Hospitals Face Dramatic Cuts in Medicare Reimbursement

Quoting an article today in a Modern Healthcare article, "Hospitals may have gotten a reprieve after a bipartisan fiscal commission did not get the 14 votes required to send Congress an ambitious debt-reduction proposal including billions in healthcare cuts, but they're still anxious that parts of the report could be used in future budget plans.
“On the one hand, we were certainly pleased they didn't get the 14 votes necessary,” said Tom Nickels, senior vice president of policy for federal relations at the American Hospital Association. "On the other hand, it's still disturbing that 11 members of the commission were willing to embrace these policies that we think could be harmful to healthcare."
 
If the recommendations are approved, here are some of the implications:
Both Direct and Indirect Graduate Medical Education payments would be reduced, at a time when there is a need for more primary care physicians to ensure access to healthcare.
 
Bad debt reimbursement, which partially covers beneficiaries' unpaid copayments and deductibles, would be eliminated over time. This at a time when the economy has high unemployment and hospitals are struggling to provide care to the uninsured and underinsured.
 
Implementing medical malpractice reform ( a good thing), but removing a requirement that punitive and non-economic damages be capped.
 
Freezing the physician payment formula through 2013 and providing a 1% cut in 2014.
 
There-'s more, but suffice to say the Commission's final report estimates total healthcare savings from their recommendations would be $417 billion through 2020. That's $40 billion a year, or an 8% reduction in annual Medicare and Medicaid expenditures.
 
Hospitals have dodged a bullet for now, but it appears certain more cuts are on the way. As senior managers of healthcare institutions, we can't throw up our hands and shut the lights. We'll have to find new ways to meet the challenges of this reimbursement environment. Maybe we'll be able to successfully implement Accountable Care Organizations, bundled payments and other delivery schemes. Maybe we'll be able to implement Electronic Health Records that meet "meaningful use" standards, to facilitate reimbursement for IT investments. And maybe these actions will reduce our healthcare delivery costs while improving quality. MAYBE?

EHR Meaningful Use Final Rules - What's The Verdict?

So, doctors and hospitals will be rewarded for the "meaningful use" of electronic medical records. The final rules (all 864 pages), issued last Tuesday lighten up on the proposed requirements that the healthcare industry deemed unrealistic. A brief overview in the July 14th edition of the New York Times indicated the industry could receive as much as $27 billion over the next 10 years to buy equipment to computerize patients’ medical records. A doctor can receive up to $44,000 under Medicare and $63,750 under Medicaid, while a hospital can receive millions of dollars, depending on its size.


I don't think there's any argument EMR meaningful use will lead to “better, smoother care, more reliable care”, as Don Berwick, the new administrator of the Centers for Medicare and Medicaid Services, has stated. The question is, will doctors and hospitals be able to achieve meaningful use in the time frame required by CMS. The clock for progressive attainment of meaningful use runs from 2011 through 2016. There won't be any incentive payments after that, and if a provider doesn't achieve the measure of progress in a given year the incentive payment for that year cannot be recovered. Meanwhile, at this point only 20 percent of doctors and 10 percent of hospitals use even basic electronic health records, according to Kathleen Sebelius, secretary of Health and Human Services.
 

Under  the incentive program, eligible providers must utilize “certified EHR technology” if they are to be considered eligible for the incentive payments. Whether "meaningful use" can be achieved in the time frame allotted remains to be seen, but this is only one of a number of issues raised. For example, as reported in Crain's Health Pulse, several of New York's hospitals are protesting a CMS decision to award the promised $27 billion in funding based on Medicare provider identification numbers. In New York's hospital systems, many smaller hospitals use their flagship hospital's Medicare I.D. number. One major tertiary system, which has 1,500 beds on three campuses, will be treated like it has only 500 beds,” says it's Chief Executive Officer. In his system's case, that means a loss of $25 million in potential government funding.

At the Greater New York Hospital Association, a spokesman says so many of the region's hospitals are in the same situation that the association's lobbyists are pressuring Congress to change the eligibility rules. “We're deeply disappointed,” he says of CMS' decisions, noting the restriction will prevent scores of hospitals from getting the federal money. “We do not believe this was Congress' intent.”

As always, the devil is in the details. It remains to be seen how this will all shake out. I sincerely hope truly meaningful use of EMRs will be a reality in the not-too-distant future, but it can't happen without the realization of the significant dollars associated with the Medicare and Medicaid Programs Electronic Health Record Incentive Program.

Hospital Mergers and Consolidations

With the pressures of the economy, reimbursement trends and the spectre of total transformation that will be required by healthcare reform, consolidation in the health care industry is taking place at a record pace. It’s difficult for small to mid-sized hospitals to compete against larger health systems in many markets, and the depressed economic climate has led some hospitals to seek out opportunities for mergers.

Larger systems are strategically evaluating the markets they want to be in and exiting from less attracive markets. In addition, smaller hospitals and systems are understanding their survival may hinge on merging with or being acquired by another system.

Boards of Trustees and community advocates want to maintain their independence, and senior managers may be concerned with their vulnerability in a merger. Nevertheless, I believe this trend will continue, and even accelerate. Think of the difficulties a smaller stand-alone hospital, or even a small system, will encounter as they deal with the system, process and resource demands in adjusting to the new realities of healthcare delivery.

The changes afoot are dramatic: Implementation of meaningful use of electronic health records; developing Accountable Care Organizations; re-focusing on, measuring and reporting on quality indicators (linked to reimbursement); and strengthening physician integration are just a few of the challenges to be met. Not least is the need to totally transform the way in which healthcare is delivered, so as to survive what I believe will be an environment where reimbursement from all payors will be driven down towards Medicare levels.

Then there are the economies of scale that have always been available to larger systems. To name a few: departmental consolidations and centralized functions; access to experts who would otherwise be too costly; and negotiating leverage with insurors and suppliers.

This is not all bad news. The takeaways are:

• These are exciting times for hospitals and healthcare systems
• Change is good, and the nation's healthcare system will benefit in the long run
• Surviving systems will have the talent and resources to deliver high quality care in an affordable way.
• As leaders, we need to put aside parochial concerns, and strongly consider seeking out partners that will ensure our organizations will continue to exist, grow stronger and deliver cost-effective, quality care.

This is, of course, just my opinion, and I welcome meaningful feedback and debate.

Accountable Care Organizations & Collaboration

Accountable Care Organizations, or ACOs, are an exciting component of health care reform. A study by The Commonwealth Fund, entitled The Vermont Accountable Care Organization Pilot: A Community Health System to Control Total Medical Costs and Improve Population Health, defines an ACO as  "a provider organization that takes on responsibility for meeting the health needs of a defined population, including the total cost of care and the quality and effectiveness of services."

As described in the report, the Vermont Health Care Reform Commission (HCRC) spearheaded a pilot ACO program. Their key findings were
a) The ACO cannot exist in a vacuum
b) The working design for an ACO pilot is built on three major principles:
     1) local accountability for a defined population of patients;
     2) payment reform based on shared savings; and
     3) performance measurement, including patient experience data,
         clinical process and outcome measures.
c) ACO pilots need to have threshold capabilities in five areas to get started.
For purposes of brevity here, refer to the Commonwealth Fund Report for further details.

According to an article, Lessons Learned from Vermont on Building Community ACOs,  published May 20th, in HealthLeaders Media, a working design was developed for each ACO pilot that was built on three major principles: Local accountability, payment reform and performance measurement.

In my view, perhaps not surprisingly, payment reform and aligned incentives will be the single crucial element if this model is to work. Getting primary care physicians, hospitals and other continuum of care providers to negotiate who will be the receiver of funds and how those funds will be shared - that's the biggest devil in the details. I believe it can be done, but the spirit of collaboration may need to be born, or re-born, to accomplish this mighty task.

CFOs and the Business of Quality

Under the Health Care Reform Act, hospitals will be measured, and paid in part, on the basis of quality indicators. Those organizations that have not heretofore focused on quality will need to do so. Those that have will seek to move to the next level of quality. This is good news for consumers of health care, but equally good for the providers. It's been shown that as efficiencies and protocols are developed, quality rises, as does profitability. So, everybody wins. Need I mention this principle applies to every other industry as well?

What does this have to do with CFOs, you ask? We are critical members of the management team's collaborative efforts to improve quality and to measure improvement over time. We're familiar with key performance indicators and benchmark comparisons focused on such areas as liquidity, productivity and profitability. If we haven't already done so, we need to create similar, relevant statistics and meaningful reporting focused on quality indicators as well. There are a number of published statistics and benchmarks regarding numerous quality indicators, from reinfection rates to slips and falls.

I suggest CFOs be at the forefront of their organization's initiatives to improve quality, by teaming with the operations leaders to identify the strategic quality improvement objectives, develop key metrics to measure progress toward those objectives and create timely, meaningful reporting of progress.

So, for those currently involved, congratulations! For those who are not, what are we waiting for?

Hospital CFO Priorities Shift in 2010

According to the finance component of HealthLeaders Media Industry Survey 2010, quality was moved down as a priority in favor of physician recruitment and cost reduction. No surprise, as financial results suffer the effects of the recession, and healthcare reform has raised the specter of further pressures. The survey is robust and quite comprehensive. I recommend it to you, for a detailed view of CFO's concerns and thoughts.

In an April 15th article by the same organization, entitled Moody's: Health Reform Will Drive Consolidation, Hinder Credit for Nonprofit Hospitals, Moody's Investors Services is quoted as saying healthcare reform will have a long-term negative credit effect on not-for-profit hospitals, even though it will reduce bad debt expenses and charity care. "The key longer-term challenge for the not-for-profit hospital sector is the reform's reliance on extracting long-term cost efficiencies from hospitals, probably resulting in diminished hospital revenues," said Moody's Vice President Mark Pascaris, author of the report, Long-term Credit Challenges of Healthcare Reform Outweigh Benefits for Not-for-Profit Hospitals.
In the Media Industry Survey, financial leaders ranked their top three priorities for the next three years as:

• Physician recruitment and retention (37.50%)
• Cost reduction (35.53%)
• Patient experience/patient satisfaction (33.55%)

Last year's ranking was:
• Quality/patient safety (68%)
• Physician recruitment and
  retention (38%)
• Reimbursement (31%)

During a down economy, recruitment and retention is just one avenue to get a hospital’s finances in shape, revenue management is another big area. The big question to me is, what will the hospital of the future look like, given the far-reaching changes contemplated in the Healthcare Reform Act, and what should the resultant long-term strategies be to prepare for that future? That will shape the priorities for CFOs, going forward.