iProtean—The Impact of Medicaid Expansion Opt-Out on DSH Payments

Hospitals that serve a large number of patients who have little or no funds to cover the costs of care, Medicaid patients and Medicare patients on disability have relied on a “disproportionate share” payment from CMS.  The Affordable Care Act (ACA) added new provisions to the formula for calculating this payment to hospitals.  The recent Supreme Court decision that allows states to opt out of the Medicaid expansion makes the calculation of the DSH payment less predictable until guidance is given by CMS.

 

“Many of the ACA’s provisions were premised on the expectation that states would expand their Medicaid programs to cover all individuals at or below 133% of the federal poverty guidelines,” noted authors Philip and Williams in a recent article in Health Lawyers Weekly.

 

For the Medicare DSH payments, in states that participate in the Medicaid expansion, a hospital’s DSH percentage should increase, although, in effect, it will be applied to only 25% of a hospital’s DRG payments. Hospitals that treat patients from a state that does not participate in the Medicaid expansion (or only partially expands) will not benefit from an increased DSH percentage.  However, these states may receive a higher additional payment from an “uncompensated care pool”—a sort of backfill that is subject to reductions depending on the size of the uninsured population.

 

“While the precise impact of non-expansion is uncertain, it seems likely that individual hospitals will receive a different Medicare DSH payment than they would have if all states were required to participate in Medicaid expansion,” the authors wrote.

 

For Medicaid, the ACA reduced federal Medicaid DSH allotments by $18.1 billion over a seven-year period, beginning with federal fiscal year 2014.  The amount is fixed because Congress assumed that hospitals’ costs for uncompensated care would decrease due to fewer uninsured patients. However, if states opt out of Medicaid expansion, more people will likely remain uninsured, and those assumptions will be undermined.

 

A state’s decision not to expand its Medicaid program may have far-reaching ramifications, including for hospitals located outside that state. While it is impossible to predict the ultimate impact of non-expansion, DSH hospitals should consider this in formulating their DSH and other reimbursement advocacy efforts, as well as in their financial planning and budgeting.  (M.S. Philip, B.S. Williams.  “Healthcare Reform 
Impact Of States Opting Out Of Medicaid Expansion On Medicare And Medicaid DSH Payments.”  Health Lawyers Weekly, September 21, 2012.)

 

Financial implications of ACA and more will be covered at the upcoming iProtean Symposium, October 10-12 in San Diego, California.  Also look for new iProtean Finance courses focusing on the financial impact of ACA—coming later this year.

 

 

For a complete list of iProtean courses, click here.

 

iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.

 

For more information about iProtean, click here.

iProtean—Payment Reform and Physician Fee-for-Service

Under payment reform in the Accountable Care Act (ACA), accountable care organizations (ACO) will receive incentives that reward efficiency and quality care.  For the time being, ACOs will be paid based on DRGs, although it is expected there will be elements of capitation involved in the future.

 

However, when determining how the ACO will pay individual physicians, “most of the proposed payment reforms will still have a substantial role for fee-for-service payment,” according to Paul Ginsburg in a recent article in Health Affairs. (“Fee-For-Service Will Remain a Feature of Major Payment Reforms, Requiring More Changes in Medicare Physician Payment,” September 2012)

 

Fee-for-service payment means that a physician receives a set fee for a particular service, and it generates payments driven by the volume of service provided.  In an ACO, physicians’ payments will be calculated both according to volume and measures of physicians’ quality and efficiency.

 

For many physicians, broad payment reforms such as ACOs are more accurately seen as enhancements to fee-for-service rather than as replacements, Mr. Ginsburg wrote.  In the case of episodes of care (i.e., bundled payments), “the structure of fee-for-service and the historical experience of payment within the fee-for-service approach will remain the basis for determining the bundled payment amount.” (Ginsburg, Health Affairs)

 

Strategies underlying ACOs and episode bundles “will become a mandatory part of fee-for-service physician payment in Medicare, with a parallel programs for hospitals called ‘value-based purchasing,’” Mr. Ginsburg noted.

 

In the iProtean course The New Healthcare Business Model, healthcare experts Dan Grauman, Anjana Patel, Esq., Ken Kaufman, Lisa Goldstein and Jeff Bauer discuss the new payment reforms and their impact on hospitals and physicians.

 

Dan Grauman, DGA Partners 

The health reform law provides for paying hospitals in a very different way.  There will be budgeted amounts for a certain group of Medicare beneficiaries or enrollees.  When it trickles down to a hospital, that means that instead of being a volume based fee-for-service DRG-oriented system it could change the revenue model for the hospital and evolve to operating under a fixed budget.  The hospital has to figure out how to provide all the care that’s needed for patients under that fixed budget . . . So it’s a 180 in terms of your revenue stream.

 

The interesting thing is that hospitals can’t do this alone.  There’s a high interdependency between hospitals and those who control the utilization of services just by virtue of their pen by determining what’s needed for the patient, the physician.  So more than ever, hospitals and physicians need to work collaboratively in a very integrated fashion so that care is being delivered in an optimal way, not excessively, not less than is needed to treat the patient, but as efficiently as possible.

 

Anjana Patel, Esq., Sills Cummis

The goal behind the ACO is to have a group of providers working together in a coordinated fashion, and then CMS or Medicare will reward you if you meet certain cost cutting metrics and if you achieve certain quality measures.  The reward comes in the form of a bonus payment that will then be split up among the different providers within the ACO.

 

The reform law does not change the way hospitals and physicians will get paid for the day-to-day care they provide.  So even within an ACO, hospitals will continue to bill and get paid under part A and physicians will continue to bill and get paid under part B.  What the ACO model does at this point is if they work in a coordinated fashion then they are each eligible to receive a bonus payment, a single payment that’s made to the ACO and then the ACO participants split up that payment within the group.

 

Dan Grauman, DGA Partners

They want to start slow.  They want it to be successful.  They don’t want big failures on their hands, so what they’re talking about is having upside-only arrangements where you go into the arrangement and you’re responsible for managing the care of Medicare beneficiaries and you are working towards a fixed budget.  If you do better than that budget by a certain percent, then you get to share in those savings because you—the hospital and the doctors working collaboratively—have better managed utilization of those patients and have brought the cost under budget, and you can share in some of the savings.

 

Dan Grauman, DGA Partners, will have the latest information on accountable care organizations, bundled payments and value-based purchasing at the iProtean Symposium, October 10-12.

 

For a complete list of iProtean courses, click here.

 

iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.

 

For more information about iProtean, click here.

iProtean—Moody’s Releases Mid-Year 2012 Outlook

Moody’s Investor Service recently released an update of its 2012 outlook for not-for-profit hospitals, noting that the negative outlook remains but emphasizing both established risks and developing trends that have become more prominent over the last nine months.  (Not-for-Profit Healthcare Mid-Year 2012 Outlook: Strong Headwinds Continue, Moody’s Investors Service, August 2012.)

 

According to the authors of the mid-year 2012 outlook, the established credit risks for hospitals include:

  • Revenue growth remains low by historical standards—“significant” revenue pressure is expected as the industry adopts new reimbursement methodologies and CMS lowers annual increases.
  • Challenges from transition to new payment methodologies—reimbursement tied to quality of care and bundled payments are resulting in “significant” IT investments.
  • Economic recovery is sluggish—patient demand will continue to soften; balance sheets remain exposed to “significant” investment risk; efforts to address the federal deficit and the impact on Medicare/Medicaid may lead to a further reduction in reimbursement.

 

The developing risks include:

  • The Supreme Court ruling allows states to opt out of Medicaid expansion—the decision weakens the impact of “one of the most credit positive aspects of the law.”
  • Hospital-insurer collaboration is on the rise—hospital acquisitions of or collaborations with insurers are increasing; the resulting contracts/collaborations increase hospitals’ risk.
  • Growing acquisition of physician practices and other healthcare providers—bundled payments and greater financial risk for quality are pushing hospitals to pursue acquisitions across the continuum of care and resulting in greater risk.

 

In the iProtean courses focusing on finance, Lisa Goldstein of Moody’s Investors Service addresses hospital financial integrity and managing risk from a credit rating perspective.  The finance courses are:  Introduction to Finance, Financial Statements & Ratios, Bond Financing Parts 1 and 2, Managing Risk, The New Healthcare Business Model and Mergers & Acquisitions.

 

Ms. Goldstein will present Moody’s perspective on credit risk, mergers and acquisitions and more at the iProtean Symposium, October 10-12, 2012, at the Lodge at Torrey Pines, San Diego, CA.  For more information, see the link below.

 

iProtean subscribers:  to read the full article referenced above, go to any of the iProtean Finance courses and click on the Resources tab.

 

 

For a complete list of iProtean courses, click here.

 

iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.

 

For more information about iProtean, click here.

 

iProtean—The Weakened Competitor Justification for Mergers

The number of hospitals involved in mergers has increased 62% since 2009.  Because of the costs of providing quality health care and additional regulations from the Affordable Care Act (ACA), stand-alone hospitals have been incentivized to merge with larger hospital systems to cut costs and increase profitability.  “Notwithstanding these merger-rich conditions, the Federal Trade Commission (FTC) and the U.S. Department of Justice’s Antitrust Division remain vigilant in challenging alleged anticompetitive hospital mergers,” said William Roach, Jr. in a recent article in AHLA Connections.  (Roach, “The Weakened Competitor Justification: How Weak is Weak Enough,” AHLA Connections, July 2012)

 

Merging hospitals have to address the antitrust laws that seek to insure competitive markets.   These laws prohibit mergers and acquisitions where their effects may be substantially to lessen competition, and the agencies listed above evaluate whether a merger is anticompetitive.  Recently, these agencies have denied or unraveled several hospital/system mergers when they determined that those mergers were anti-competitive.

 

Merging parties have used the “weakened competitor” justification to rebut the presumption of an illegal merger.  The weakened competitor justification essentially says that if the merging parties can prove that the acquired firm’s current market shares overstate its future competitive significance due to its weak financial condition, the merger will stand.

 

However, a health system in Ohio recently used the weakened competitor justification as its central argument when the FTC challenged its acquisition of a nearby hospital.  The administrative law judge, as well as FTC commissioners ultimately denied the justification.  An FTC commissioner noted in an address to the George Mason Law Review’s Symposium in 2011 that to invoke the weakened competitor justification with success, “Parties need to explain the present evidence that their financial difficulties are serious and durable, will adversely affect their long-term competitiveness, and can only be resolved by the proposed merger.  The weakened firm defense tends to be more effective when it is presented in conjunction with other credible reasons to believe that a transaction will not substantially lessen competition, rather than as the sole, or principal, defense to a transaction.”  (Remarks of J. Thomas Rosch, Commissioner, Federal Trade Commission)

 

The Ohio case, Mr. Roach noted, leaves open the question of how weak a hospital must be to successfully invoke the defense.  He added, “the weakened competitor justification, while not appropriate in every merger challenge, does have its place in certain hospital mergers, especially given changes in the payment environment and current economic conditions.”  (Roach, “The Weakened Competitor Justification: How Weak is Weak Enough,” AHLA Connections, July 2012)

 

In the iProtean course Mergers & Acquisitions as a Strategic Option, Monte Dube, Esq., Dan Grauman, Kit Kamholz and Michael Irwin discuss the strategic implications of mergers.

 

Monte Dube, Esq., Proskauer

Today there are many fewer independent hospitals than there were even a decade ago.  It is increasingly difficult for independent hospitals to have the scale and the expertise to create the efficiencies that are increasingly needed in a health reform environment.  As a result, more and more independent hospitals are considering the potential benefits of aligning with larger organizations . . .

 

Assume your organization is in a growth mode, what would be the benefit of adding one or more hospitals to your health system?  Well, there are potentially many.  Number one, you can spread your costs across more organizations by bringing another organization in.  You can have greater purchasing power from group purchasing organizations as a larger organization.  You may have increasing leverage with third party payers in terms of your contract negotiations.  It may enhance your geographic diversity.  Hopefully it will increase your quality because you will take best practices both from your organization and from the others and apply the best of both worlds to the new larger, enhanced organization . . .

 

Daniel Grauman, DGA Partners

You need to be viable.  You need to be able to run a financially viable organization.  You must have access to capital, and you have to make a judgment.  None of us have a crystal ball.  You do the best you can and you have to make a judgment about whether your hospital can remain independent.  Once you determine that, and let’s say you decide that we really can’t go it alone and we need to be part of something, you have to figure out exactly why.  What is the rationale?

 

The pundits suggest that in the future scenario with the advent of the health reform law, accountable care organizations and the movement towards taking responsibility for managing the health of populations as opposed to the current volume-based fee-for-service model, that you need to be bigger.  You need to have a stronger financial underpinning to assume risk and to be able to afford the infrastructure, the information technology, the more advanced care management systems, the integration initiatives with your physicians, all of which take money, capital, resource and depth and a stronger bench to be able to survive in this kind of environment.  Is this what we need to be viable?  And then you can launch the process of determining the details of perhaps who would be your best partners and how you might partner with them . . .

 

Monte Dube, Esq., Proskauer

Hospital and health system mergers and consolidations are complicated. They’re complicated at multiple levels: financially, legally, clinically.  But typically there are answers to all of those questions.  What it often comes down to in my experience is whether the fit is right, the cultural alignment.  That requires a lot of work, typically board to board, board chairman to board chairman, to make sure that what you are creating is something that will be right for your organizations once you’ve merged.

 

 

For more details and up-to-date information on mergers & acquisitions, consider attending the iProtean Symposium where Monte Dube and Dan Grauman will speak/conduct workshops on this topic. 

 

Look for a new iProtean advanced course, Affiliations & Partnerships, later this year.

 

 

For a complete list of iProtean courses, click here.

 

iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.

 

For more information about iProtean, click here.