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

Several of the new technologies listed in the problem on p. 1164, including PTCA, laparoscopic cholecystectomy, and shock-wave lithotripsy, now have specific DRG categories assigned to them in order to avoid the payment anomalies the problem suggests.

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

The Supreme Court issued an important decision regarding states' authority to regulate pharamceutical prices, in Pharmaceutical Research & Mfrs. of Am. v. Walsh, 123 S.Ct. 1855 (U.S. 2003).  In a complex decision, the Court largely upheld Maine's requirement that drug companies charge people without insurance the same prices that they received under Medicaid.  See Brandon Denning, The Maine Rx Prescription Drug Plan and the Dormant Commerce Clause Doctrine: The Case of the Missing Link[age], 98 Am. J. L. & Med. 7 (2003); Timothy Jost, Pharmaceutical Research And Manufacturers Of America V. Walsh: The Supreme Court Allows The States To Proceed With Expanding Access To Drugs, 4 Yale J. Health Pol'y, L. & Ethics 69 (2004).

The problem of adjusting DRG categories to reflect new technologies was 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).

Regarding the abuse of DRG outlier payments, see Elizabeth A. Weeks, Gauging the Cost of Loopholes: Health Care Pricing and Medicare Regulation in the Post-Enron Era, 40 Wake Forest L. Rev. 1215 (2005); R. Brent Rawlings and Hugh E. Aaron, The effect of hospital charges on outlier payments under Medicare's Inpatient Prospective Payment System: prudent financial management or illegal conduct? 14 Annals Health L. 267-328 (2005).

For aditional analysis of judicial review under Medicaid's "Boren Amendment," see Edward Alan Miller, Federal oversight, state policy making, and the courts: an empirical analysis of nursing facility litigation under the Boren Amendment, 3 J. Empirical Legal Stud. 145 (2006).


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