iProtean Newsletter

Hospitals Experience Short-Term Operating Margin Decline after M&A

The finances of acquired hospitals generally suffer for two years after mergers and acquisitions (M&A), according to a recent report from HFMA and the Deloitte Center for Health Solutions.

 

M&A activity has increased significantly in the past decade, driven by the pursuit of economies of scale and the potential for reducing the cost of care. The HFMA/Deloitte study examined more than 750 merger transactions between 2008 and 2014 to assess how M&A affects a hospital’s performance.

 

After factoring in market and hospital characteristics, the research revealed that acquired hospitals, on average, experienced a post-transaction decrease in operating expenses but an even larger decline in operating revenue, resulting in a decline in operating margins. However, the negative trends in hospital margins leveled off two years after the transaction, according to the research.

 

“Many of the hospital finance executives who were interviewed and involved in acquiring or merging hospitals admitted that they underestimated how cultural, competitive, and market differences of acquired organizations could limit the ability to realize post-transaction value,” the authors noted.

 

“There was a group of hospitals that performed better because they were much more intentional,” said the director of healthcare finance policy, strategy and development, for HFMA.

 

Based on executives’ survey responses and interviews, researchers identified eight strategies and business practices related to integration planning and execution that correlated with the achievement of higher margins.

 

Study analysts noted, “When a health system receives an M&A request for proposal, executives should develop a strategic rationale and rigorously test the transaction’s hypothesized value drivers.” And “A key factor in an acquired hospital’s likelihood of meeting quality-improvement and savings goals was leadership.”

 

A list of the eight strategies, including strategic vision and leadership, appears below:

 

  • Develop a strong strategic vision for pursuing the transaction
  • Have explicit financial and non- financial goals
  • Hold leadership accountable, often at the vice- president level, for integration effort;
  • Identify cultural differences between the organizations
  • Make clear and upfront decisions on executive and mid-management leadership
  • Align clinical and functional leadership early in the process
  • Follow best practices for integrating the acquired or merged organization into the parent organization
  • Implement project management best practices, with tracked targets and milestones, from day one of transaction close until two years after

 

(Source: (“Short-Term Financial Hit for Hospitals Post-M&A: Report,” HFMA Weekly News, October 12, 2017. To read the full report, contact clockee@iprotean.com for a copy.)

 

 

Strategic Issues for Boards, iProtean’s latest advanced Mission & Strategy course, now appears in your library. It features speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015—complex topics that stymie many of us! Martin Liutermoza, Global Head of Information Security at Nasdaq, discusses IT security and risk management as well preparing for and mitigating cyber attacks. Seth Edwards talks about MACRA and MIPS versus the Advanced Alternative Payment model.

 

 

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Different Financing, Different Risks Between Hospitals and Insurers

Hospital systems and health insurers have very different financing structures. Hospital boards and executive management will want to consider the fundamental differences when considering whether to combine both organizations within the same larger health system.

 

Briefly, the health system has these fundamental financial structure characteristics:

  • Significant physical plant investment
  • Fewer growth opportunities
  • Higher margins, lower return on capital and lower revenue and margin per employee

 

Health insurers financial structure characteristics include:

  • Required to maintain a level of liquid capital linked to their total premium
  • Limitations on investment
  • Can more easily expand into new geographies
  • Higher revenues and total margins per employee

 

The financing differences between health insurers and hospital systems follow the function of each organization. In general, insurers can provide their services without the need for a significant capital investment. Insurers maintain less physical capital than hospital systems but are required to maintain sufficient liquid capital to protect policyholders when an insurer experiences financial weakness. (“Health Insurance and Hospital System Financing at a Glance,” Healthcare Matters, hfm Early Edition, October 5, 2017)

 

Hospitals operate highly complex facilities with substantial physical plant investment and a significant number of employees. Although this complexity and investment contributes to higher margins, it also lowers the return on capital and reduces revenue and margin per employee.

 

Risk Profiles

 

Health insurers and hospital systems also have substantially different risk profiles. For example, insurers face short-term financial risk when:

  • Premiums don’t cover higher-than-expected use of healthcare services
  • There is additional uncertainty associated with important provider contracts

 

But hospital systems’ risk includes:

  • Changes in provider payment from key payers
  • Malpractice risk
  • Lower-than-expected utilization of provider assets

 

To hedge against this risk hospital systems and insurers may consider combining the two organizations. “With such a combination, the collective impact of the factors that contribute to risk—higher or lower utilization and changes in payments—are mitigated across the broader organization.” (“Health Insurance and Hospital System Financing at a Glance,” Healthcare Matters, hfm Early Edition, October 5, 2017)

 

 

 

Strategic Issues for Boards, iProtean’s latest advanced Mission & Strategy course, now appears in your library. It features speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015—complex topics that stymie many of us! Martin Liutermoza, Global Head of Information Security at Nasdaq, discusses IT security and risk management as well preparing for and mitigating cyber attacks. Seth Edwards talks about MACRA and MIPS versus the Advanced Alternative Payment model.

 

 

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Moody’s Expects Drug Costs Will Continue to Challenge Hospitals

Hospital inpatient drug costs have been rising and this will continue, but at a moderate pace due to public scrutiny of pharmaceutical companies’ drug pricing practices. Moody’s noted in a recent article that even at a slower rate of growth, “we expect rising drug costs will continue to challenge hospitals’ financial flexibility.” (“Not-for-profit and public healthcare, pharmaceuticals,” Weekly Credit Outlook, Moody’s Investors Service, September 28, 2017)

 

Federal proposals to lower Medicare 340B payments (a discount drug program) for outpatient drugs, such as for cancer treatment, if finalized, would further reduce hospitals’ margins, according to the article.

 

Some of the key points in the article include:

 

  • In recent years, pharmaceutical costs have outpaced hospital revenue growth, contributing to weaker operating margins. Significant price increases have been a key component of rising drug costs.

 

  • Hospitals will still be subject to margin pressure, albeit less so than in recent years.

 

  • The slowdown is due in part to a deliberate reduction in the pace and amount of price increases for branded drugs.

 

  • Additional generic competition will also reduce pricing for generic drugs.

 

  • Moody’s does not expect select extraordinary price increases witnessed over the past few years to be replicated.

 

  • On the outpatient side, a new federal proposal, if finalized, would reduce Medicare payments that participating hospitals receive from 340B, a discount drug program. CMS is proposing a 30 percent reduction.

 

  • On its own, this would not result in a meaningful change in credit quality for most 304B hospitals, but would present yet another headwind. However, some hospitals benefit from significant cost savings and income under the program, and a finalized proposal would present a material challenge.

 

  • The impact of proposed 340B changes on pharmaceutical manufacturers is relatively limited. The reimbursement reduction is to providers, not manufacturers.

 

(“Not-for-profit and public healthcare, pharmaceuticals,” Weekly Credit Outlook, Moody’s Investors Service, September 28, 2017)

 

Strategic Issues for Boards, iProtean’s latest advanced Mission & Strategy course, now appears in your library. It features speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015—complex topics that stymie many of us! Martin Liutermoza, Global Head of Information Security at Nasdaq, discusses IT security and risk management as well preparing for and mitigating cyber attacks. Seth Edwards talks about MACRA and MIPS versus the Advanced Alternative Payment model.

 

 

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Veralon: Call Coverage for Employed vs. Independent Physicians

(The following is an excerpt from “Different Economics, Different Payment: Call Coverage Stipends for Employed vs. Independent Physicians,” Veralon INSIGHTS, September 2017. Dan Grauman, one of our expert presenters, is the Managing Director and CEO of Veralon Healthcare Management Advisors. For the full article, please see the link below.)

 

“Physician employment agreements now commonly include compensation for services beyond basic clinical services; they may also provide compensation for medical directorships, teaching, on-call payments, and so on. We have found that physicians transitioning to hospital employment are generally accepting of clinical compensation models that include a base salary coupled with productivity and quality incentives. However, they may not be as accepting of changes in compensation for emergency department (“ED”) call coverage, a highly sensitive component of physician employment arrangements . . .

 

“Putting aside federal and state regulations (Stark Law, Federal Anti-Kickback Statute, etc.), the economics themselves change fundamentally when an independent physician becomes a hospital employee . . . many physicians, need to be helped to understand this. These compensation changes were required to achieve a compensation package that meets Fair Market Value requirements.

 

“A valuator would explain the two key factors driving the difference in call coverage compensation between independent and hospital-employed physicians . . . “ (click here to read the full article and review the “valuator.”

 

 

A special thank you to Veralon for giving us permission to share this article with you.

 

 

 

Strategic Issues for Boards, iProtean’s latest advanced Mission & Strategy course, now appears in your library. It features speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015—complex topics that stymie many of us! Martin Liutermoza, Global Head of Information Security at Nasdaq, discusses IT security and risk management as well preparing for and mitigating cyber attacks. Seth Edwards talks about MACRA and MIPS versus the Advanced Alternative Payment model.

 

 

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Provider Organizations Should Assess Potential for Additional Revenue Under MIPS

Reporting and collecting data for 2017 for the Merit-based Incentive Payment System (MIPS) should be underway in provider organizations. But some may have decided to wait because of what they perceive as high administrative and labor costs. According to experts, these organizations “are well advised to take a closer look at the potential benefits and risks.” (“MIPS: Getting Ready for a New Paradigm in Pay for Performance,” hfm Early Edition, September 7, 2017)

 

MIPS is one of the payment tracks created by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). (See Strategic Issues for Boards, iProtean, publication pending.) MIPS is in force now—2017 is the performance year. Its payment adjustments are applied to Medicare Part B payments two years after the performance year, so 2019 will be the first year of penalties/rewards.

 

Beginning this year, MIPS defines four categories of eligible clinician performance, contributing to a final score of up to 100 points.

 

  • Quality: 60 percent
  • Advancing care information (the renamed meaningful use): 25 percent
  • Clinical practice improvement activities: 15 percent
  • Resource use: 0 percent for 2017 (to be weighted for 2018 and beyond)

(“MIPS: Getting Ready for a New Paradigm in Pay for Performance,” hfm Early Edition, September 7, 2017)

 

Incentive payments are not the only area of impact resulting from participation in MIPS. CMS plans to publish annual final scores for each clinician, and consumers will be able to see their clinicians’ rated and compared to their peers.

 

Risk Versus Reward

 

MIPS can result in revenue if implemented appropriately. The outcome is highly dependent on:

 

  • Quality of the clinical documentation
  • Accurate capture of codes to identify the acuity of the patient’s condition
  • Services provided to the highest degree of specificity possible
  • Fastidious tracking of utilization and costs

 

To optimize success, healthcare organizations should find ways to break down departmental silos. This means that clinicians, clinical documentation improvement professionals, the coding team, health information management technology professionals and the billing support team work together, with the support of leadership, to take advantage of the opportunities MIPS provides.

 

MIPS eligibility requirements for participation include whether the provider organization bills more than $30,000 annually to Medicare, and whether care is delivered to more than 100 Medicare beneficiaries per year.

 

Gathering and reporting data for 2017 must begin before October 2, 2017 and the deadline for submission of data is March 31, 2018.

 

Provider organizations that don’t participate will face a penalty of 4 percent of baseline Medicare revenue. According to the authors of the hfm Early Edition report, “even reporting on one area can negate this adjustment.” They noted that “submitting 90 days of data can result in a neutral or slightly positive payment adjustment; a full year of data can result in a moderately positive payment adjustment.” (“MIPS: Getting Ready for a New Paradigm in Pay for Performance,” hfm Early Edition, September 7, 2017)

 

The size of the adjustment is dependent upon how much data is submitted and the organization’s performance on quality measures. “MIPS payment adjustment is based on evidence-based and practice-specific quality data. Just as the penalty for failure to participate is 4 percent, success on quality could lead to as much as a 4 percent increase in payment in the first year. The amount at stake will gradually rise to 9 percent in 2022 and beyond.” (“MIPS: Getting Ready for a New Paradigm in Pay for Performance,” hfm Early Edition, September 7, 2017)

 

 

 

 

Coming soon to your library: Strategic Issues for Boards featuring speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015. Martin Liutermoza, Global Head of Information Security at Nasdaq, discusses IT security and risk management as well preparing for and mitigating cyber attacks. Seth Edwards talks about MACRA and MIPS versus the Advanced Alternative Payment model.

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.

Board Assessment for Hospitals & Systems: A Necessary Tool for Performance Improvement

(Originally published in Nasdaq’s MarketInsite, July 18, 2017, and written on behalf of iProtean by Karma Bass, Principal, Via Healthcare Consulting)

 

“I don’t care about having a high-performing board.” It’s hard to imagine any CEO or board leader uttering these words in today’s rapidly changing healthcare industry. The stakes are just too high. Yet, by their failure to engage in regular board assessment, many hospital and health system leaders may inadvertently be conveying that message and putting the continued viability of their mission in jeopardy.

 

Think about it: ‘high-performing’ implies performance that’s been measured and proven to be outstanding. You can’t have a high-performing board if you aren’t measuring performance in some manner. For hospital and health system boards, however, measuring performance is tricky, for several reasons. First, and perhaps most daunting, there’s the issue of appropriateness. Should a board comprised of community volunteers really be graded on its performance? Second, there’s the issue of evaluation. Who should assess the board’s performance? Lastly, there’s the issue of metrics. By which measures will or should the board be evaluated?

 

First, let’s consider the issue of appropriateness. It’s true that most U.S. hospitals and health systems are not-for-profit organizations with boards comprised of community members who provide their service as unpaid volunteers. But while board members may be volunteers, healthcare is simply too complex and important an industry to be governed by amateurs. So, yes, it is appropriate. A board’s performance should be regularly assessed in order to exploit areas of strength and identify areas where improvements can and should be made. As I travel around the country working with hospital and system boards, I find that most board leaders are eager to know how they are performing and how they could get better. As noted by Byron Loflin, CEO for the Center for Board Excellence (CBE), “Thoughtful and hardworking board members have commented to me that mediocrity is never a solution.”

 

Next, there’s the question of who should assess the board’s performance. Since ultimately the task of improving the board’s performance (should it be warranted) will fall to the board members themselves, most organizations begin by having the board assess itself. This makes sense, also, because improving board performance is often an exercise in change management.

 

Step one of Dr. John Kotter’s well-regarded eight-step process from his book, Leading Change (Harvard Business School Press, 1996, updated 2012), for change management is “Create Urgency,” described as “help the team see the need for change…” It’s much easier to convince a group of people of the need for change if they themselves have identified the reasons for it. Also, because boards are usually volunteers, it’s more palatable to ask them to assess their own performance and identify areas for improvement. If our goal is to have the board be continually improving its performance, it makes sense to have them identify the areas for improvement, while drawing on outside expertise for guidance. As Loflin advises, “Board assessment or evaluations should be conducted by a third-party whose focus is corporate governance excellence.”

 

Back to the trickiness of assessing board performance. The last issue was the question of metrics. How do you choose which measures to use in evaluating a board’s performance – high or otherwise? Many fine organizations around the country specialize in promulgating ‘best’ practices for board performance and while many are helpful, all fall short of being universally relevant. The fact of the matter is that excellence in board performance remains more an art than a science.

 

Many boards and leadership use this as a reason to throw their hands up. “If I can’t know what the absolutely, in-all-cases, best board practices are to measure my board against, why should I bother measuring their performance at all?” I reject this defeatist notion and would suggest that each board should begin where it is. Start by identifying the major ‘buckets’ of board work, and ask board members how they believe they’re performing against them.

 

Regardless of a board’s current state, it is important for the board to hold itself to a set of rigorous standards. Some board practices and some boards’ performance are better than others; and it may take some work to determine which best practices it makes sense for your board to follow and which metrics you should use to assess performance. While the details may differ, what all high performing boards have in common is they make a substantial contribution to their hospital’s success.

 

According to Gordon Clark, president and CEO of iProtean, hospital or health system boards’ work generally falls into these four areas: Finance Oversight, Quality Oversight, Mission/Strategy, and Governance. iProtean’s approach to assessment begins with a survey that asks each board member to rate his or knowledge and comfort level with specific board oversight responsibilities within these key areas. The idea is to go beyond asking “how well” the board as a whole is performing in a given area (too often an overly subjective unit of measure) and instead identify where individual board members need more knowledge in order to be effective contributors. Taken in aggregate, the results also show where the board’s strengths and blind spots are. Knowing where the gaps are in board members’ understanding will help guide a robust education plan. It can also assist in developing an action plan for board improvement through which board members will be motivated to participate.

 

It (hopefully) goes without saying that having a ‘high-performing’ board – however one chooses to measure and define it – is more of a journey than a destination. The boards that are truly ‘high-performing’ credibly and constructively challenge their own performance. They are always seeking ways to enhance their effectiveness, gain mission alignment with management and improve their ability to govern. It starts and ends, if you will, with the assessment.

 

Nasdaq’s Board and Leadership Solutions have a unique collaboration with iProtean, an e-learning company that provides online governance education and information to hospital directors. Bringing over 50 years of combined experience in healthcare governance information and education, the iProtean leadership team understands the specific needs of hospital and health system board members. The company is committed to helping directors make a meaningful difference in their communities.

 

 

Nasdaq Corporate Solutions helps organizations manage and master the two-way flow of information with their audiences. Around the globe, market leaders rely upon our unmatched suite of advanced technology, analytics and consultative services to maximize the value of their work—from investor relations and corporate governance to public relations and communications.

 

 

 

Check your library for the advanced Finance Course, Financial Risks & Strategic Implications of APMs, featuring Marian Jennings and Seth Edwards. In this course, Marian and Seth discuss the financial risks of ACOs and bundled payments, the strategic risks of not participating in an alternative payment model, clear trends and the characteristics of organizations that have successfully implemented one or more alternative payment models.

 

Coming soon: Strategic Issues for Boards featuring speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015.

 

 

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OIG Reports on ACO Cost Savings and Quality Gains

Over the first three years of the Medicare Shared Savings Program (2013-2015), 428 Accountable Care Organizations (ACOs) served 9.7 million beneficiaries. Most of these participating ACOs reduced Medicare spending compared to their benchmarks, resulting in a net spending reduction of nearly $1 billion, according to an August report from the Office of the Inspector General (OIG).

 

Under the Medicare Shared Savings Program, healthcare providers form ACOs and agree to be accountable for the total cost of care for assigned Medicare beneficiaries, with the potential to share in Medicare savings or losses. In the first three years of the program, ACOs reported data on 33 quality measures to CMS.

 

Some of the key findings in the study include:

  • One-third of ACOs reduced spending enough to receive a portion of the savings. These 154 ACOs earned $1.3 billion, roughly $4.8 million on average for every year they earned shared savings.
  • Of the $3.4 billion in reduced spending over the three years of the program, about half, or $1.7 billion, was generated by 36 ACOs.
  • ACOs participating in the program longer were more likely to reduce spending and by greater amounts than other ACOs, suggesting that more established ACOs are learning how to achieve greater cost savings over time.
  • ACOs generally improved the quality of care they provided, based on CMS data on quality measures.

 

With respect to quality, OIG found that:

  • ACOs improved their performance on 82 percent of the individual quality measures.
  • ACOs outperformed fee-for-service providers on 81 percent of the quality measures.

 

With respect to cost, OIG found that:

  • A small subset of ACOs showed substantial reductions in Medicare spending—an average of $673 per beneficiary for key Medicare services—while providing high quality care including inpatient hospital and skilled nursing facility care.
  • ACOs had a high use of primary care services, reducing utilization and costs of other care.
  • In contrast, fee-for-service providers experienced an increase in beneficiary spending for key Medicare services.

 

The report highlighted a number of features that set “high-performing” ACOs apart, including providing the highest number of primary care visits compared to other ACOs and serving a larger number of beneficiaries, many of whom had more health conditions and other risk factors associated with higher spending. High-performing ACOs also were more likely to include only physicians, OIG added.

 

In its summary, OIG noted that with any payment reform, it will take time for organizations to integrate changes into operations in order to improve quality and lower costs. “While policy changes may be warranted, ACOs show promise in reducing spending and improving quality.” It called for additional information about high-performing ACOs to help the future direction of the Shared Savings Program and other alternative payment models.

 

 

(Sources: “ACOs Show Promise in Generating Savings, Quality Gains for Medicare, OIG Says,” AHLA Weekly, September 1, 2017; OIG report “Medicare Shared Savings Program Accountable Care Organizations Have Shown Potential for Reducing Spending and Improving Quality,” August 2017. Read the full report here.)

 

 

 

 

Check your library for the advanced Finance Course, Financial Risks & Strategic Implications of APMs, featuring Marian Jennings and Seth Edwards. In this course, Marian and Seth discuss the financial risks of ACOs and bundled payments, the strategic risks of not participating in an alternative payment model, clear trends and the characteristics of organizations that have successfully implemented one or more alternative payment models.

 

Coming soon: Strategic Issues for Boards featuring speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015.

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.

How to Handle Troublesome Behavior in the Boardroom

Note: iProtean editorial staff will be on vacation through Labor Day. Look for the next blog/newsletter September 6.)

 

(From a recent interview with Karma Bass, Via Healthcare Consulting)

 

When fellow board members exhibit disruptive or troublesome behavior in the boardroom, they often don’t see it that way; that is, people don’t realize they’re being disruptive. They may believe that the ends justify the means, so they don’t realize that the way their message is being conveyed is really causing some pretty significant problems for the rest of the board.

 

Some suggestions about how to handle this include:

  • Get to know the person one-on-one to provide an opportunity to express his/her point of view.
  • Put yourself in their shoes to understand their motivations.
  • Look at the larger group dynamics—ensure no one feels isolated.
  • Find areas of agreement for the entire board and work from there.
  • Don’t attack troublesome board members, or tell them publicly that they are wrong, even when it feels like they are attacking you.

 

It may get to a point where additional strategies should be considered. For example,

  • Checking board job descriptions for requirements for behavior in the boardroom; that is, statements about expected behavior and decorum.
  • Having one-on-one conversations about how to meet those expectations of board member behavior

 

There will be some cases where you just simply have to take steps, albeit painful, to help somebody understand this is not the right fit for them. The board member may be a brilliant person, committed to the mission of the organization, but just simply is not someone that works well in a group setting. And board members must be willing to work collaboratively. At this point, the board should consult legal counsel about options in the bylaws for having someone removed from the board.

 

The board, not the CEO or legal counsel, must deal with this issue. If the board actually takes ownership of the issue, it really will make a difference. It’s not a quick fix and it’s not necessarily comfortable for everybody throughout the entire process. But when a board member hears information that his or her behavior is not in line with what other board members would like to see, it imposes a sort of peer pressure, and can have amazing results. If the board explains its behavior expectations, if it’s made clear what behavior is not within those expectations, and if the board is consistent in reminding their colleague that his/her behavior is not acceptable, many times the board member will actually remove him/herself from the board.

 

 

Check your library for the advanced Finance Course, Financial Risks & Strategic Implications of APMs, featuring Marian Jennings and Seth Edwards. In this course, Marian and Seth discuss the financial risks of ACOs and bundled payments, the strategic risks of not participating in an alternative payment model, clear trends and the characteristics of organizations that have successfully implemented one or more alternative payment models.

 

Coming soon: Strategic Issues for Boards featuring speakers on cyber security and the Medicare Access and CHIP Reauthorization Act of 2015.

 

 

For a complete list of iProtean courses, click here. www.iprotean.com/index.php/iprotean/onlineCourses/Available_courses

 

 

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CMS Releases IPPS 2018 Final Rule

Medicare payments to hospitals under the inpatient prospective payment system (IPPS) will increase by about $2.4 billion in fiscal year (FY) 2018 under final rule CMS issued August 2. The increase is less than the $3.1 billion anticipated under the proposed rule released in April. The rule will take effect October 1.

 

In its final rule, CMS wrote that it “relieves regulatory burdens for providers; supports the patient-doctor relationship in healthcare; and promotes transparency, flexibility, and innovation in the delivery of care.” (Fiscal Year (FY) 2018 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Prospective Payment System Final Rule (CMS-1677-F), CMS, August 2, 2017)

 

Some of the key points of the final rule include:

 

IPPS Payments: operating rates for inpatient stays in general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and demonstrate meaningful use of electronic health records (EHRs) will increase by about 1.2 percent in FY 2018.

 

Uncompensated Care: the rule will distribute roughly $6.8 billion in uncompensated care payments in FY 2018, up about $800 million from FY 2017.

 

  • Actual hospital uncompensated care costs from Worksheet S-10 of the Medicare cost report will be included to determine uncompensated care payments. This has drawn criticism from stakeholders including the American Hospital Association (AHA) which had urged CMS to delay the use of S-10 data in calculating DSH payments by one year to further educate hospitals about how to accurately and consistently complete the form, and to implement a stop-loss policy and audit process.

 

Hospital Readmissions: The final rule also took steps to add socioeconomic status adjustments to the Hospital Readmissions Reduction Program. CMS will assess readmission penalties based on a hospital’s performance relative to other hospitals with similar proportions of patients who are dually eligible for Medicare and Medicaid.

 

Shortened EHR Reporting Period: the final rule shortens the EHR reporting periods for new and returning participants attesting to CMS or their state Medicaid agency from a full year to any continuous 90-day period.

 

Rural Community Development Program: the final rule modified CMS’s proposals for the Rural Community Demonstration Program to allow hospitals already participating in the program to continue to receive their “reasonable cost” payments without a gap in payments.

 

Long-term Care Hospitals: Based in part on the changes included in the final rule, overall payments to long-term care hospitals (LTCHs) will decrease by $110 million in FY18. CMS increased LTCH payments by 1 percent, as required by the Medicare Access and CHIP Reauthorization Act of 2015. However, LTCH PPS payments will decrease by approximately 2.4 percent overall in large part because of the continued phase-in of the dual payment rate system.

 

No Changes to Rate Cut

 

An AHA executive said the association was disappointed that CMS decided not to restore payments that were reduced in last year’s “excess cut to reimbursement rates for hospital services,” part of $11 billion in payment reductions as required by the American Taxpayer Relief Act of 2012. AHA said in its comment letter that the 1.5-percentage-point cut to hospital IPPS payments in FY17 was much larger than planned.

 

“While a reduction to the hospital update factor was mandated by law in 2012, CMS ignored Congress’s intent by imposing a cut that was nearly two times what Congress specified,” the executive said. (“Medicare Finalizes Controversial Method of Uncompensated Care Payment,” HFMA Weekly, August 4, 2017)

 

Sources: “Final Rule Boosts Medicare Payments to IPPS Hospitals by $2.4 Billion,” AHLA Weekly, August 4, 2017 and “Medicare Finalizes Controversial Method of Uncompensated Care Payment,” HFMA Weekly, August 4, 2017, CMS Fact Sheet and CMS Final Rule.

 

To read the IPPS 2018 final rule, click here.

 

 

To read the fact sheet, click here.

 

 

 

Check your library for the advanced Finance Course, Financial Risks & Strategic Implications of APMs, featuring Marian Jennings and Seth Edwards. In this course, Marian and Seth discuss the financial risks of ACOs and bundled payments, the strategic risks of not participating in an alternative payment model, clear trends and the characteristics of organizations that have successfully implemented one or more alternative payment models.

 

Coming soon: Strategic Issues for Boards featuring speakers on cyber security and the Medicare Access and CHIP Reauthorization Act of 2015.

 

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.

Social Determinants of Health Gain Importance Through Population Health

Economists estimate that 80 percent of all the cost of health care relate to social determinants of health. These include everything from exercise and healthy diet and healthy weight, to avoiding substance abuse and/or other self-destructive behaviors, to ensuring that people have adequate nutrition and housing. Those are big social issues that hospitals and health systems often see as outside of their purview.

 

But according to a recent Deloitte Center for Health Solutions survey of about 300 hospitals and health systems, these organizations are ramping up spending on the social determinants of health.

 

The authors of the Deloitte research report noted that “hospitals and health systems are investing in health-related social needs, and that leadership support is high: 80 percent of hospital respondents reported that leadership is committed to establishing and developing processes to systematically address social needs as part of clinical care.” (Social determinants of health: How are hospitals and health systems investing in and addressing social needs? Deloitte, 2017)

 

The authors qualified their conclusions by noting that much activity is still ad hoc (i.e., occasional and only reaching some of the target population), and gaps remain in connecting initiatives that improve health outcomes or reduce costs.

 

Some of the key findings in the report include:

  • Hospitals are screening patients and intervening around social needs, though some activity is fragmented and ad hoc
  • The healthcare system’s shift toward value-based care may spur more investment and activity around addressing social needs
  • Hospital investments vary and sustainable funding may be a challenge

 

Most spending on social needs goes to nurses, social workers and care managers to address social needs; less goes to behavioral health professionals and translators. Hospitals tend to follow the more traditional clinical care model of having nurses address social needs. (“Amid Criticism, Hospitals Fund Social Determinants Spending, HFMA Weekly, July 28, 2017)

 

Capabilities for addressing social needs are still in early stages of development, according to the report. These capabilities include:

  • Having a well-defined process for connecting people to social needs resources
  • Measuring outcomes for some of their initiatives
  • Developing ties to community nonprofits or organizations that address social needs

 

The Importance of Addressing Social Needs

 

Research appears to justify social determinants of health spending by hospitals. A recent study found that unmet health-related social needs are associated with nearly twice the rate of depression, a 60 percent higher prevalence of diabetes and more than double the rate of emergency department visits. (“Amid Criticism, Hospitals Fund Social Determinants Spending, HFMA Weekly, July 28, 2017)

 

Stuart Altman, PhD, an economist and chairman of the Massachusetts Health Policy Commission, said, “One of the things we’re learning is how important the social determinants are—how the non-healthcare-delivery issues affect health. Most of the estimates suggest health care is just 20 percent of health.” (“Amid Criticism, Hospitals Fund Social Determinants Spending, HFMA Weekly, July 28, 2017)

 

The authors of the Deloitte report concluded that “The health care stakeholders we interviewed think that addressing health-related social needs is the “right thing to do,” and expect that alignment with value-based care will likely continue to spur partnerships and innovative solutions. (Social determinants of health: How are hospitals and health systems investing in and addressing social needs? Deloitte, 2017)

 

Marian Jennings, healthcare consultant and iProtean expert, noted “We certainly can’t solve all of those problems in our communities, but if we are going to be held accountable financially for managing the health of the population, we need to be finding ways to connect in our community to social organizations, social agencies, community agencies, public health and other partners to not only provide extraordinarily high quality health care, but to actually improve health by addressing the social determinants of health. (Marian Jennings, Financial Risks & Strategic Implications of APMs, iProtean, June 2017)

 

To read the full Deloitte report, click here.

 

 

 

Check your library for the advanced Finance Course, Financial Risks & Strategic Implications of APMs, featuring Marian Jennings and Seth Edwards. In this course, Marian and Seth discuss the financial risks of ACOs and bundled payments, the strategic risks of not participating in an alternative payment model, clear trends and the characteristics of organizations that have successfully implemented one or more alternative payment models.

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.