College of American Pathologists
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Freeze is first step in setting blood payments

January 2004

Terri Yablonsky Stat

The government’s decision to freeze payment rates for blood and blood products for a year while it gathers more accurate cost data has generated a sigh of relief in the blood community, but concerns remain high.

The decision was announced in the Nov. 7, 2003 Medicare outpatient prospective payment system final rule. Rising blood costs have put the squeeze on hospitals and jeopardize a safe and stable blood supply.

The Centers for Medicare and Medicaid Services’ earlier proposal to limit cuts in blood reimbursement to 11 percent drew the ire of many in the blood community, says Lee H. Hilborne, MD, pathologist at the David Geffen School of Medicine at UCLA’s Center for Patient Safety and Quality and a member of the CMS Advisory Panel on Ambulatory Payment Classification Groups. "CMS is doing the best they can with the data they have, but their data are not complete nor entirely accurate," he says.

The advisory panel recently proposed freezing blood reimbursement to allow time for more accurate costs of blood to be determined before cost adjustments are made. "Lots of people still think blood is free, because you have a donor supply, but the cost of processing is not free," Dr. Hilborne says. "You have to buy the bag, do the testing, do the storage. The product is free; the administration is not."

The panel asked the professional groups to determine the reasonable cost of blood products, Dr. Hilborne says. "If reimbursement is less than the cost, it could force blood banks out of business. For any service, is it really fair to pay less than what it costs them to provide the service, particularly when they have no control over the cost?"

As new tests are developed, laboratories may be slow to adopt new technologies if the cost exceeds the reimbursement, Dr. Hilborne warns. "Inadequate reimbursement has the potential to affect access and safety. If it costs more to do the job than you get paid, then you stop doing it.

"I’m hopeful that the blood banking industry will come forward with data to substantiate its concerns about the cost of blood products and properly inform CMS, who will hopefully reconsider its decision," Dr. Hilborne says.

The CAP said much the same to the CMS in comments it submitted Oct. 6 on the outpatient payment system proposed rule and again after the final rule was published. While the College applauded the CMS for freezing rather than lowering rates and acknowledging the need to do more to close the gap between costs and reimbursement, it stood firm in its belief that independent cost data from outside sources, or reasonable costs, should form the basis for blood payment.

The blood banking industry is providing such data. Although the American Association of Blood Banks is pleased that the CMS has agreed to freeze this year’s reimbursement at 2003 rates, "those payments are far below what it actually costs hospitals to obtain blood products," says Theresa Wiegmann, AABB’s director of public policy and special counsel. Like the College, the AABB is urging the CMS to use outside industry data on the cost of blood components in determining its payment rates. The AABB has provided the CMS with initial data from hospital members. "Our data are hospital acquisition costs. We think the agency should use this type of data, and we will work with them to validate the data if possible," Wiegmann says.

In the meantime, if the CMS can’t use these outside data, the AABB believes that CMS should reimburse on a reasonable-cost basis, according to Wiegmann. "We all agree that CMS should be using outside data, and we will continue to advocate on this issue before the next APC advisory panel in January and before the agency itself. If necessary, we will take this issue before Congress," she says.

The AABB, with the assistance of Parexel International, recently collected current average blood and blood component acquisition cost data from AABB member hospitals. The proposed payment rate for leukocyte-reduced red blood cells in 2004 was $107. The payment rate at the frozen reimbursement level was $119. The average actual cost was $187, which means hospitals are underpaid 42.7 percent.

"Clearly, that is a problem for the blood banking community, which is composed almost exclusively of not-for-profit blood centers that can’t absorb the costs of blood if not paid for by the Medicare system," Wiegmann says.

The cost of blood components continues to rise with advances in blood safety. "We will undoubtedly continue to have safety advances introduced in coming years, and that’s why it’s so important that Medicare keep its payments up to date," Wiegmann says. "The agency noted the importance of blood and blood safety by freezing payments, but this is not enough and won’t allow for fair payment to hospitals for life-saving blood products."

The time to collect accurate data is now. "I think it’s important that we get full data about true blood costs and charges now," says Laurence A. Sherman, MD, JD, advisor to the CAP Transfusion Medicine Resource Committee and emeritus professor of pathology at Northwestern University Medical School, Chicago. "Roughly only half of hospitals seem to provide data to CMS on blood costs because they feel it won’t change their reimbursement due to diagnostic-related groups. It will, however, go into their rate calculations, which are always two years behind."

Dr. Sherman notes significant variations in blood charges across the country, even in adjacent geographic areas. "When you see major differences in blood charges in adjacent areas and costs are similar, such as labor, there ought to be a better examination of what goes into charges," he says. "I’m not saying that charges are inflated, but charge/cost bases should be examined and a serious attempt made to look at any difference between geographic areas with single-provider blood centers and those with a fair degree of competition among providers."

Since 1985, increases in actual costs resulting from additional testing and donor screening have made the true costs of blood disproportionate to overall health care costs, Dr. Sherman says. Recent years have seen testing for HIV, hepatitis C virus, and West Nile virus, and soon there will be added costs for better methods of detecting bacterial contamination, particularly in platelets. "What constitutes fair reimbursement is an open question," Dr. Sherman says. "Nobody has data, and until CMS has data, it will be very difficult to look at what the true costs are."

While blood costs are a small percentage of overall hospital costs, tertiary care and regional trauma centers are hit especially hard by low reimbursement. "Patients in these facilities consume more blood products," Dr. Sherman explains. "We want to maintain these facilities not only because they provide services, but because they are the ones that develop new programs and kinds of care.

"It behooves pathologists to tell their hospital administration that it’s important to include accurate figures when reporting data so there is a better database, because the situation isn’t going to get any better," he says.

Jim MacPherson, chief executive officer of America’s Blood Centers, agrees. "CMS’s freezing of blood payments is clearly a good first start in their realization that current reimbursement rates do not reflect reality in any shape or form," he says. "When you talk about blood, there is no profit involved. CMS can validate our costs; our books are open. They are starting to realize they can do something different with blood. It’s up in the air if they will."

The ABC and the American Red Cross are asking Congress and the CMS how reimbursement can be improved. "We hope that this year we can finally get it done," MacPherson says. "We’ve been working on this issue for over six years. We thought we had CMS convinced. Before, they accepted the highest-priced industry data, and then decided on charge data, but that doesn’t reflect reality. Hospitals have no incentive to correctly charge for anything because it doesn’t increase their reimbursement. It does in the long run, because then there is an accurate database."

Terri Yablonsky Stat is a freelance writer in Evanston, Ill.