive audits of teaching physicians.

The lawsuit alleges that the government's Physicians at Teaching Hospitals (PATH) initiative violates several federal laws and the U.S. Constitution. One focus of the audits has been institutions that bill Medicare for services that were actually provided by residents, something the government has ruled illegal.

Organizations involved in the case, which was brought in late October, include the Association of American Medical Colleges (AAMC), the AMA, the American Hospital Association, the Association of Academic Health Centers and the Medical Group Management Association.

According to the AAMC, the groups decided to take their complaint about the PATH audits to court after lengthy discussions with the government, which failed to resolve many points of disagreement surrounding the audits.

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