New Report: Readmissions Reduction Program Doesn’t Increase Observation Stays

Through Congressional direction and previous Administration initiatives, Medicare has implemented incentives to reduce hospital readmissions. One example is the Hospital Readmissions Reduction Program (HRRP), which financially penalizes hospitals with relatively high rates of Medicare readmissions.

 

One of the criticisms of the program has been the anticipation of an increase in the number of observation stays—that is, to avoid readmission penalties, providers are placing these patients in “observation” rather than readmitting them.

 

A new analysis of the program, however, reports the program is not increasing the number of observation stays. The Medicare Payment Advisory Commission (MedPac) analysis noted that there is no evidence of an increase in observation stays because of HRRP.

 

Readmission rates from 2010 to 2016 for heart attacks, heart failure and pneumonia all dropped between 1.4 percent to 3.6 percent, saving Medicare $2 billion annually, according to MedPAC’s analysis recently sent to Congress. Over that same period, the commission found only a small increase in observation stays and noted that the increase did not offset savings from the readmissions program. (“Medicare readmissions program not causing observation stay spike,” Modern Healthcare A.M., June 18, 2018)

 

MedPac said in its report that “. . .  the reduction in readmission rates reflects real changes in practice patterns and not simply a shifting of short-stay admissions into observation stays to avoid readmission penalties.” (Report to the Congress, Medicare and the Health Care Delivery System, MedPac, June 2018)

 

However, some industry analysts dispute the validity of MedPac’s findings.  One noted that the analysis relied on observational studies that are prone to bias. Other studies found evidence that the readmission program does increase the duration and frequency of observation stays.

 

To read MedPac’s report to Congress, please click here.

 

 

The Volume to Value Paradox advanced Quality course, featuring Nate Kaufman, Marian Jennings and Dan Grauman, is in your library. These experts discuss their perspectives of moving from volume to value, the pitfalls to avoid, how to involve physicians, the impact of consolidation and scale on value and the overall challenges of inserting value into the reimbursement formula.

 

 

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Moody’s: Integrated Planning Essential for Financial Viability Part 2

We’re continuing the summary of the Moody’s Investors Service report on integrated planning and financial viability. Last week we covered investments in off-campus sites while maintaining high-margin inpatient services.

 

Today we focus on the remaining components of integrated planning: digitalization, investment in talent and operational and funding flexibility.

 

Digitalization

 

Information technology investments will continue to expand digitalization. This focus includes:

 

  • Data from electronic medical records to improve clinical outcomes and for predictive and preventive medicine
  • Requirement to track value and risk-based contracts spurred by reimbursement shifts
  • Data to spur innovation
  • Comprehensive cybersecurity safeguards

 

Investment in Talent

 

Clinical staff will account for a growing portion of operating costs, particularly if the nursing and physician shortage continues. With a limited supply and rising cost of nurses and physicians, there will be a careful drive toward improving productivity and redesigning workflows.

 

Moody’s analysts noted, however, that “too strong an emphasis on productivity may increase the likelihood of clinician burnout, exposing the system to safety risks or lawsuits, or penalties under value-based reimbursement models.” Telehealth will become increasingly used as a cost-effective means of delivering care, and improving access and throughput, as opposed to staffing physicians 24/7, or paying on-call wages.

 

Operational Funding and Flexibility

 

Operational and funding flexibility in a changing healthcare environment, and the ability to grow or contract when needed, will be crucial to overall credit quality and financial sustainability, Moody’s noted in its report.

 

  • Hospitals will need to evaluate service lines and divest those that are underperforming or not core to their long-term strategy to preserve margins and rationalize capital.
  • The shift to outpatient care, combined with reimbursement challenges and increasing costs, will put pressure on margins and limit the ability of hospitals to increase cash reserves through operations.
  • Hospitals with higher liquidity will be better able to manage volatility and adapt to evolving markets.

 

With respect to capital, the analysts offered the following points:

 

  • Timing and scope of strategic capital deployment are key credit considerations.
  • Phasing in large capital programs over time may provide flexibility to respond to unexpected shortfalls.
  • Deferred capital on the other hand can put the organization at a competitive disadvantage.
  • If not implemented appropriately, execution of simultaneous large-scale strategies will weaken credit quality.
  • However, long-range financial plans and a demonstrated ability to execute and respond to market conditions will be crucial to maintaining a strong credit profile.

 

Summary

 

Analysts concluded that it pays to “remain nimble” when planning for change. Various tactics include:

 

  • Commitment of the board to approve multi-year strategies
  • Willingness to embark on various strategies without short-term returns on investment
  • Ability to assess performance at various midpoints and change course
  • Integrated long-term financial, capital and strategic planning
  • Commitment to change skill set of management as strategies change
  • Willingness to change the culture of the organization through growth or merger strategy
  • Physician participation and buy-in

 

(From Flexibility, integrated planning key to the healthcare system of the future, Moody’s Investors Service Sector In-Depth, May 16, 2018.  iProtean thanks Moody’s Investors Service for its permission to excerpt portions of this Sector In-Depth.)

 

 

iProtean subscribers: The Volume to Value Paradox featuring Nate Kaufman, Marian Jennings and Dan Grauman, is in your library. These experts discuss their perspectives of moving from volume to value, the pitfalls to avoid, how to involve physicians, the impact of consolidation and scale on value and the overall challenges of inserting value into the reimbursement formula.

 

 

For a complete list of iProtean courses, click here.

 

 

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Moody’s: Integrated Planning Essential for Financial Viability

Evolving industry pressures will require hospitals/systems to focus on their business strategies and prudent allocation of limited capital and financial resources.  Financial viability and competitiveness will require expanded patient access, digital efficiencies, top talent and financial flexibility.

 

Moody’s Investors Service analyzed each of the above components in its recent Sector-in-Depth, Flexibility, integrated planning key to the healthcare system of the future. We present a partial summary of its report today and will continue with the remaining components next week.

 

Balancing investments in access points with maintaining high-margin inpatient services

 

Outpatient facilities will continue to be an efficient and cost-effective way of treating lower severity cases and of expanding into underserved areas; however, margins are generally weaker than for inpatient services. Moody’s anticipates that traditional bed space will be reserved for scheduled cases of mainly higher acuity and surgical patients. Most medical cases, particularly unplanned, will be cared for as outpatients in ambulatory or micro-hospital settings. This evolution will eventually lead to hospitals, especially academic or more advanced tertiary facilities, becoming large intensive care units.

 

Some key points in the inpatient/outpatient discussion include:

 

  • Outpatient visits tend to be reimbursed at lower rates than inpatient stays.
  • Outpatient sites generally require less capital investment and have lower overheads than inpatient facilities, allowing them to be operated profitably.
  • Hospitals that are disproportionately dependent on lower acuity inpatient admissions will be at a disadvantage with the shift toward greater outpatient care. (However, Moody’s noted its data show hospitals with greater dependency on inpatient admissions generally have higher margins.)
  • The number of available inpatient beds will not remain aligned with overall population growth as hospitals shift lower acuity cases to outpatient settings.
  • Capital investment in traditional inpatient facilities will be increasingly targeted towards higher acuity, more intensive cases that cannot be treated in an outpatient setting.
  • Moody’s analysts expect growing investment in intensive care units and larger operating rooms to accommodate newer technologies such as surgical robots.
  • Consumerism and changing standards of care will continue to drive the shift to single-occupancy rooms, sometimes reducing overall bed count as double-occupancy rooms are converted.

 

The analysts also pointed to the acceleration of joint ventures with physicians and non-acute care providers and disruptive strategies by health insurers—for example, acquiring and integrating with physician groups and outpatient service providers—as increased direct competition with hospitals, putting further pressure on volumes and margins.

 

 

 

The Volume to Value Paradox advanced Quality course, featuring Nate Kaufman, Marian Jennings and Dan Grauman, will be in your library later this week. These experts discuss their perspectives of moving from volume to value, the pitfalls to avoid, how to involve physicians, the impact of consolidation and scale on value and the overall challenges of inserting value into the reimbursement formula.

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.

 

Moody’s: Considerations for the Board’s Investment Committee

Balance sheet strength, measured on both an absolute and relative basis, as well as liquidity, significantly drives not-for-profit and public hospitals’ credit quality. Stock market growth over the last several years has been impressive. However, in keeping with historic trends, volatility—temporary market fluctuations or a short-term downturn—will trouble institutional investors in the near term, according to analysts.

 

Major prolonged market downturns that result in sustained investment losses can affect a hospital system’s liquidity and credit quality, relative to other credit factors, noted Moody’s Investors Service analysts in a recent Sector In-Depth publication.

 

However, short-term and temporary market fluctuations will likely have minimal effect on credit quality. The Moody’s analysts wrote that they anticipate “some amount of investment volatility and market swings, such as we have seen in recent months, given the long-term horizon of many hospitals’ portfolios.” (From FAQ: Effect of investment market returns on hospital credit quality, Moody’s Investors Service Sector In-Depth, May 15, 2018)

 

The Sector In-Depth report presented a series of frequently asked questions. They appear below.

 

  • How does market volatility, including investment losses, affect hospital credit quality?

A limited period of market volatility is not likely to affect long-term credit quality. However, longer term investment market declines and a system’s inability to manage liquidity during this period may affect credit quality. Moody’s analysts evaluate a system’s investment allocation on the basis of its liquidity, short-term and long-term goals, risk- versus-reward appetite and diversification, relative to the demands on capital.

 

  • How do not-for-profit and public hospitals typically allocate their investments?

Asset allocation can vary widely based on a system’s size, the amount of investable assets, ownership, risk appetite and cyclicality of capital spending. Most invest in fixed income and equities with a smaller subset who invest in alternatives.

 

  • How liquid are hospitals’ investments?

Hospital portfolios are highly liquid. Over the past five years, monthly liquidity as a percentage of total cash and investments has remained very high at 97 percent in fiscal 2016.

 

  • How do you assess a system’s liquidity relative to its debt burden?

Moody’s compares a system’s liquidity to its debt burden. Greater liquidity indicates a greater ability to meet short-term needs, such as demand debt, and is viewed favorably.

 

  • Why do higher rated systems have less liquid investment strategies?

Many higher rated hospitals have lower liquidity levels because they tend to employ more illiquid investment strategies. A system’s credit quality may be affected if short-term liquidity needs outweigh the amount of available funds.

 

 

(From FAQ: Effect of investment market returns on hospital credit quality, Moody’s Investors Service Sector In-Depth, May 15, 2018.  iProtean thanks Moody’s Investors Service for its permission to excerpt portions of this Sector In-Depth.)

 

 

 

Coming next week: The Volume to Value Paradox featuring Nate Kaufman, Marian Jennings and Dan Grauman. These experts discuss their perspectives of moving from volume to value, the pitfalls to avoid, how to involve physicians, the impact of consolidation and scale on value and the overall challenges of inserting value into the reimbursement formula.

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.