High Quality Elusive for Hospitals Treating Large Numbers of the Poor

A National Quality Forum (NQF) panel commissioned to study quality and risk adjustment for socioeconomic status suggests that hospitals treating a large number of poor people face significant disadvantages in achieving the high quality necessary for payment under pay for performance.

 

Because Medicare and other payers either are or will be paying hospitals and physicians based on quality of care delivered to patients, those that treat a disproportionate number of people with low income and little or no education can’t meet the required measures of quality.

 

Key provisions of the Affordable Care Act were intended to improve care by tying Medicare payments to the performance of hospitals, doctors and other providers. For example, Medicare reduces payments to hospitals where an above-average share of patients return within a month of being treated and discharged (“readmissions”).

 

But the panel wrote that hospitals with large numbers of poor patients experienced unfair financial penalties because “readmissions are difficult to avoid in patients who can’t afford post-discharge medications, have no social support to help with recovery at home, have no way to get to follow-up doctor appointments or are homeless.” (“Health Law’s Pay Policy Is Skewed, Panel Finds,” New York Times, April 27, 2014; Risk Adjustment for Socioeconomic Status or Other Sociodemographic Factors, Draft Technical Report for Review, National Quality Forum Report, March 18, 2014)

 

Background

 

NQF’s current policy recommends the adjustment of outcome measures for clinical factors, such as severity of illness and co- morbidities, recognizing that patients who are sicker and have multiple conditions have a higher likelihood of worse outcomes, regardless of the quality of care provided. Its current criteria do not allow adjusting performance measures for sociodemographic factors to avoid making disparities visible. It has claimed that this will motivate efforts to improve care for disadvantaged populations. (“NQF urges Medicare performance measures that reflect demographics,” Modern Healthcare Daily Dose, April 28, 2014)

 

But policymakers remained concerned about income and education disparities. As a result, NQF convened an expert panel to investigate the issue. This project is funded by HHS.

 

NQF Recommendations

 

The 26-member panel recommended the following actions, specifically directed at adjusting performance measures for sociodemographic factors: (Risk Adjustment for Socioeconomic Status or Other Sociodemographic Factors, Draft Technical Report for Review, National Quality Forum Report, March 18, 2014)

 

  1. Distinguishing different methods for the different purposes of measurement: sociodemographic adjustment for accountability and stratification for identifying disparities
  2. Revision of the NQF criteria related to risk adjustment to include sociodemographic factors as appropriate
  3. Guidelines for selecting risk factors to include appropriate sociodemographic adjustment
  4. Expectations for information needed when outcome measures that may be adjusted for sociodemographic factors are submitted to NQF

 

Additional recommendations address related issues, some of which are not currently within NQF’s scope of work:

 

  1. Assessing the impact of accountability applications on disadvantaged patient populations and providers serving them
  2. Identifying and collecting a standard set of sociodemographic variables for performance measurement and identifying disparities
  3. A request that NQF consider expanding its role to include guidance on implementation of performance measures for accountability
  4. A request that NQF clarify that endorsement pertains to performance measures as specified and tested for a specific patient population, data source, level of analysis and setting.

 

To receive a copy of the NQF report, please contact Carlin Lockee at clockee@iprotean.com

 

iProtean subscribers, a new advanced Finance course, Strategic Responses to the Competitive Environment featuring Michael Irwin and Dan Grauman, is in your library! Topics include: payment innovations and increasing competition, the continuum of competitive strategies, four competitive models, the risk of being “cautions” and capital requirements.

 

 

For a complete list of iProtean courses, click here 

 

 

For more information about iProtean, click here.

 

Hospitals Fight Two-Midnight Rule

The controversial “two-midnight” rule has activated a group of hospitals and hospital associations to challenge it by filing two related lawsuits in the U.S. District Court for the District of Columbia. The plaintiffs take issue with the “wholly arbitrary” requirement that a physician must certify at the time of admission that a Medicare patient is expected to need care in the hospital for a period spanning two midnights to be considered an inpatient.

 

One of the lawsuits argues that the 0.2 percent payment cut in 2014 CMS implemented to offset the increased costs to the Medicare program from the two-midnight rule was “arbitrary,” and that it “profoundly overestimated the number of cases that would shift from outpatient to inpatient” as a result of the law. (“Hospitals Sue HHS to Revoke Two-Midnight Rule,” Health Lawyers Weekly, April 18, 2015; “AHA lawsuit over ‘two-midnight’ rule called uphill battle,” Modern Healthcare.com,April 15, 2014)

 

However, legal experts say that hospitals will have a tough time convincing judges to overturn Medicare’s controversial new rules on classifying inpatients. In the past, the Supreme Court has given Health and Human Services “wide discretion” in issuing rules to implement laws. (“AHA lawsuit over ‘two-midnight’ rule called uphill battle,” Modern Healthcare.com,April 15, 2014)

 

The association plaintiffs are the American Hospital Association, the Greater New York Hospital Association, the Healthcare Association of New York State, New Jersey Hospital Association and the Hospital & Healthcare Association of Pennsylvania, and hospital plaintiffs Wake Forest University Baptist Medical Center, The Mount Sinai Hospital and hospitals that are part of Banner Health and Einstein Healthcare Network.

 

Background on the Two-Midnight Rule

Under the 2014 Inpatient Prospective Payment System final rule, when a physician admits a patient expecting the inpatient stay to span at least two midnights, the admission will qualify as appropriate payment under Medicare Part A. Admissions that last for less than two midnights will be assumed to have been provided on an outpatient basis and, therefore, would not qualify for payment under Part A, but rather under Part B.

 

The rule took effect October 1, 2013 but the Centers for Medicare & Medicaid Services delayed its full implementation through September 30, 2014. The recent “doc fix” legislation further extended the implementation delay through March 31, 2015.

 

Hospitals claim the two-midnight rule unfairly puts patients into an observation status where they may have tests and sleep in hospital beds but are not classified as inpatients. The hospital gets lower reimbursement for outpatient/observation stays, and patients must pay a 20 percent copayment. (“Hospitals Sue HHS to Revoke Two-Midnight Rule,” Health Lawyers Weekly, April 18, 2015)

 

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.

 

Competition Highlighted by FTC, Again

Competition continues to be on the priority agenda for the Federal Trade Commission (FTC). It recently hosted a workshop to gain input from healthcare industry experts about the degree to which promoting healthcare competition is integral to improving quality, lowering costs and expanding access.

 

The FTC’s focus on competition isn’t new—it devoted a lot of attention to competition in the early 2000s, and hospital consolidation was in the spotlight at that time. After a series of joint hearings conducted by the FTC and U.S. Department of Justice Antitrust Division, the agencies released a report in 2004 with their recommendations for antitrust enforcement in the healthcare industry.

 

Although hospital consolidation has continued since then, activity began to pick up again shortly before implementation of the Patient Protection and Affordable Care Act (ACA). Since implementation, consolidation activity appears to be on a fast track. And the FTC, along with other antitrust agencies, again focused its efforts on trends in hospital consolidation and physician group acquisition, and their impact on competition.

 

Today, oversight of such activity by the FTC includes:

  • The interplay of quality measures and price transparency
  • Professional regulation of healthcare providers
  • Innovations and advancements in healthcare delivery and technology

 

The FTC has stated that competition in healthcare is a high priority because “vigorous competition promotes increased quality and lower costs,” and encourages coordination of care.

 

It isn’t clear whether the FTC will issue specific reports or guidelines on consolidation and its effect on competition, but in all likelihood it and other antitrust agencies will continue to examine these issues and focus their enforcement efforts in the healthcare industry.

 

(“FTC Check-Up on Health Care Trends Reveals New Competitive Wrinkles—Highlights from the FTC Workshop ‘Examining Health Care Competition,’” Health Lawyers Weekly, April 11, 2014)

 

iProtean subscribers, a new advanced Finance course, Strategic Responses to the Competitive Environment featuring Michael Irwin and Dan Grauman, will be published in your library soon. Topics include: payment innovations and increasing competition, the continuum of competitive strategies, four competitive models, the risk of being “cautions” and capital requirements.

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.

iProtean—Reasons the Two-Midnight Rule Will Negatively Affect Hospitals

We have written several newsletters on the impact of the two-midnight rule for hospitals. Now Moody’s Investors Service offers five observations that specify how and why this rule will negatively affect a hospital’s revenue. (Two-Midnight Rule Will Reduce Revenue for Most Hospitals, Sector Comment, Moody’s Investors Service, March 12, 2014)

 

The two-midnight rule classifies most hospital inpatient stays under 48 hours as outpatient cases, replacing medical necessity as a way to determine whether an inpatient stay was justified. When the rule goes into effect, Moody’s expects it will weaken hospital operating profitability because it will lower Medicare reimbursement for these cases. The authors of the Moody’s report noted that the impact will affect all acute care hospitals, but “the impact will not be uniform across the not-for-profit hospital sector.”

 

The rule will negatively affect hospitals in the following ways:

 

  • The reimbursement difference between inpatient and outpatient cases will decrease profits:Inpatient cases tend to be reimbursed at a higher level than outpatient cases. Moody’s estimates that hospitals could experience an average per case reduction of $3,000 to $4,000. However, the cost of treating these patients will remain the same. The patient may be treated in the same unit and may not even be aware he/she is an “outpatient.”

 

  • The two-midnight rule will accelerate the trend of inpatient care shifting to outpatient:The rule will result in significant growth in observation/outpatient stays, continuing the trend from inpatient to outpatient treatment. This will put additional pressure on hospital revenues.

 

  • Hospitals with short lengths of stay will be most affected:Smaller community hospitals tend to have lower acuity patients and lower average lengths of stay. However, Moody’s noted, patients still consume significant resources from tests, drugs and other inpatient hospital care. Under the rule, these shorter hospital stays will likely convert to observation/outpatient status—with lower reimbursement. Smaller community hospitals tend to be less flexible financially and will have difficulty absorbing reductions in revenue.

 

  • Reimbursement change will affect hospitals with high a proportion of inpatient care: Irrespective of size,hospitals that depend on inpatient care for the majority of operating profit will see that profit decline. “Profitability will suffer as the high fixed costs of inpatient care are spread over a smaller base of inpatients,” the authors wrote.

 

  • Small hospitals lack adequate staff to adapt to new rule: In order to qualify as an inpatient stay, the admitting physician must document that the admission was initially justified. Ensuring proper documentation is “unlikely to be a challenge for larger hospitals with well integrated medical staffs and additional administrative resources.” But smaller hospitals may find it difficult to implement documentation changes with fewer physicians and support personnel.

 

Moody’s noted, however, that the rule does have a “silver lining.” It could reduce recovery audit contractor (RAC)reviews of hospital admissions practices by substituting a strict rule set for the ambiguity involved in borderline cases. This should provide some financial relief for hospitals.

 

(iProtean again thanks Moody’s Investors Service for permission to share information from its reports, and permission to include the actual reports in the Resources section of our courses.)

 

 

iProtean subscribers, a new advanced Finance course, Strategic Responses to the Competitive Environment featuring Michael Irwin and Dan Grauman, will be the next course in your library. Topics include: payment innovations and increasing competition, the continuum of competitive strategies, four competitive models, the risk of being “cautions” and capital requirements.

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here. www.iprotean.com/index.php/iprotean/demo

 

iProtean—Moody’s Report Highlights Emerging Risks for Hospitals

The Affordable Care Act’s health exchanges have been overwhelmed with last minute sign ups, and the results so far indicate more than seven million enrollees. How this “new” market of insured customers will affect hospitals is the subject of a recent report from Moody’s Investors Service. Highlights from the report appear below.

 

There are conflicting credit implications resulting from the health exchanges. A positive aspect is expanded insurance coverage. This prediction rests on the assumption that there will be a “significant net reduction” in non-paying, uninsured or poorly insured patients.

 

A reduction in the number of uninsured was part of the rationale for this component of the ACA. The hospital industry agreed to more than $150 billion in Medicare cuts because it was predicted that the benefits of a greater pool of paying patients would outweigh revenue lost due to rate cuts.

 

“The key result to watch in coming months is the ACA’s impact on the overall uninsured rate. The number of previously uninsured individuals obtaining insurance is a key measure in determining the success of the ACA,” according to the authors of the Moody’s report. They noted that the reduction in the uninsured rate is more important than the total number of enrollees because it is not known how many of those enrollees previously had insurance and simply changed where they buy coverage. They cited a recent Gallup poll showing a decrease in the uninsured rate from 17.1 percent in the fourth quarter of 2013 to 15.9 percent in early 2014 as “an encouraging sign.”

 

Emerging Risks for Hospitals

 

Insurance through health exchanges poses three risks for hospitals:

 

  • Today’s high deductibles are tomorrow’s bad debt. Plans with high deductibles will partly offset the benefit of expanded insurance coverage because low and moderate income patients are less likely to pay them in full.

 

High deductible plans have been responsible for an increasing share of bad debt expense in recent years. Insurers use these products to limit premium growth, but because they transfer greater financial risk to policyholders, they expose healthcare providers to bad debt.

 

The authors said they believe there is significant risk that people covered by the most popular insurance plans will be unable or unwilling to meet their deductibles. This means the growth in insurance coverage may not actually lower bad debt exposure for many hospitals.

 

  • Lower insurance company profitability on the exchanges may lower hospital reimbursement in 2015. In addition, premiums for plans offered on the exchanges may rise in 2015, causing some to drop coverage and further erode benefits to hospitals.

 

Insurance companies will begin pricing policies to be sold on the exchanges in 2015 in the next few months, and negotiations with hospitals will extend through the beginning of open enrollment in November.

 

Moody’s expects 2015 negotiations between insurers and hospitals to be “dynamic.” The authors predict insurers will seek more reimbursement discounts and hospitals will try to offset discounts through risk sharing arrangements.

 

In addition, the authors noted there is a strong chance premiums for exchange products will rise in 2015, and this could cause people to select plans with less coverage and higher deductibles, or drop their insurance altogether.

 

Although insurance companies typically do not break out profitability by segment, Aetna, Cigna and Humana have all announced they expect to earn negative margins on their exchange business in 2014. (For a counterpoint to this argument, see iProtean’s March 26 newsletter post, Investors Expect Insurers to Benefit from Health Reform)

 

  • If narrow networks are successful, hospital reimbursement may drop. In narrow networks, hospitals accept lower reimbursement in hopes of gaining market share.

 

Most insurance companies on exchanges use narrow networks to control costs and to reduce premiums. If hospitals are left out of the networks, or accept lower rates to gain market share, they run the risk of losing out if the expected increase in volume does not materialize and lower rates can’t cover the hospitals’ fixed costs.

 

The authors noted, however, that “despite the risks, there are strategies hospitals can adopt in order to succeed under narrow networks.” They can partner with insurance companies to market products that will steer customers to their networks or, as some are now doing, start their own insurance companies “to create proprietary networks designed to compete with insurers directly.” (iProtean experts Dan Grauman and Michael Irwin address insurers as part of the competitive market in the upcoming courses Strategic Responses to the Competitive Market, parts one and two.)

 

There has been activity on the federal level to curtail insurance companies’ efforts to limit networks, however. For example, a new federal proposal would require health insurers to expand the number of hospitals included in exchange networks, putting a “damper” on the trend of narrow network health plans.

 

(Source: US Healthcare Reform: Three Risks Reduce Credit Positives for Not-for-Profit Hospitals, Sector Comment, Moody’s Investors Service, March 27, 2014)

 

 

iProtean subscribers, a new advanced Finance course, Strategic Responses to the Competitive Environment featuring Michael Irwin and Dan Grauman, will be the next course in your library. Topics include: payment innovations and increasing competition, the continuum of competitive strategies, four competitive models, the risk of being “cautions” and capital requirements.

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here. www.iprotean.com/index.php/iprotean/demo