iProtean—New Effort Underway to Fix Sustainable Growth Rate

Notice: The iProtean Newsletter will be on holiday from December 24 through January 1. Please look for your next newsletter on January 8, 2014. Have a peaceful holiday season and a prosperous New Year!


It looks as if a fix to the sustainable growth rate (SGR) formula for paying physicians may be realized in early 2014. Two key Congressional committees—the House Ways & Means Committee and the Senate Finance Committee—passed legislation last week that would repeal and replace the SGR. Versions must be reconciled, and a three-month patch to delay the planned cut of 20.1 percent was included in the budget bill that Congress is expected to pass this week. This will give legislators until the end of March to pass the replacement measure. (“Senate House Committees Pass Bills for Long Term Fix of Medicare Physician Pay,” AHLA Weekly News, December 13, 2013)


The SGR was part of the Budget Control Act of 1996 to control the growth of Medicare spending. However, the deep cuts in physician rates that the formula required haven’t materialized. Each year, Congress has delayed those physician payment cuts in order to preserve seniors’ access to care. (“Medicare Doc Fix Advances,” HFMA Weekly News, December 13, 2013)


The House bill provides a 0.5% update from 2014 through 2016 and a zero percent update for 2017 through 2023. The Senate bill keeps 2013 payment rates through 2023. In subsequent years, professionals participating in alternative payment models that meet certain criteria would receive annual updates of 2 percent while all other professionals would receive annual updates of 1 percent.


The Senate Finance Committee version accomplishes four main goals, according to its press release:

  1. Repeal of the SGR and tying payments to quality and efficiency
  2. Improving the fee-for-service system by streamlining Medicare’s existing web of quality programs into one value-based performance program
  3. Moving to alternative payment models to encourage doctors and providers to focus more on coordination and prevention to improve quality and reduce costs
  4. Making Medicare more transparent by giving patients more access to information and physicians access to data they can use to improve care.


Both bills also consolidate current incentive programs into a single value-based incentive program. Payments to professionals will be adjusted based on performance on a single budget-neutral value-based program starting in 2017.


According to the Senate summary, the value-based program “streamlines and improves” on the three distinct current incentive programs: the Physician Quality Reporting System; the Value-Based Modifier; and meaningful use of electronic health records (EHR).


The value-based program will assess the performance of eligible professionals in four categories: quality, resource use, EHR meaningful use and clinical practice improvement activities, according to the summary, and the funding available for value-based incentive payments will be equal to 4 percent of the total estimated spending in 2017; 6 percent in 2018; 8 percent in 2019; and 10% percent in 2020.


The summary also noted professionals who receive a significant share of their revenues through an alternative payment model that involves risk of financial losses and a quality measurement component will receive a 5 percent bonus each year from 2017 through 2022. Professionals who meet these criteria will be excluded from the value-based program assessment and most EHR meaningful use requirements.


According to HFMA, hospital advocates remain concerned that a final payment mechanism may try to offset the bill’s cost with cuts to facilities—as previously proposed. No mechanism to cover the cost of the SGR repeal was included in either bill.


For more detail about the Senate legislation, please click here.



iProtean subscribers, Part Two of Making Difficult Decisions About Services and Programs: A Portfolio Approach featuring Lisa Goldstein, Marian Jennings and Nate Kaufman is now in your library!



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iProtean—OIG Releases Strategic Plan

Compliance and risk management efforts of hospitals and health systems should focus on indications from the Department of Health & Human Services (HHS) Office of the Inspector General (OIG) about the direction it intends to take to investigate fraud, waste and abuse. We have talked with OIG investigators over the years who have been straightforward about the investigations. Without exception, they have said that the intention of the OIG is evident from its strategic plan.


The OIG mission is to protect the integrity of HHS programs and the health and welfare of the people they serve. It is an independent organization that fights fraud, waste and abuse and promotes efficiency, economy and effectiveness in HHS programs and operations.  Most significantly for hospital/health system compliance efforts, OIG outlines its direction in its strategic plan. The most recent strategic plan, for 2014 through 2018, was released in late November.


According to its publication, OIG’s four primary goals for 2014 to 2018 are to:

  1. Fight fraud, waste and abuse
  2. Promote quality, safety and value
  3. Secure the future
  4. Advance excellence and innovation


Fight Fraud, Waste and Abuse

OIG plans to continue to use a multi-faceted approach to prevention, detection and deterrence by building upon existing enforcement models such as the Medicare Fraud Strike Force teams.


On average, the Health Care Fraud and Abuse Control Program (a partnership with the Department of Justice and HHS), recovers more than $7 for every $1 invested and protects programs through nonmonetary results such as criminal convictions and exclusions of providers from participation in federal healthcare programs. “We will continue to pursue all appropriate means to hold fraud perpetrators accountable and to recover stolen or misspent HHS funds,” the authors of the strategic plan report noted.


Key focus areas include: Medicare and Medicaid program integrity and waste in HHS programs, identifying and recovering improper payments and using exclusions and referrals for debarment to protect HHS programs and beneficiaries, promoting compliance with federal requirements and resolving noncompliance; advising HHS on key safeguards to prevent fraud, waste and abuse; and assessing whether providers and suppliers, grantees and others are qualified to participate in government programs. It will continue to implement and refine self-disclosure protocols.


Promote Quality, Safety and Value

OIG has prioritized strategies to promote quality, safety and value:

  1. Foster high quality care: continue to evaluate and recommend improvements to the systems intended to promote quality of care; investigate and refer for prosecution cases involving abuse or grossly deficient care of Medicare or Medicaid patients. Looking ahead, OIG will expand its portfolio of work on quality of care to include promoting quality in nursing facilities and home- and community-based settings, access to and use of preventive care and quality improvement programs.
  2. Promote public safety: recommend improvements to HHS programs to ensure adequate emergency preparedness and response; protect the safety of food, drugs and medical devices; and ensure that grantees (e.g., Head Start and child care providers) meet safety standards
  3. Maximize value by improving efficiency and effectiveness: assess programs intended to achieve value through care coordination and new ways of delivering and paying for care, as well as the reliability and integrity of quality, outcomes and performance data.


Secure the Future

OIG will address program and operational vulnerabilities that affect the long term health and viability of HHS programs by:

  • Fostering sound financial stewardship and reduction of improper payments by continuing to focus on audit and review-related efforts on billing and payment errors by providers, program administration and contract oversight
  • Supporting a high-performing healthcare system to ensure better health outcomes and lower costs. It will provide technical assistance on safeguards to protect new and changing systems and programs from fraud, waste and abuse. It also plans to watch the transition to payments based on value rather than volume, and conduct reviews and recommend changes to maximize overall value, protect program integrity and foster value and high performance.
  • Promoting the secure and effective use of data and technology—emphasizing the accurateness and completeness of program data, the privacy and security of personally identifiable information and the security and integrity of electronic health records


Advance Excellence and Innovation

This goal focuses on the OIG’s inward look at its organization and operations. It intends to recruit, retain and empower a diverse workforce and also to optimize its data analytics and technology capabilities to inform its decisions about where to best direct its resources. It also will focus on building leadership and expertise to drive “positive change.”


Key Indicators to Measure Progress Towards Goals

The indicators OIG will use to measure its own progress towards its goals include:

  • Monetary return on investment
  • Cost savings
  • Individuals and entities held accountable through criminal, civil and administrative enforcement actions
  • Recommendations accepted and implemented
  • Fraud prevention and patient safety tools used
  • Advisory opinion requests resolved
  • Expected financial recoveries from investigations and audits

. . . and more.


(Information sources for this article include U.S. Department of Health and Human Services Office of the Inspector General, OIG Strategic Plan 2014-2018, and “OIG Releases Strategic Plan for Fiscal Years 2014-2018,” American Health Lawyers Association Practice Group Email Alert, December 6, 2013.) To read the 12-page strategic plan, please click the following link, or copy and paste it into your browser:  http://oig.hhs.gov/reports-and-publications/strategic-plan/files/OIG-Strategic-Plan-2014-2018.pdf




iProtean subscribers, Part Two of Making Difficult Decisions About Services and Programs: A Portfolio Approach featuring Lisa Goldstein, Marian Jennings and Nate Kaufman is now in your library!



For a complete list of iProtean courses, click here.

For more information about iProtean, click here.


iProtean—Moody’s Releases 2014 Outlook for Not-for-Profit Hospitals

Typically, when a credit rating organization releases projections for the upcoming year, the analysis includes a mix of both positive and negative factors. For 2014, however, Moody’s Investors Service analysts hold no punches; they list the negative factors that led them to a categorical negative outlook, and appear to be hard pressed to find any positive elements that could soften the force of the negative drivers.


The prevalence of negative drivers should not be surprising; Moody’s has been writing about these key issues throughout this year. The absence of any mitigating factors, however, seems stark.


The key negative drivers are:

  • A second year of slowing of revenue growth
  • Contracting margins
  • Implementation of the Affordable Care Act


A summary of each of these drivers follows. (Industry Outlook: 2014 Outlook – US Not-for-Profit Hospitals; Revenue growth will decline; Margins to contract on physician and IT investments, Moody’s Investors Service, November 25, 2013)


Slowing of Revenue Growth

“We expect median revenue growth in our rated universe to fall to a range of 3%-3.5% in fiscal 2013, which is much lower than last year’s growth rate of 5.2%. We expect revenue growth in 2014 to remain low.” (Moody’s Industry Outlook)


Revenue growth is slowing for a variety of reasons. The primary factors include:

  • Lower Medicare payments, effectively a 1.3% reduction, a function of a low 0.7% annual market basket increase and the 2.0% reduction due to sequestration
  • Reduced disproportionate share payments (DSH) that began on October 1, 2013
  • Lower inpatient volume and shift to outpatient settings including observation stays, which are 
reimbursed at a lower level
  • Diminished commercial rate increases that range from 0%-5%, far below historical levels


Contracting Operating Margins

“Fiscal 2013 will be the second consecutive fiscal year in which expense growth outpaces revenue growth, a trend we expect to continue in calendar year 2014. We expect the median operating cash flow margin to fall to below 9.0% from 9.5% in fiscal 2012.” (Moody’s Industry Outlook)


The impact on margins will result from multiple factors, the most significant being:

  • Growing physician employment by hospitals, which tends to reduce margins due to high physician salaries and other costs
  • Significant investments in IT systems including electronic medical records and costs associated with the switch to a new coding system, ICD-10
  • Higher costs related to managing different reimbursement models


ACA Implementation

“Provisions of the ACA that have the most direct consequences on hospitals will be implemented in late 2013 and early 2014, but their effects will be felt over the next 18 months as growth in the insured population proceeds unevenly. There are many unknown variables that make budgeting and strategic planning especially difficult over the near term, including how many people will gain insurance coverage through the public exchanges or with what frequency they will access healthcare services.” (Moody’s Industry Outlook)


For hospitals, the elements of the ACA with the greatest effects over the next 18 months are:

  • Lower reimbursement rates from insurance products sold on healthcare exchanges
  • Growth in the insured population via the individual mandate and expansion of Medicaid eligibility in states that elect to do so
  • Unknown effect of the exchanges on patient volumes and bad debt
  • Reimbursement cuts to Medicare and DSH mandated by the ACA


The Alternate View

Although Moody’s analysts did not list any mitigating or positive factors that would/could contribute to the 2014 Outlook, they did note what they termed “The Alternate View.” They acknowledged that some hospitals are resilient and will adapt to rapidly changing patient volumes or other revenue pressures by reducing expenses even further, by returning to increasing revenue cycle efficiency, by renegotiating vendor contracts, by consolidating back office functions to find additional savings. They also noted that consolidation/collaboration can smooth the path to financial stability in some cases.


They concluded their report by speculating on what would have to change in order for the Outlook to be considered “stable.” Please refer to your Resources tab in our latest course, Making Difficult Decisions about Services & Programs: A Portfolio Approach, Part Two for this information—including why Moody’s may rely more heavily on key measures such as operating cash flow margins and exposure to bad debt as indicators of success. For a narrower slice of the prediction for not-for-profit hospitals in 2014, also see a recent Modern Healthcare online article: “Hospitals facing big divide in pro- and anti-ACA states.” (December 2, 2013)




iProtean subscribers, Part Two of Making Difficult Decisions About Services and Programs: A Portfolio Approach featuring Lisa Goldstein, Marian Jennings and Nate Kaufman will be in your library soon!



For a complete list of iProtean courses, click here.

For more information about iProtean, click here.