HHS, MedPAC Issue New Recommendations for Hospital Payments

Both MedPAC and HHS released recommendations for hospital payments during the last week.

 

MedPAC (the Medicare Payment Advisory Commission), the primary Medicare advisory group to Congress, finalized its recommendation for a 3.25 percent increase in acute care hospital rates in 2016.

 

HHS (Department of Health and Human Services) set specific goals for the payment system for standard Medicare beneficiaries: 30 percent of payments should be tied to alternative payment models such as accountable care organizations (ACOs) by the end of 2016 and 50 percent by the end of 2018; and 85 percent of Medicare’s hospital payments made through programs such as the Hospital Value-Based Purchasing Program  or Hospital Readmissions Reduction programs by the end of 2016.

 

MedPAC

 

MedPAC projected hospitals’ Medicare margins will decline from -5.4 percent in 2014 to about -9 percent in 2015. The expected decrease was blamed on an ongoing annual 2 percent debt-related sequestration, disproportionate share hospital payment reductions, payment cuts related to the Electronic Healthcare Record Incentive Program, and penalties for poor performance on hospital readmissions and hospital-acquired conditions. (“MedPAC Formalizes Request for Medicare Payment Increase,” HFMA Weekly News, January 23, 2015)

 

A MedPAC analyst noted that hospitals will still have an incentive to care for Medicare patients “because even with the negative margin, pay rates will cover hospitals’ fixed costs, estimated at 10 to 30 percent.” He added that, “relatively efficient providers were able to make a slight profit on their Medicare patients in 2013.” (“MedPAC Formalizes Request for Medicare Payment Increase,” HFMA Weekly News, January 23, 2015)

 

Most of the 2,132 hospitals the commission identified as “relatively efficient” were not-for-profit; they had lower 30-day mortality and standardized costs while maintaining overall Medicare margins of 2 percent.

 

HHS

 

The specific goals from HHS for the new payment system for standard Medicare beneficiaries have been long in coming. The new payment structures will replace the traditional fee-for-service model, which does not provide sufficient economic incentives for providers to curtail volume of care. HHS has released reports on traditional vs. alternative models, including the following:

  • 20 percent of Medicare payments for traditional beneficiaries are made through alternative payments models, which also include bundled payment arrangements
  • The ACO program has reduced Medicare spending by an estimated $417 million since it began in 2011
  • Alternative payment methods helped reduce hospital admissions by an estimated 8 percent in 2012 and 2013, resulting in 150,000 fewer hospitalizations
  • Approximately 70 percent of Medicare beneficiaries are currently enrolled in a traditional coverage program (the remainder are in private plans through the Medicare Advantage program)

 

(“HHS sets goals for expanding new Medicare payment models,” Alerts Modern Healthcare.com, January 26, 2015)

 

 

 

iProtean subscribers, the new advanced Quality course, Board Mindsets to Drive Value, featuring Stephen Beeson, M.D., and Larry McEvoy, M.D. is now in your library. Dr. Beeson and Dr. McEvoy offer suggestions about working with physicians to build a different kind of organization where collaboration, innovation and change will become the norm.

 

 

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Moody’s 2015 Outlook: Expect Weak Business, Financial and Economic Conditions

Moody’s Investors Service expects that the fundamental business, financial and economic conditions in the healthcare sector will remain weak over the next 12 to 18 months, contributing to its negative outlook for the sector in 2015. (Cash Flow Settling into Low Level of Growth Amid Negative Outlook, 2015 Outlook, Moody’s Investors Service, December 2014)

 

Operating cash flow will be low, ranging from -0.5% to +1.5% over the next two years. Moody’s attributes this weak revenue growth to a variety of reimbursement pressures and margin contraction related to investments hospitals are making to comply with the Affordable Care Act (ACA) and new reimbursement models.

 

The 2015 Outlook highlights the following:

 

Weak operating cash flow growth in 2015 from -0.5% to +1.5%, but more significant declines for smaller hospitals and larger growth for largest systems

Systems with revenue above $2 billion will likely see operating cash flow growth of 3% to 4%; hospitals with revenue under $1 billion will likely generate negative operating cash flow. Operating cash flow growth at hospitals with revenue less than $500 million will decline 2% or more.

 

Weakening operating margins in 2015

Hospitals have already implemented most of the strategies to preserve margins over the last several years; further expense reductions will be more difficult because: 1) they are operating under two very different reimbursement models, which contributes to margin erosion; 2) labor is the biggest hospital expense yet hospitals view labor reductions as a last resort; 3) physician employment is growing, and physician practices often reduce consolidated hospital margins especially in the first few years of employment; 4) hospitals are making significant investments in electronic health records and other IT systems, and these investments are often expensed in the year they are made and not capitalized, which reduces operating margins.

 

Low revenue growth but further contraction not expected

Revenue growth has been declining, and will remain low but steady at 3.5%-4.5% over the next several years. Low revenue growth has resulted from many factors including: 1) Medicare inpatient rate increase of 1.4% for federal fiscal year 2015; 2) the Two-Midnight Rule; 3) payer mix shift to governmental payers because of the aging population and the ACA (reimbursement by governmental payers will likely grow more slowly than commercial reimbursement); 4) lower reimbursement growth from commercial payers; 5) decreasing patient volumes because of outpatient growth and inpatient declines.

 

Uneven impact of ACA; Medicaid expansion states see larger benefit

The ACA’s impact on hospitals’ financial performance has been modest due, in part, to its difficult start and because each state influences actual implementation of the law. There are differences among states that expanded Medicaid eligibility and those that did not. Hospitals in states that expanded Medicaid eligibility and aggressively enrolled individuals for healthcare insurance in 2014 will see the greatest benefit.

 

Moody’s noted that if projected growth in operating cash flow grows from 0%-3%, it could change its outlook to stable. “Although this growth rate would be very low by historical standards, its steadiness over that timeframe would influence our outlook.” It also noted that a change to a stable outlook could occur if there were a resurgence in hospital patient volumes that compensate for revenue pressure, significant reductions in bad debt, or expansion of Medicaid eligibility in more states.

 

(iProtean thanks Moody’s Investors Service for allowing us to quote liberally from its publication, Cash Flow Settling into Low Level of Growth Amid Negative Outlook, 2015 Outlook, Moody’s Investors Service, December 2014.)

 

 

 

iProtean subscribers, the new advanced Quality course, Board Mindsets to Drive Value, featuring Stephen Beeson, M.D., and Larry McEvoy, M.D. is now in your library. Dr. Beeson and Dr. McEvoy offer suggestions about working with physicians to build a different kind of organization where collaboration, innovation and change will become the norm.

 

 

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Value Project Identifies Strategies for Value Transformation Part Two

Last week we presented the Healthcare Financial Management Association’s (HFMA) Value Project strategies for value transformation. To make the strategies actionable, we now present the tactics identified by the Value Project. These tactics provide a roadmap that enables boards and executives to plot their organizations’ course to value transformation.

 

To recap, organizations cross four major “summits” to achieve the ACA’s Triple Aim of improving the patient experience, advancing population health and lowering the total cost of care, according to HFMA. The summits are people and culture, business intelligence, performance improvement and contract and risk management.

 

The four “summits” are:

 

  • People and culture: The ability to collaborate, effectively manage change, communicate a value message and create accountability to value-driven goals

 

  • Business intelligence: The ability to collect, analyze and connect quality and financial data to support organizational decision making

 

  • Performance improvement: The ability to eliminate clinical variation, unsafe practices and waste

 

  • Contract and risk management: The ability to predict and manage different forms of patient-related risk under different payment methodologies.

 

Specific strategies and tactics for each of these “summits” appear below. Please note that the four summits, as well as the strategies and tactics, are not necessarily in sequential order.

 

People and Culture

 

Determine strategy for achieving value

 

  • Evaluate needs of key patient populations
  • Assess mergers, acquisitions, and affiliations
  • Optimize cost structure while ensuring quality

 

Align executive leaders

 

  • Translate strategic plans into common goals
  • Monitor key metrics and tie to incentives
  • Adjust resources, as needed, to ensure success

 

Strengthen governing board

 

  • Adjust composition to ensure needed expertise
  • Educate leaders on changing marketplace
  • Improve decision-making processes

 

Integrate and incentivize physicians

 

  • Elevate physicians into executive positions
  • Educate and develop physician leaders
  • Tie incentives to quality/cost performance

 

Strategically transition staff

 

  • Assess future staffing and skill needs
  • Add staff strategically

 

Develop a flexible culture

 

  • Articulate the organization’s value message
  • Educate and engage all staff
  • Encourage risk-taking and innovation

 

 

Business Intelligence

 

Invest in clinical IT

 

  • Implement EHRs in all settings
  • Establish alerts
  • Establish disease registries
  • Develop capability to exchange data and information

 

Invest in data warehouse and analytics

 

  • Review data governance (e.g., data definitions)
  • Integrate clinical and financial data
  • Invest in decision-support capabilities

 

Improve costing capabilities

 

  • Move from identifying trends to pinpointing specific costs
  • Understand costs across settings and time
  • Develop per-member, per-month costing capabilities

 

Track performance

 

  • Track outcome and process metrics
  • Develop population-level reporting capabilities

 

 

Performance Improvement

 

Develop process improvement capabilities

 

  • Identify methodologies (e.g., Lean)
  • Establish cross-functional team/department to guide efforts
  • Use clinical/cost data to prioritize opportunities
  • Expand efforts across departments and continuum

 

Adopt evidence-based medicine

 

  • Begin with patient safety concerns
  • Adopt standardized orders and protocols
  • Manage high-risk and chronic care patients

 

Partner for population health management

 

  • Measure, expand, and/or leverage primary care access
  • Assess and right-size the scope of services
  • Partner strategically for population management capabilities

 

Engage patients and community

 

  • Create transparency around performance
  • Engage patients through shared decision making and other tactics
  • Strengthen ties to the community

 

 

Contract & Risk Management

 

Plan for value-based initiatives

 

  • Develop rolling calendar of cost-containment plans
  • Update cash flow models and capital budgets
  • Quantify and allocate initiatives

 

Understand your costs

 

  • Move from identifying trends to pinpointing specific costs
  • Understand costs across settings and time
  • Develop per-member, per-month costing capabilities

 

Mitigate insurance risks

 

  • Forecast utilization and cost patterns among patient sub-populations
  • Identify successful interventions for high-risk patients that hold down costs
  • Negotiate “risk corridors” with payers to cap potential losses under risk-based contracts

 

Pursue value-based payment contracts

 

  • Partner with payers
  • Experiment with shared savings, bundled payment, and other approaches
  • Prepare for higher levels of financial risk

 

 

(We thank HFMA and its Value Project for this information. It appeared in: “The Mountain Range of Healthcare Value,” HFMA Weekly News, December 18, 2014)

 

To see the Value Project infographic on the four summits, please contact Carlin Lockee at clockee@iprotean.com for a copy.

 

 

iProtean subscribers, the new advanced Quality course, Board Mindsets to Drive Value, featuring Stephen Beeson, M.D., and Larry McEvoy, M.D. is now in your library. Dr. Beeson and Dr. McEvoy offer suggestions about working with physicians to build a different kind of organization where collaboration, innovation and change will become the norm.

 

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.

 

Value Project Identifies Strategies for Value Transformation

Organizations cross four major “summits” to achieve the ACA’s Triple Aim of improving the patient experience, advancing population health and lowering the total cost of care, according to the Healthcare Care Financial Management Association (HFMA). Through its Value Project, HFMA worked with a diverse group of 35 hospitals and health systems to identify and detail four organizational capabilities for providers to adapt as the marketplace transforms to reward value. (“The Mountain Range of Healthcare Value,” HFMA Weekly News, December 18, 2014)

 

The four “summits” are:

 

  • People and culture: The ability to collaborate, effectively manage change, communicate a value message and create accountability to value-driven goals

 

  • Business intelligence: The ability to collect, analyze and connect quality and financial data to support organizational decision making

 

  • Performance improvement: The ability to eliminate clinical variation, unsafe practices and waste

 

  • Contract and risk management: The ability to predict and manage different forms of patient-related risk under different payment methodologies.

 

Specific strategies for each of these “summits” appear below.

 

People and Culture

  • Determine strategy for achieving value
  • Align executive leaders
  • Strengthen governing board
  • Integrate and incentivize physicians
  • Strategically transition staff
  • Develop a flexible culture

 

Business Intelligence

  • Invest in clinical IT
  • Invest in data warehouse and analytics
  • Improve costing capabilities
  • Track performance

 

Performance Improvement

  • Develop process improvement capabilities
  • Adopt evidence-based medicine
  • Partner for population health management
  • Engage patients and community

 

Contract & Risk Management

  • Plan for value-based initiatives
  • Understand your costs
  • Mitigate insurance risks
  • Pursue value-based payment contracts

 

Next week we will feature the specific tactics for each of these strategies.

 

To see the Value Project infographic on the four summits, please contact Carlin Lockee at clockee@iprotean.com for a copy.

 

 

iProtean subscribers, the new advanced Quality course, Board Mindsets to Drive Value, featuring Stephen Beeson, M.D., and Larry McEvoy, M.D. will be in your library soon. Dr. Beeson and Dr. McEvoy offer suggestions about working with physicians to build a different kind of organization where collaboration, innovation and change will become the norm.

 

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.