Hospitals Tumble on Medicare Order for Heart Procedure Audit

A program to pre-approve Medicare hospital payments for pacemakers and joint replacements is limited to Florida, a U.S. doctor’s group said.

Hospital and medical device stocks tumbled on Dec. 2 after a report said Medicare, the U.S. health plan for the elderly and disabled, won’t pay for a range of heart and orthopedic procedures in 11 states until contractors confirm the care was appropriate. Shares rebounded today, led by HCA Holdings Inc., the largest U.S. hospital operator.

An expanded version of Florida’s program is unlikely to take effect this year, wrote Bruce Nudell, an analyst at Credit Suisse in New York, in a note to investors. “Any broad attempt at Medicare rationing, ‘pulling the plug on grandma,’ in an election year is likely to be suppressed by politicians, who didn’t appear involved in the decision,” he said.

Regional Medicare contractors are being told to avoid inappropriate payments, a shift from past practice of trying to recoup funds after questions arise about claims that have already been paid, said Rebecca Kelly, senior director of regulatory affairs at the American College of Cardiology in Washington.

“It really relates to a big initiative to reduce error rates in the claims that they pay,” Kelly said in a telephone interview. “We could see similar kinds of things or variations on this theme in other states,” she said.

HCA, based in Nashville, Tennessee, rose 6 percent to $23.79, while Franklin, Tennessee-based Community Health Systems Inc. (CYH), the second-largest U.S. hospital chain, rose 4.1 percent to $19.54 at 12:16 p.m. in New York trading. Minneapolis-based Medtronic Inc. (MDT), the nation’s biggest seller of heart rhythm devices, rose 4.6 percent to $36.20.

Medicare Error Rate

Medicare asked contractors in all 50 states who pay for the program to find ways to decrease an 8.6 percent error rate in payouts, which may include pre-approving some claims, said a government official familiar with the issue.

As a result, Florida’s contractor decided to put 15 medical treatments on its pre-approval list, including patients getting pacemakers, defibrillators and stents for heart illnesses, said Jerold Saef, reimbursement chair for the College’s Florida chapter, in a Nov. 21 letter. Joint replacement and spinal fusion surgery also will be verified before hospitals are paid.

Separately, Medicaid, the federal-state health program for the poor, has asked a different group of contractors -- companies charged with auditing providers to identify problematic claims -- to consider whether pre-audits done in 11 states would help reduce the error rate. The agency hasn’t yet provided information on which hospital services or what percentage of them would undergo pre-payment audits.

Mixed Proposals

The person familiar with the two plans said analyst reports on Dec. 2 appeared to mix the two proposals, setting off the share reductions.

Brian Cook, a Medicare spokesman, didn’t respond to phone calls and e-mails seeking comment.

The procedures targeted in Florida’s program account for about $14 billion of Medicare’s spending on individual services, There’s no evidence Florida’s approach will spread to the programs being enacted in the other 10 states, which account for 47 percent of the U.S. population, Nudell said.

If the Florida program was expanded nationwide, the $14 billion would be reduced by 3 percent to 4 percent, meeting Medicare’s goal of cutting overpayment in half, Nudell wrote. The overall effect would be a 1 percent reduction in revenue for device makers across all markets, he said.

“Powerful interest groups - hospitals, physicians, seniors, manufacturers - will bring immense political pressure to bear on CMS to check this postulated administrative strategy,” Nudell wrote.

To contact the reporter on this story: Pat Wechsler in New York at pwechsler@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.

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