CFOs already juggle a lot. In one hand they have their organization's financial plan. In the other are ever-changing government regulations that affect the bottom line. It can be hard to keep up with the constant flow of healthcare news and separate significant developments from the noise. To ease your burden, I've called out three recent reports that may impact your financial strategy, and what you can do about it.
1. Push for fee-for-value. Moody's Investors Service recently released a report instructing not-for-profit hospitals to get on the stick with fee-for-value. The Moody's report notes that credit ratings will rise and fall depending on how well hospital management teams adjust to being paid more for quality of service than for quantity.
"Different reimbursement models will develop in different stages over time, requiring hospitals to manage multiple and diverging payment models simultaneously, such as traditional payments that reimburse based on volumes and new methodologies based on cost and quality," says Moody's associate managing director Lisa Goldstein, author of the report.
The hard part is that balancing fee-for-value and fee-for-service payment models simultaneously will likely temporarily decrease a hospital or health system's bottom line. It's a risk worth taking, though—just ask the folks at Iowa Health System, who I interviewed on the necessary financial loss that comes with population health management and how healthcare organizations can try to offset it.
For those hospitals that have delayed transitioning to the quality-based care model, the time is now to make a move. Patient volumes are already beginning to decline nationwide, and quality outcomes are starting to be rewarded. Even those hospitals that have started to make the transition should anticipate a financially bumpy few years, however, until the transition is complete.
"Even as future payment methodologies change at an uncertain pace, it is already clear that payment-per-procedure will decline, creating more pressure on hospital top-line growth," says Goldstein's report. "This weaker outlook for revenue growth and the corresponding need for cost reductions are key drivers of our negative outlook on the not-for-profit hospital sector."
Strategic recommendation: Moody's suggests healthcare leaders create a strong team consisting of the board, administrators, and physicians to "flawlessly execute" financial plans that concentrate on clinical care and the reduction of patient procedure variation. I would add that they should batten down the hatches and start making sustainable cost reductions that can see their organization through this rough transition.
2. Regulatory respite. A lot of state and federal paperwork and regulatory requirements are involved with running a healthcare organization. But some good news came last week from the Centers for Medicare & Medicaid Services, which announced it intends to relax regulatory red tape involved with two final Medicare rules. The effort will yield payers and providers savings of approximately $6.1 billion over the next six years.
Health and Human Services Secretary Kathleen Sebelius says the changes eliminate "unnecessary, obsolete, or burdensome regulations" imposed on hospitals and other healthcare providers. One change in particular is worth noting: Medicare's Conditions of Participation (CoPs) will no longer require each hospital to maintain a separate governing body.
"We're … pleased the new Medicare CoPs allow multi-hospital systems to have one governing board that can provide comprehensive oversight across all participating hospitals," says Rich Umbdenstock, president and CEO of the American Hospital Association, in a statement.
Umbdenstock noted that CMS did not go far enough in allowing organizations to become more efficient, and I agree. "CMS did not allow hospitals in such systems to have single integrated medical staff structures if that's how those providers choose to be organized. Hospitals and medical staff members across the country are working together to streamline all areas of operation and CMS should not let antiquated organizational structures stand in the way," he says.
Strategic recommendation: If you deal with several single-hospital boards, take swift advantage of the new ruling to centralize your board.
3. Trends in payment. Last week, InstaMed released its 2011 Trends in Healthcare Payments Annual Report. Among the findings are that, with more employers switching to lower-cost, high-deductible plans, "an overall increase in patient responsibility and, consequently, an overall decrease in payer-to-provider payments" has occurred. The report notes that in 2011, payers paid providers only 18% of the billed charges, on average, down from 21% in 2009. Moreover, patient payment now represents 26% of the total provider revenue. Taken to a logical conclusion, that means healthcare organizations stand an even greater risk in the future of not getting paid after a procedure, which will increase bad debt.
Strategic recommendation (or really, two conflicting recommendations): First, collect as much as possible from patients upfront and online. The report notes that in 2011, online patient payments accounted for 12% of the gross dollar volume of all patient payments, up 8% from 2009. Second, tread lightly with collection practices. In light of the recent Minnesota Attorney General's suit against Accretive Health, Inc. for its allegedly aggressive collection practices, CFOs need to impress on everyone involved in collections (internal and external) that mission takes precedence over margin in patient payment collections. Your collections pit bulls may be put to better use on the payer side of the house.
These three reports may not have appeared momentous at first blush, but each can influence your organization's long-term strategy and finances.
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
