Not-for-profit hospitals are better managed and are learning to do more with less revenue. Now the question is whether or not the sector can continue to find savings in the coming years with much of the low-hanging fruit plucked and an aging demographic increasingly straining resource, Moody's Investors Service says.
Mark Pascaris, vice president and senior analyst at the bond rating agency, says that not-for-profit hospitals will continue to endure a negative credit outlook for the near future because of challenges to top-line revenues.
"The federal government pulling back on Medicare reimbursements, commercial payers becoming tighter in the types of rate increases they give to hospital and health systems year over year— that hasn't changed," Pascaris said in an interview.
"But we believe that as a sector, particularly among the rated hospitals, the management teams have become more focused on expense management and really have weathered the storm coming through the recession and the subsequent anemic economic recovery."
The Congressional Budget Office in February reported that total healthcare spending for the past three years increased at a historically low level of about 4%, which was slightly higher than 3% inflation in 2011 in the overall economy as measured by the Consumer Price Index.
That slowing of healthcare inflation, fueled in part by reduced federal funding, has mixed credit implications for not-for-profit hospitals, Moody's notes. Pascaris, however, says four years of significantly lower healthcare inflation cannot be attributed solely to the slow economy or reduced revenues.
"That first couple of years of that low pace of healthcare inflation, folks were attributing it to the Great Recession and higher unemployment and people with jobs either losing health insurance or being transferred to high-deductible plans. All of those things certainly were a factor," he says. "But now that we are at a multi-year trend of this kind of inflation in our view a component of this has to do with improved management in the sector driving down a lower sector-wide rate of inflation."
Medicare and Medicaid spending now represent 23% of the federal budget, the largest slice. The CBO has projected that by 2020 spending on Medicare and Medicaid will be cut by $200 billion less than what it had projected for the programs in March 2010. Because Medicare and Medicaid combined generate about 57% of gross revenues for most not-for-profit hospitals, the effects of any funding cuts are significant.
"On balance, however, we view the trend favorably for the industry as it drives management efforts across the sector over multiple years to control spending and portends a more efficient delivery model than in past years," Moody' says in Lower US Healthcare Inflation is Credit Positive for Not-for-Profit Hospitals.
"The trick," Pascaris says, "is going to be on the expense management side of things keeping that pace moving forward."
"The percentage of the population age 65 and older is expected to grow and grow over time and those are the folks who consume more healthcare resources," he said. "That coupled with a lot of the expense management efforts over the last three or four years have been low-hanging fruit like renegotiating supply contracts and right-sizing staff levels, things of that nature."
Many hospitals are focusing on the next level of expense reductions that include harder-to-find and longer-term efficiencies in areas such as enforcing standardized clinical protocols, improving patient throughput, hand-offs, and post-discharge care coordination.
"At some point you have to reengineer the process of healthcare management, which is really where a lot of the more sophisticated and aligned health systems are right now in trying to redevelop the throughput of healthcare—rethinking that altogether," Pascaris said.
"We think the next phase of expense management is probably going to be more difficult in terms of restructuring the process of healthcare delivery and that is probably going to be a bit more disruptive coming into an era where more of the population is at that Medicare eligibility," he said.
"It is going to be that much more of a challenge moving forward, which is part of the reason why we have seen and will continue to see more consolidation in the industry, more hospitals joining together or joining larger health systems to take advantage of economies of scale."
Health insurance providers have spent less than 1% of the premium dollars they collected from policy holders on quality initiatives, a Commonwealth Fund study said.
Insurers spent $2.3 billion on quality improvement activities in 2011, an average of about $29 per policyholder, the report said. Spending on quality initiatives is mandated in a provision of the Patient Protection and Affordable Care Act.
"You have to have a little bit of a caveat here because this regulation was just starting in 2011. They're dealing with coordinated care and it is in the embryonic stages here of how they are going to allocate those costs," says study coauthor Michael McCue of Virginia Commonwealth University.
"They have to be able to accurately measure all of these various activities and allocate those costs. The big plans, back when this data was reported, were still in the planning stage of how they were going to be measuring quality of care activities. The majority of the dollars paid out in premiums are going towards medical expenses. These are activities that help promote quality of care."
The PPACA's medical loss ratio rule requires insurers to spend at least 80% or 85% of premiums on medical claims and quality improvement activities, or else pay rebates to consumers. To calculate medical loss ratios, the report, Insurers' Medical Loss Ratios and Quality Improvement Spending in 2011, linked quality improvement expenses to activities that are likely to improve health outcomes, prevent hospital readmissions, improve patient safety and reduce medical errors, and increase wellness and health promotion.
Insurers spent 17% of the total quality improvement spending on health information technology upgrades, 51% on improving health outcomes, 9% on preventing hospital readmissions, 10% on patient safety, and 13% on wellness, the study found.
It also identified substantial variations in quality improvement expenditures ranging from $40 per member among the top quartile to $12 per member in the bottom quartile. The median expenditure among provider-sponsored plans was $37 per member and $23 by non-provider-sponsored plans. Nonprofit plans spent $35 per member and for-profit plans spent $19.
Robert Zirkelbach, spokesman for America's Health Insurance Plans, says insurers have complained that federal regulations weren't "capturing all of the activities that plans do to improve quality for patients."
"There is a big move towards partnering with doctors and hospitals to change how we pay for care so we are rewarding quality and value over volume of services provided. Plans are doing that all across the country, but that is not reflected in these numbers," Zirkelbach said.
"Plans increasingly provide patients with more access to information and data about quality and cost of medical services, providing online and on mobile devices, information and claims history personal health records so they can make more informed health decisions. That is not included."
"We are making sure that more physicians in health plan networks are providing high-quality care, credentialing them, making sure they provide the kind of care that patients need, but that isn't included. Efforts to prevent and deter fraud from occurring in the healthcare system that has not only cost implications, but patient safety and quality implications as well, [such as] doctors providing fake medicine and charging plans is going to hurt patient care. It is those types of things that aren't included but plans are doing and investing significant resources to do so it is not fully capturing the full picture," Zirkelbach says.
In the individual market, 8% of nonprofit plans owed consumer rebates, compared to 47% of for-profit insurers, while 7% of provider-sponsored plans in the individual market owed rebates compared to 40% of non-provider sponsored plans, the report said.
Nonprofit and provider-sponsored plans were more likely than for-profit and non-provider-sponsored plans to meet the health reform law's medical loss ratio requirement that they spend at least 80% to 85% percent of premiums on medical claims and quality improvement, the report said.
McCue says publicly traded insurers have the added pressure of answering to stockholders. "Mostly they are going to try to target that as much as they can to generate some kind of profit. However a not-for-profit plan will generate some return but they are not driven by their stockholders," he says.
"If you think about the mission or goal of a publicly traded firm that is to maximize stockholder wealth. They try to appease stockholders. Not-for-profits have their mission, although profit is not the primary motive so more of those dollars may be paid out into medical expenses."
The report suggests that costs and benefits are more important to consumers shopping for health insurance coverage than are issues such as quality of care, which means that health insurers are not incentivized to invest in quality improvement initiatives.
"Some consumers, because of the fact that they are going to be mandated to buy insurance, are going to be very cost-driven initially," McCue says. "But once they become part of a health plan and utilize the providers of that plan then quality may become an issue to them."
Despite the commitment and valiant efforts of healthcare providers across the nation to improve health in their communities, they can't do it alone.
The benefits of a half-hour visit with a healthcare provider can quickly evaporate if the patient returns to his own reality and resumes the unhealthy behaviors that prompted his call for care in the first place.
It's increasingly clear that any attempt to improve population health will require a coordinated effort, not just tactically between healthcare providers, but also strategically and involving healthcare providers, educators, government, businesses and charities such as the United Way.
Fortunately, there's a handy tool out there to help providers and other community leaders identify the health needs of their areas. The 4th annual County Health Rankings assesses the health of almost every county in the United States and ranks the counties within their states. The rankings were compiled by the University of Wisconsin Population Health Institute in conjunction with the Robert Wood Johnson Foundation.
The data provide a status report on critical population health metrics such as morbidity, access to care, overweight and obesity, tobacco and alcohol use, sexual activity, educational attainment, pre-natal and infant health, and teen pregnancy.
Angela R. Russell, a researcher at the University of Wisconsin Population Health Institute, says the data provides an "annual snapshot" at a somewhat granular level that is detailed enough to allow local leaders to develop targeted remedies.
"It shows where they are doing well and where there are opportunities for improvement," Russell says. "On the national level and the local level a lot of the conversation has focused on healthcare and our data set and research shows that healthcare is important. But our research also tells us that much of what affects our health occurs outside of the doctor's office. In fact, where we live actually matters to our health."
Russell wants healthcare providers to use the rankings as a starting point and then to dig a little deeper to find out what their communities are up against. After all, it's hard to fight when you don't know your opponent.
"As a health administration, you get a better sense of your actual service area and know the challenges and opportunities you face," Russell says. "It would tell you a lot about your community health. It would tell you if folks in your service area are dying before they should. It will tell you if you have a high rate of low birth weight babies being born in your area. It can tell you a lot about health behaviors. Are people smoking more? Are they obese? Are they physically inactive?"
The data also show that there are a variety of factors that influence the health of the community that go beyond health behaviors and access to care. "It also includes socio-economic factors such as education, poverty, income, community safety, and the physical environment," Russell says. "The data also show that there are some counties that can be right next to each other and some can be very healthy and some are not."
And that's why improving population health cannot be left solely to providers.
"We want this to serve as a call to action for local leaders across the nation… by working together we can improve the health of the nation from the ground up. It really takes us all working together. If they are going to change the health of the county they have to work alongside educators and the United Way and maybe the local chamber of commerce."
Russell cautions that changing population health is not easy.
"One thing we recognized is that it takes a long time to make change," she says. "We have been putting out this data for four years, but we know things aren't going to change overnight. It's going to take persistent and consistent hard work of leaders across the nation to see change over time."
And finally, if your county is on the bottom or near the bottom of the list with some of the worst health issues in your state, don't despair.
"In fact, use it as a call to action," Russell says. "The rankings give us hope and tell us there are things we can do today to create cultures of health where we live, where we learn, and where we play."
Prices for inpatient hospital care rose 8.2% between 2008 and 2010, with wide price and cost growth fluctuations recorded across states and localities over the timeframe, according to a study by America's Health Insurance Plans.
Even after adjusting for more numerous or complex procedures performed per admission, prices climbed sharply for most types of hospitalizations. Unadjusted hospital prices per admission rose from $13,016 in 2008 to $15,236 in 2010, an average annual growth rate of 8.2%, said the study,Trends in Inpatient Hospital Prices, 2008 to 2010, which appeared in this week in The American Journal of Managed Care.
"Despite the keen interest in US healthcare costs, there is surprisingly little detailed public information available on one of its key components: transaction prices paid by commercial insurers for inpatient hospital care," the study said.
The 15.2% price growth for spinal fusions topped the list of 10 common admissions categories, while bronchitis and asthma came in second with 10.3% price growth, the study said.
New York led all states with a 10.5% price increase over the three years, followed by Texas at 9.3% and Tennessee at 8.8%. Within states the price growth could fluctuate considerably. For example, the price growth in the Buffalo-Niagara Falls region was 14.4% for the period, the study said.
AHIP President and CEO Karen Ignagni said in prepared remarks accompanying the study that "the price of healthcare services is the major driver of overall healthcare cost growth. To make healthcare coverage more affordable for consumers and employers, there needs to be a much greater focus on the underlying cost of medical care."
The American Hospital Association, however, in a statement given to HealthLeaders Media, dismissed the study's findings as "simply a rehash designed to divert attention from the harmful consumer impacts of health insurers' own rising premiums."
"Hospitals across America are examining ways to make care more affordable by better coordinating care, reducing red tape, and providing the right care at the right time in the right setting. These efforts have led to hospitals to hold costs down, keeping health care spending growth at historically low levels for the third straight year and the rate of growth in hospital cost per service is at a decade-low," the AHA statement read.
"As a study by the American Medical Association found, anticompetitive market conditions are common across managed care plans. It's important to note that growth in insurance costs from 2010 to 2011 was more than double that of the underlying healthcare costs, including hospitals. It is not hospital prices that are driving the rise in insurance premiums."
The hospital group pointed to a report last year from the Centers for Medicare & Medicaid Services' office of the actuary which found that premium rates for private insurers rose faster than underlying healthcare costs and that for the first time in seven years, growth in total premiums exceeded growth in total benefits.
Jeffrey G. Micklos, executive vice president and general counsel for the Federation of American Hospitals says the study doesn't explain the reasons for cost growth and price variations that it found.
"What we're seeing is that provider consolidation is happening and it is a response to the marketplace," Micklos told HealthLeaders Media. "It's not only the affordable care act and coordinated care and integrated care efforts but it is also reaction and rebalancing in some markets. So when they have a finding that says there are wide variations in price levels and growth rates in localities and states our position is 'that is the market and the market is working. Some places there will be more rebalancing than others. These trends are cyclical. They come and go."
While provider consolidations have been cited as a driver of healthcare costs by the health insurance industry, Micklos says market leverage is not the sole motivation.
"It's really being driven by trying to break down the silos of care and coordinate care more," he says. "Hospitals look at themselves as healthcare companies and there are a bunch of reasons why they are aligning with physicians. And it is not just their desire to do so. Physicians are also facing this new market where they are being asked to do more with less with regards to capital investment and health information technology and developing a quality infrastructure platform and malpractice and other typical costs that make it difficult for them to continue to practice in that two- or three-doctor practice."
In our December Intelligence Report on regulatory strategies, only 17% of leaders said their organization is fully prepared for the shift from fee-based payment to a shared-risk payment model, and while 48% say they are somewhat prepared, 36% acknowledge they are not prepared.
What is your organization's strategic approach to this shift in payment models?
Deborah Zastocki, DMP, RN, FACHE
President and CEO
Chilton Hospital
Pompton Plains, NJ
From our perspective, clearly what one needs to do to switch from the fee-based payment to a share model requires the proverbial alignment of interests.
We know you don't have to employ all physicians. That is a very costly model. One needs to have a repertoire of options for physicians. We have employed some of our physicians and with other physicians we have assisted with recruiting for their offices to meet community needs. We have also done things such as management services agreements where we have used them in the comanagement of an office practice.
People are adopting one of a couple of strategies. One would be the wait and see approach and then jump on the band wagon. Some others are like us and realize that the infrastructure that one needs to provide is not going to be as effective in our current models. So you have to be able to identify how are you going to be successful and, if it is not by yourself, then with whom and how.
With physicians in particular and the challenges and changes they are experiencing it is very irresponsible and in some sense self-defeating to try to engage in a model that you don't know will be sustainable in the long run. To our physician colleagues it can be frustrating and impede collaboration. One of the things we all have to do is be flexible and adaptive as we go forward.
Ronald A. Paulus, MD
President and CEO
Mission Health,
Asheville, N.C.
We are focusing strategically on the building block components that an accountable entity would need to be successful and thrive under that revamped reimbursement paradigm.
First, we're establishing a comprehensive primary care network because we see that as the front door and the overall clinical managers of the population and their focuJohns on population health.
Part two of the strategy is to ensure we have appropriate specialist alignment so we can support that work. We have been pursuing a mixed model that includes traditional physician employment and also professional service arrangements and other nonemployment-based agreements where we can have aligned incentives from both the clinical and a patient experience standpoint.
The third thing we are focused on is developing core care management capabilities and ensuring our care management skills and focus extend beyond the walls of the hospital and into the ambulatory care arena.
Fourth, we're focusing on building data analytics and warehousing capabilities. That would include predictive modeling to understand our population and get our arms around managing it.
Last but not least, we're ensuring we have clinical data exchange and consumer engagement capabilities and focus. I don't see it as flipping a switch. We see this as a continuum where over the next three to five years we are going from where we are today to a full-fledged capability. It is something we are working on every day, every month, every quarter.
Susan L. Davis RN, Ed D
President and CEO
Sacred Heart Health System,
Pensacola, Fla.
On building the infrastructure: We have the components of it: a multispecialty medical group, the acute care component, some extended care. What we don't have is the IT infrastructure to give us the data and the information that we need to prepare the organization to move forward in a risk-sharing environment. We are building it.
On the IT hurdle: IT is the biggest hurdle for us and I don't think we are alone. There are so many different platforms we are all on and having the right types of tools to overlay on top of those platforms to be able to understand the costs bases and the clinical care outcomes is just not an easy process to implement. There are not a lot of vendors out there who have a lot of experience with it. The availability of trained IT people is also a challenge.
On the implementation: What has to drive your organization is developing your strategy and implementing it so that you have confidence in your numbers. I don't think you would want to do this just because your competitor across town is ahead of you on the curve. You need to drive the process of getting the data, making sure there is credibility in the data you have and that you have a system that enables you to respond so that your health system isn't left in the dust.
Juan Serrano
Senior vice president, payer strategy and operations
Catholic Health Initiatives
Englewood, Colo.
We are making a concerted shift to changing our model from being hospital-centric to a clinically integrated model that involves our physician ambulatory services and our hospitals because clinical integration is an important precursor to realigning incentives. Throughout this year we will have significantly shifted our focus toward clinical integration.
Secondly, we have population health data management capabilities. We are using a couple of different solutions to support people who either are already at risk or if they came from some form of performance-based accountable risk.
We have brought on board underwriting and risk management operations that are building a bridge to span the structure from healthcare delivery to health plans. And we have capitation management infrastructure such that when we ask stakeholders in our health system to assume responsibility for pay-for-performance—that if we take a capitation rate or if we simply want to manage a risk pool for which they are accountable—we are able to monitor that performance and distribute payment or incentives accordingly.
We are already in a number of performance-based payment programs.
So, we are on a pace that coincides with the rate in which the industry is transforming. When we are presented with opportunities to evaluate a risk-based model we have the skills, the tools and the people with which to move into that space.
States that reject Medicaid expansion under the Affordable Care Act will subject the hospitals and employers within their borders to a considerable financial hit, separate analyses show.
At last count, 14 states have said that they would reject Medicaid expansion and three other states are leaning that way despite the federal government's assurances that it would pay 100% of the cost for the first three years of the expansion, and 90% of the cost after that.
An analysis from Moody's Investors Services found that safety net hospitals in states with high numbers of uninsured residents will suffer a double-whammy hit if the Medicaid expansion is rejected.
Under the ACA, disproportionate share payments will shrink by $17 billion each year by 2019 because of the assumed reduction of charity care that the federal government said will occur with Medicaid expansion. However, states that opt out of Medicaid expansion won't get the additional funding to offset the DSH payments cuts.
That will leave opt-out states with a choice of whether to compensate hospitals for the shortfalls with state money, which would strain state budgets, or leave hospitals to absorb the costs on their own, which would squeeze margins and increase rating pressure on the hospitals, Moody's said in its analysis, Reduction of Medicaid & Medicare Disproportionate Share Hospital Payments a Looming Challenge for States and Hospitals.
"It does beg the question, 'why not expand if the federal government will be paying for initially 100% of this and then down to 90% of it a few years out?'" Lisa Goldstein, associate managing director at Moody's, told HealthLeaders Media.
"One could scratch his head and say 'I don't get it.' To a certain extent, they are leaving money on the table. If you peel back one more layer it becomes political and a fundamental belief of what the role of government is as it becomes a political party issue."
Goldstein says the soon-to-be-operational health insurance exchanges present another great unknown that could negatively impact finances at safety net hospitals.
"When the insurance exchanges are up and running (on January 1, 2014) we have heard anecdotally that we don't know what those contracts will be between hospitals and private payers," she says. "Are they going to be at Medicare rates or somewhere between Medicare and Medicaid? Are they going to be near commercial rates, which would be the best from a debt repayment perspective? That is an unknown."
And while many small businesses are expected to shuttle employees to the exchanges, Goldstein says it's not clear if big corporations will do the same. "What if a big corporation says 'healthcare costs are unaffordable, we aren't providing healthcare. You 2,000 employees go to your exchanges. Here are your vouchers.' You can see for hospitals that the with composition payer mix of their revenues, there could be a new slice of the pie called exchanges and depending upon what those negotiated rates are that could further suppress revenues."
"So, you've got DSH drying up and an unknown on Medicaid expansion. We know Medicare rates are going down, that is a given, and as we have been saying top line revenue is under pressure," Goldstein says. "Hospital revenues are still in critical condition."
Meanwhile, a separate study examining the effect of the ACA on employers found that states that opt out of the Medicaid expansion will expose businesses within their borders to tax penalties and a higher "shared responsibility" for providing healthcare coverage for employees.
According to the analysis from Jackson Hewitt Tax Service Inc., the associated costs to employers could total anywhere from $876 million to $1.3 billion in the 22 states that are either opting out of the expansion, or are leaning that way. In Texas, for example, federal tax penalties on the state's employers would increase from $299 million to $448 million each year.
"Any projections of the 'net' costs of Medicaid expansions should reflect the very real costs of the shared responsibility penalties to employers in any particular state," the analysis said.
Brian Haile, senior vice president for Health Policy Jackson Hewitt, and the author of the study, says states and businesses must make sure they understand the consequences of forgoing Medicaid expansion funding.
"The tax code is incredibly complex but in light of the Supreme Court's decision making Medicaid expansion optional you have some unanticipated results," Haile told HealthLeaders Media. "Folks who are very concerned about taxes might in some senses favor expanding Medicaid. You usually can't say that in the same sentence but you can in some instances say that here."
This article appears in the March 2013 issue of HealthLeaders magazine.
In our November 2012 Intelligence Report, many healthcare leaders (38%) said that major enhancements are needed to their organization's executive compensation structure to retain and engage leaders. What tactics or strategies do you think should be preserved and what needs to change? What new areas need to be developed to ensure that you can attract and keep talented leaders?
Wallace Strickland
President and CEO
Rush Health System
Meridian, Miss.
I have been at Rush 43 years. I understand compensation is an important part of it, but you also have to enjoy what you are doing. I don't know how we get back to where I think it used to be, where we are in this because we think we are doing this for the right reasons. We are helping take care of people.
In the 1920s, the Rush brothers, who were physicians and sons of the founder, had a creed for the hospital: My brother's keeper, where those who can take care of those who can't. That is a philosophy that most of the doctors and administrative staff have here. They make very good money but they could make more money at other jobs and other locations.
When most of the local news media look at a Form 990 from a nonprofit, they gasp at how much money is made and they think that is all people live for. They don't assume that people are there for other reasons.
Michael Ugwueke
Executive vice president and COO
Methodist Le Bonheur Healthcare
Memphis, Tenn.
On incentives. Incentive compensation works. Many organizations have different philosophies about where they set their base pay slightly below the median. But to really engage folks, more should be done on the incentive compensation side to change the behavior and make people really earn it for remarkable work, not just making the averages.
On margins. The margins are getting a little tighter for hospitals, and the IRS and the media and everybody is looking at executive compensation. When people earn through incentives it makes everybody more aware, and working more together as a team because their incentives are tied together. As margins get smaller, we will see more of this.
On improvements. But those incentives have to be tied to remarkable improvements, not just marginal improvements based on quality metrics such as reductions in length of stay and improvements in patient satisfaction. I would suspect that in the next two or three years we will see some specific things coming out along those lines.
Greg Pagliuzza
Vice President and CFO
Trinity Regional Health System
Rock Island, Ill.
Our major focus for executives is a base salary with incentives built into it. The core of what we have been doing is very effective. On an annual basis we look at it and say, "What do we need organizationally throughout the whole system to get the outcomes we are focusing in on?"
It is very focused on a grand scale, which means Iowa Health System in total. We set targets of what we need from a quality perspective, from a patient satisfaction perspective. As we progress into population health we are getting incentives tied into that target also.
We are also looking at our benefits package to make it a cafeteria approach. If you know you are going to be five or 10 years in the system you have greater latitude to select certain benefits that would fit someone who doesn't plan on staying within the system. On the other hand, if you think you are going to be a long-termer, then you have options to select your benefits accordingly.
We are trying to create that flexibility to attract different people from the outside while maintaining and supporting people from the inside to stay within the system from a compensation and benefits and opportunity standpoint. All executives are talked about with the CEOs and the head of the system in a very open process so people know who is lined up for the future, who is a keeper.
David Griffiths
CFO and Vice President of Finance
Regional West Health Services
Scottsbluff, Neb.
We are a nonprofit organization and the biggest thing we struggle with is we don't have incentive plans like a lot of the for-profit organizations have that would help to initiate some changes or drive people harder toward some of the strategic goals we have in place. Incentive compensation could do a lot to drive those changes and get them here quicker rather than trying to let things evolve the way they naturally have in the not-for-profit world.
We are not quite where we would like to be within the market itself. So when you are talking about trying to introduce a new compensation component, it is hard to do that when you are not really succeeding with your existing compensation plan. If you have something measurable that people can show they accomplished, it does help support the salaries that are paid.
I don't know that we have some of the same compensation issues in our organization that some of the larger ones do. But there could be some more transparency about how these salaries are determined and support what is accomplished for those salaries.
This article appears in the March 2013 issue of HealthLeaders magazine.
The federal government announced this week that it will change its contentious policy of flatly denying any reimbursements to hospitals that provide medically necessary care determined by auditors to have been delivered inappropriately in an inpatient setting.
The interim rule (PDF) is seen as a major victory for hospitals, which had claimed that the existing rule prevented them from collecting hundreds of millions of dollars in reimbursements. The American Hospital Association and four health systems claimed, in a suit filed last November, that the Centers for Medicare & Medicaid Services had violated the Medicare Act by declining to reimburse the audited claims of hospitals, even though the claims were ultimately acknowledged by CMS to be reasonable and medically necessary.
"CMS has conceded that its current policy of refusing to reimburse hospitals for reasonable and necessary care when the only dispute is which setting, not whether care should have been delivered, is contrary to the law," AHA President/CEO Rich Umbdenstock said in prepared remarks. "That is a central issue in our lawsuit."
Hospitals have long complained about the process that allows private recovery audit contractors to comb hospital records months and years after care is delivered to flag questionable payments.
Recovery Audit Contractors (RACs), which are paid a percentage of the money they recover from hospitals and other providers, often retroactively determine that procedures billed as inpatient hospital care under Medicare Part A should instead have been delivered as an outpatient procedure under Medicare Part B.
When Part A reimbursements are denied or rescinded, however, CMS as a matter of policy won't let hospitals re-bill the care under Part B, even if the care is determined to be medically necessary and reasonable.
Although pleased with the new interim rule, Umbdenstock said the lawsuit will continue because "the proposed rule then threatens to undermine the progress made on this important issue."
"Under the proposal, hospitals will be able to rebill CMS only within the narrow time frame of one year from when patient services were provided," he said. "Since the recovery audit contractor typically reviews claims that are more than a year old, the practical effect would be that hospitals would again not be fairly reimbursed for the care they provide Medicare patients."
"While CMS's interim ruling is a victory for hospitals, its long-term proposed solution is not. That's why it's essential that the AHA continue with our litigation," he said.
Joining AHA in the suit are: Missouri Baptist Sullivan Hospital, in Sullivan, MO; Munson Medical Center, in Traverse City, MI; Lancaster General Hospital, in Lancaster, PA; and Trinity Health Corp., in Livonia, MI.
The hospitals complain that the CMS policy creates "prolonged uncertainty about whether Medicare will ultimately pay for the services previously provided (and) wreaks havoc on hospital financial planning, including the ability to assess capital and staffing needs. Both the uncertainty and the actual loss of Medicare funds ultimately may adversely affect patient care."
The hospitals want a federal judge to strike CMS' payment denial policy because it is "contrary to federal law, arbitrary and capricious, and invalid for failure to undergo notice and comment."
The hospitals also want CMS to repay them for the "reasonable and medically necessary services they provide to patients. No matter whether it was provided in the inpatient or outpatient setting, Medicare must pay hospitals for such medically necessary care."
RACs have been a continuing source of friction between hospitals and the federal government ever since they were created as part of the Medicare Modernization Act of 2003. CMS reported last spring that RACs collected $1.86 billion in overpayments from October 2009 through March 2012, but identified only $245.2 million in underpayments.
Hospitals say that RACs are incentivized to aggressively and unfairly flag hospitals bills because the auditors keep a percentage of the money they identify, even if the billing classification is later proved to be justified.
A CMS study found that about 40% of RAC findings are appealed, but providers win those appeals about 75% of the time. Despite the good odds of winning an appeal providers complain that the process is too costly and cumbersome.
Healthcare reform continues to make strange bedfellows among providers from across the care delivery spectrum as they brace for new demands in an era of lower reimbursements.
The Cleveland Clinic and investor-owned Community Health Systems this week announced that they are forming a "strategic alliance" to reduce costs through operational efficiencies and improved care in both health systems.
"Years ago you would not see a non-profit academic medical center and a for-profit health system come together. It's a sign of how the times are changing in healthcare," says Eileen Sheil, executive director of corporate communications for the Cleveland Clinic. "We both bring unique strengths to the relationship. They are experts in hospital operations and efficiencies and Cleveland Clinic brings tertiary care services and clinical excellence."
Under the deal both systems will remain independent, but will form joint advisory groups to consider improvement in areas such as clinical services, physician alignment, and integration, supply chain processes and other hospital operations.
"Much of the long-term pieces have yet to be determined, but we are going to start with looking at some selected CHS affiliated hospitals and work with them on the cardiac program and the quality alliance for quality metrics in their hospitals," Sheil says. "We get their expertise in hospital operations and how to run very efficient hospitals. That is something we will greatly benefit from."
Franklin, TN-based CHS is one of the nation's largest for-profit hospital companies. It leases or operates 135 hospitals in 29 states, with an aggregate of nearly 20,000 beds.
"It definitely broadens the Cleveland Clinic's reach nationally, which we haven't had before," Sheil says. "But at this point we aren't talking about putting our name on their hospitals whatsoever. It's trying to figure out how can we best work together to really drive quality in the hospitals and drive down the cost. That is what we are expected to do given healthcare reform and how we have to change the way healthcare is delivered going forward."
Adam Powell, a healthcare economist and president of Payer + Provider Syndicate, a Boston-based consulting firm, says the strategic alliance provides clear benefits to both systems.
"Cleveland Clinic maintains state-of-the-art facilities that are constrained to a few geographic areas, while Community Health Systems runs a large, multi-state network of general acute care hospitals in mid-size markets. The alliance provides Community Health Systems with access to both the processes and brand of Cleveland Clinic, while providing Cleveland Clinic with access to a wider referral base," Powell said in an email exchange.
Powell says Cleveland Clinic will help CHS capture data in a standardized format that can more easily be analyzed. "While it has not been stated explicitly, it is likely that that format will be highly-compatible with the one utilized by Cleveland Clinic so that information can be shared more easily," he says, adding that the two systems will also collaborate on process and infrastructure improvements for cardiovascular services.
In addition, Powell says the alliance likely will promote other collaborations, such as the remote delivery of care through telemedicine, second opinion services, and complex care coordination.
"Given the reputations of the two institutions, it is likely that Cleveland Clinic will be the primary provider of the services and that patients in CHS facilities will be the primary recipients," he says. "Thus, Cleveland Clinic wins by providing care for more patients, while CHS wins by obtaining access to better processes and an association with the Cleveland Clinic brand."
At this point, Sheil says the specifics of how the alliance will work are still unfolding.
"This is really about focusing on improving quality of care and reducing costs," she says. "What makes this kind of a different relationship is we are figuring it out as we go along. There are going to be lots of exciting opportunities. Both sides are very committed and bring different strengths to the table."
For years we've talked about the physical, emotional, spiritual and financial effects of overweight and obesity on our society.
This month, for example, the American Diabetes Association issued a report which estimated that the nearly 22.3 million Americans who are diagnosed with diabetes cost $245 billion in medical care and lost productivity in 2012. That represents a 41% increase from the $174 billion estimate in 2007.
The report blames the increased costs on the additional five million American adults and children who were diagnosed with diabetes in the five years since the last estimate was released, a 27% increase from the 17.5 million diagnosed cases in 2007. Another 79 million Americans now have pre-diabetes, which puts them at risk for developing Type 2 diabetes. Keep in mind that the report does not factor the millions of people who have diabetes or pre-diabetes but who have not been diagnosed.
Moss details how the processed food industry has hooked Americans on an unhealthy diet of fat, salt and sugar. His reporting is hardly a left-wing screed. In fact, given what he has uncovered, Moss can be annoyingly deferential to some of the more than 300 processed food industry executives and scientists he interviewed—people in positions of knowledge and power who put corporate profits above the health of the nation.
Not surprisingly, what Moss finds is that processed food giants such as Kraft, General Mills, and Coca-Cola are motivated by money. The more sugar, salt, and fat-laden junk foods they get us to shove down our pie holes, the more money they make. It really is just that simple.
In so many respects, especially in their marketing to children, the processed food industry has taken a page from Big Tobacco's playbook. These companies are frighteningly good at what they do. Moss writes about the armies of food scientists and engineers finding the "sensory-specific satiety" or "bliss point" that prompts consumers to eat an entire bag of potato chips.
Moss writes: "The biggest hits—be they Coca-Cola or Doritos—owe their success to complex formulas that pique the taste buds enough to be alluring but don't have a distinct, overriding single flavor that tells the brain to stop eating."
To find the "bliss point" of vanilla- and cherry-flavored versions of Dr. Pepper, for example, Moss wrote that Cadbury Schweppes created 61 distinct formulas and conducted 3,904 tastings in Los Angeles, Dallas, Chicago, and Philadelphia. The final 135-page report talked about things like "mouth feel" and other sensations that would determine the success or failure of the soda.
If you're an advocate for wellness, this is what you are up against.
In this corner, we have overworked physicians, nutritionists, and other providers who might consult with patients a handful of times each year and scrawl out diet plans or exercise regimens as part of some vaguely defined wellness initiative.
In the far corner, we have a processed food industry which spends millions of dollars to bombard us every hour of every day with advertising urging us into supermarkets to buy their foods of dubious nutritional value.
This would be a laughable mismatch if it weren't for the fact that millions of people are suffering and dying as a result of this calculated effort to hook them on food that is not good for them.
Even in the face of these overwhelming odds, healthcare providers should not despair. Just as the processed food industry had borrowed tactics used by Big Tobacco, so too can physicians and other health advocates use the highly successful tactics of the anti-smoking movement to press for change.
Corporations that put profits above the public good respond to two base stimuli: fear and greed. Healthcare providers can hit both of those bliss points by using their collective status as trusted advocates for the public good to clearly blame and aggressively pressure the processed food industry for its role in nation's overweight and obesity epidemic.
Already we are seeing some movement. New York City Mayor Michael Bloomberg, for example, has gotten a lot of coverage for his efforts to ban super-sized sugary drinks as a public health menace. His efforts may get derailed in the courts, but the publicity he has generated is worth it. Consciousness has been raised. People are asking questions and that is a good start.
The sad truth is that wellness movements by themselves aren't enough to reverse the obesity and overweight epidemic, no matter how well-intentioned or proactive. They will fail unless we address the larger issue of what people eat. The processed food industry must be held accountable and pressured to modify the addictive junk it peddles to the American people.
Healthcare providers, the people who see first-hand the devastating effects of overweight and obesity, must lead this fight.
