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In September, Southcoast Health Systems, the largest employer in the region, announced that there would be 105 job reductions with 50 to 60 people losing jobs. These reductions were attributed to “challenges” stemming from the Patient Protection & Affordable Care Act (PPACA).
Most hospitals across the country are taking similar actions, mostly due to health care reform requirements and the overall changing landscape of health care, but also due to the $9.9 billion in government sequester cuts to Medicare reimbursements which have already taken place.
The PPACA’s $260 billion reduction to Medicare’s funding of hospitals over the next 10 years will amount to a 9 percent cut to hospital reimbursements that will need to be addressed, while hospitals need to serve more patients. These “challenges” are widely misunderstood by most, including the people who passed the law and who are trying to implement it.
The “challenges” that Southcoast Health Systems and many other hospitals are facing include reduced income to providers, increased cost to the providers, and additional administrative and reporting burdens, and will impact how and where care is delivered and what patient services will be available.
The hospital sector lost 9,000 jobs in May, the worst month in 10 years, along with an additional 4,400 jobs in July, according to the most recent estimates from the Bureau of Labor Statistics.
Hospitals must recalibrate their operating model to shift patients from inpatient to outpatient services. Reduced admissions and increased outpatient and observation stays mean dramatically less reimbursement to the hospitals and more importantly a cost shift to the patients whom they serve.
A material consequence of the PPACA is that there will be increased payment expectations from the patients. This issue is not widely discussed and is clearly understated.
Most patients will have high deductibles and coinsurance in their insurance plans making the patients responsible to cover a larger portion of outstanding balance of their bills.
This trend has already begun to materialize, increasing provider’s bad debt related to patient responsibility and reducing cash flow daily to hospital and providers.
Given the overall economic climate that is impacting us all with items such as higher unemployment, and high gas and food prices, payments to health care providers will naturally be deprioritized by patients as a matter of necessity.
This is bad news for our region’s hospitals and physicians.
The Congressional Budget Office has stated that, on average, Medicare reimburses hospitals at 81 percent of commercial payers, while Medicaid reimburses at 56 percent of commercial payers.
For a hospital system like Southcoast Health, where approximately 67 percent of its patients are insured through Medicare and Medicaid, reductions in reimbursement translates to a loss of millions of operating dollars, jobs, patient access and quality patient care.
The new health care law is meant to ease the burden on hospitals by expanding Medicaid coverage to more low-income Americans who often use hospital services in emergencies and then are not able to pay their bills. Though hospitals will be receiving Medicaid reimbursements instead of writing off bad debt, they will have to deal with a rapidly growing patient population whose medical care will be reimbursed well below what it cost to run and operate a health care facility while meeting patient’s service needs, investing in growth and technology, and retaining the best resources.
Our region’s hospitals are operating on modest profit margins, if any at all. The cumulative, drastic and poorly planned and executed roll out of the law will leave our regions health care providers and all of us who depend on them searching for answers for the foreseeable future,
I guess we are all in this together.
David MacDonald is CEO of Aegle Advisors (www.aegleadvisors.com), a boutique health care consulting firm. Contact him at dmacdonald@aegleadvisors.com or (617)331-7169.
In April, David MacDonald, Aegle Advisors Chief Executive Officer, spoke with a sold-out group of physical therapy private practice owners about the Path From Practice to a Multimillion Dollar Health Organization.
With the implementation of the Patient Protection & Affordable Care Act well under way, health care providers are faced with an ever growing list of administrative and financial responsibilities that can take their focus and time away from the most important piece of health care: the patient.
By 2019, 32 million more Americans are expected to hold health insurance coverage. According to the Congressional Budget Office, half will be covered under government insurance programs, specifically Medicaid and the Children’s Health Insurance Plan.
Providers will be faced with not only preparing to serve more patients, but will need to address changing Medicare and Medicaid reimbursement rates for hospitals and primary care physicians as well as comprehensive reporting requirements.
Hospitals that currently serve a large number of Medicaid and uninsured patients will see their DSH (disproportionate share hospital) payments reduced to 25 percent of current amounts, beginning in 2014. The rationale for the reduction is that as more people have access to insurance, hospitals will see a significant drop-off in uninsured patients.
Over the next six years the forecasted rate that Congress uses as a benchmark for implementing Medicare rate increases, will be reduced anywhere from .2 percentage points to .75 percentage point, keeping billions of dollars in reimbursements from hospitals. Hospitals will also see payment reductions in certain instances around hospital readmissions and hospital acquired conditions (i.e. infections).
Additionally, hospitals will have new requirements to qualify as tax exempt charitable hospital organizations, including;
1. Charge limitations: Hospitals will no longer be able to charge uninsured or underinsured payments more than its contracted commercial rates; and,
2. Community Health Needs Assessment: Hospitals will need to conduct and publish a community health needs assessment every three years.
However, in the short term, medical groups will see increased Medicare and Medicaid rates paid to primary care physicians. In an effort to expand access and encourage doctors to become primary care physicians, Medicare rates to primary care physicians will be increased through a 10 percent physician bonus payment from 2011 through 2015. Medicaid primary care payments for services will be 100 percent of Medicare primary care payments and the federal government will pay states the difference in rates. After 2015, there is no clarity as to how providers will be paid for these services.
With so much to do to prepare for the full implementation of the PPACA, hospitals and physician groups can be overwhelmed by regulations and setting strategy to manage its requirements, while continuing to focus on the patient.
To assume that patients will not be directly impacted by reform changes to providers is simply disingenuous. The delivery of care will be slower and more costly. Some strategies for health care management leaders include:
1. Model current and future patient scenarios to identify potential service and financial challenges. Review your current patient profile makeup (self pay, commercial insurance, Medicare, Medicaid) and use your current demographics to create scenarios around serving the newly insured with reductions in total bad debt and uncompensated care that can be compared against scenarios that include a smaller number of uninsured patients and the new Medicare reimbursement cuts.
2. Review and update procedures around the revenue cycle to be in compliance with PPACA. From registration to billing and collections, it is going to be imperative that hospitals and medical groups are in compliance with PPACA’s financial regulations and that all revenue cycle procedures are in writing, communicated to staff, and controls in place in order to receive Medicare and Medicaid reimbursements. Reporting requirements that used to be carrots (incentives) for providers will soon be sticks (penalties) for non-compliance of reporting requirements.
3. Review and improve current technology to efficiently track measurements and outcomes. Expanded reporting will require health care systems to answer even more questions about their patient encounters than they do now. Health care leaders will need to renew efforts to ensure their technology is able to track a patient’s visit from beginning to end with a focus on using systems that interface and integrate easily with one another to reduce inefficiencies and redundancies.
David MacDonald is CEO of Aegle Advisors (www.aegleadvisors.com), a boutique health care consulting firm that focuses on an approach of financial and operational analysis, observation, and communication. Contact him at dmacdonald@aegleadvisors.com or (617)331-7169.