The Year Ahead: 10 Challenges That Will Shape Hospital Strategy
1. Remaining uncertainty regarding the PPACA
With President Barack Obama’s reelection in November, most health systems and hospitals have accepted that the Patient Protection and Affordable Care Act is, for the most part, here to stay. In fact, right after the election, only 33 percent of people supported repealing the act, the lowest that number has been since the act was signed in 2010, according to a Kaiser Family Foundation poll.
However, there are still some items in the PPACA that are up for repeal, and if House Speaker John Boehner (R-Ohio) and other Republican Party members have their way, the entire Act would be repealed.
Some Republicans are calling for compromise, not an all-out repeal. Florida Gov. Rick Scott, for example, has asked for a partial expansion of Medicaid, less than what was proposed in the PPACA. With Republicans controlling the House of Representatives and Democrats controlling the Senate, hospitals and health systems will have to wait and see if the talk of compromise actually produces any in Congress’ next session.
One area of uncertainty is if individual states will implement health insurance exchanges or refuse, leaving the formation of the state’s exchange to the federal government. Some states, such as Ohio and Wisconsin, have already announced that they will not set up state-based exchanges.
Right now, no one is sure exactly what the health insurance exchanges will look like when they go live in 2014, especially because many states have opted to set up their own model of exchanges.
With these deadlines approaching, 35 percent of hospital and health system executives have still not discussed with payors about participation in exchanges, according to a ReviveHealth survey. It will be a challenge for hospitals and payors to work together and navigate this new territory.
2. Medicare funding
When it comes to Medicare funding, hospitals and health systems have little control. CMS controls the reimbursement rates for inpatient services, outpatient departments, physicians, home health services and other areas — and hospitals can only hope the funds stay intact as much as possible.
Medicare funding challenges greatly outnumber Medicare opportunities for hospitals in 2013. First and foremost is the issue of sequestration. Sequestration has tormented the hospital and healthcare industry for the past year, putting billions of dollars in Medicare reimbursements at risk every year for the next decade. Based on the negotiations at the end of 2012, large scale Medicare cuts will be a continual threat for the foreseeable future.
Hospitals also have to brace for more Medicare cuts from the PPACA. Hundreds of millions of dollars will be siphoned away from hospitals due to the Medicare Hospital Value-Based Purchasing Program, Hospital Readmission Reduction Program, erosion of disproportionate share hospital payments and other provisions. On an individual basis, hospitals could lose anywhere from a couple hundred thousand dollars to millions.
Teaching hospitals and academic medical centers also have to brace for graduate medical education cuts. In 2012, the government’s proposed budget slashed Medicare indirect medical education payments by $9.7 billion over 10 years — or 10 percent. This is, of course, on top of the fact that Medicare funding for GME has been capped since the Balanced Budget Act of 1997, the same piece of legislation that installed the sustainable growth rate for physician payments.
When it comes to Medicare opportunities, hospitals and physicians have their backs against the wall and can only play with the hand they are dealt. Focusing on limiting readmissions, achieving high patient satisfaction scores and honing in on quality incentive programs are the best bets for hospitals to limit reductions to their Medicare funds. Hospitals are also exploring creative ways to break even on Medicare by looking into bundled payment programs for specific services (e.g., orthopedics or cardiovascular) or revamping throughput strategies for costly Medicare procedures in the operating room and emergency department.
3. Medicaid funding
Medicaid reimbursements short-change hospitals and health systems almost as much, if not more in some cases, than Medicare. The American Hospital Association said hospitals received average payment of only 93 cents for every dollar they spent caring for Medicaid patients in 2010, and that figure is as low as 70 cents on the dollar in some states. In 2013, those figures will not change much as many states have implemented austerity plans to their Medicaid budgets.
The states that have made or are about to make cuts to Medicaid programs include Alabama, California, Colorado, Florida, Illinois, Louisiana, Maine, New Hampshire, Wisconsin and many others. Louisiana and Illinois, in particular, created quite a stir when they passed their Medicaid budgets. Louisiana’s Department of Health and Hospitals announced some of the biggest cuts, indicating the state will cut $859.2 million from the state Medicaid program for fiscal year 2013. Hospitals will bear a big portion of those cuts, perhaps none bigger than Louisiana State University Health System. LSU Health System’s budget for FY 2013 will be slashed 24 percent, while disproportionate share hospital funds will be cut by $122 million. Illinois Gov. Pat Quinn signed a Medicaid budget into law that will result in $1.6 billion in Medicaid cuts next year, including hundreds of millions of dollars in slashed hospital and health system reimbursements.
Massachusetts Hospital Association President Lynn Nicholas denounced Medicaid reimbursement cuts over the summer as “the continued practice of shifting government costs onto providers,” a stance that other state hospital associations have echoed. However, there are still some opportunities for providers when it comes to Medicaid funding. For example, advocating for provider taxes — or the renewal of provider taxes — raises millions of dollars in extra federal Medicaid reimbursements for hospitals, especially those that serve large Medicaid populations. Although provider taxes are nothing new, they remain at the forefront to raise extra hospital Medicaid revenue.
A more recent development involves a provision of the PPACA. CMS recently announced it will increase Medicaid payments for certain primary care physicians to Medicare rates over the next two years, beginning Jan. 1, 2013. All primary care physicians in the specialties of family medicine, general internal medicine or pediatric medicine (and related subspecialties) qualify, which will help primary care physicians and hospitals with employed primary care physicians in the short-term.
4. Financial accountability for quality
As the healthcare industry moves toward pay-for-performance, hospitals may encounter this new payment model in CMS-based initiatives, such as the Value-Based Purchasing Program and the Readmissions Reduction Program, or in arrangements with private payors.
In October, CMS’ Hospital VBP program began, which pays hospitals based on performance on quality measures. Hospitals are sure to feel its impact throughout 2013 and beyond. Under VBP, hospitals’ diagnosis related group payments from Medicare will be reduced 1 percent to create a pool of incentive payments. Hospitals that meet performance standards in clinical processes of care, patient experiences and outcomes will receive a portion of the incentive payments.
To improve quality and gain a higher percentage of incentive payments, hospitals have implemented new programs designed to standardize care and enhance the patient experience. For example, many hospitals are requiring all physicians and clinicians to follow evidence-based protocols when treating patients. Hospitals are also providing “navigators” to guide patients through their hospital stay and are focusing on a patient-centered design of facilities, such as the use of soothing colors.
The Readmissions Reduction Program also began in October. The program cuts a portion of hospitals’ Medicare reimbursement for high readmission rates for heart attack, heart failure and pneumonia. To prevent readmissions, hospitals are looking beyond the four walls of their facility to post-acute care providers and other providers in the community, such as urgent care clinics and retail clinics. Many hospitals are implementing post discharge programs to follow-up with patients after their discharge and ensure their health does not deteriorate and require a readmission.
Arrangements with private payors may also include pay-for-performance elements. Companies like Blue Cross Blue Shield, Aetna and Cigna are partnering with physicians and hospitals, and rewarding them for meeting quality standards. These arrangements can come in the form of accountable care organizations, patient-centered medical homes or more informal relationships that provide financial incentives for quality.
5. Competition for physicians coupled with shortages
Competition for physicians will be fierce throughout 2013. A recent study in the Annals of Family Medicine showed that the shortage is expected to grow to 52,000 by 2025, driven by an aging population, population growth and the expansion of insurance coverage under the PPACA.
On top of the shortage is the growth of CMS and commercial accountable care organizations, which require participating hospitals and health systems to integrate with physician practices and, in many cases, employ new physicians. CMS accepted applications for new Medicare ACOs through September 2012 and announced they will accept applications for new members every year. On the commercial side, payors like Cigna, Blue Cross Blue Shield and Aetna continue to create ACOs as well. The increased number of integrated organizations will lead to more competition for physicians.
Physicians may be more willing to sell their practices and become employed by hospitals, giving hospitals the opportunity to increase their market share and expand clinical integration. Physicians are selling because of business expenses, electronic medical record requirements and the prevalence of managed care. More physicians are also looking for the economic stability of employment during the transition from fee-for-service to performance-based pay. Hospitals can take advantage of the situation and find independent physician groups that are ready to sell their practices and become employed.
The shortage and increased competition for physicians present obvious challenges for physician recruitment. But with challenges come opportunities. Hospitals and health systems can use this time to evaluate their physician recruitment strategies and make improvements in order to attract physicians. This is also a time for hospitals to experiment with new models of healthcare delivery that are attractive to younger physicians, who desire a work-life balance. There is also an opportunity to save money by hiring more non-physician providers, such as nurse practitioners and physician assistants, who can provide primary care on a smaller salary than an employed primary care physician.
6. Managing patient populations, not just individual patients
One of the triple aims of healthcare reform is to enhance population health. Improving population health can prevent the need for costly interventions and hospital admissions. To manage population health, hospitals need to collect data on the population, including data on ethnicity, age, payor mix, socioeconomic status, education and chronic disease rates. Using this data, hospitals can proactively identify patients who are at risk for health problems, and develop outreach programs to help manage these patients’ health. For example, populations with a high percentage of obese patients may need nutritional and exercise guidance. Hospitals can provide education, screenings and other services to prevent serious conditions, such as heart disease and stroke, which obesity is linked to.
Hospitals can also use data on their patient populations to identify gaps in care services and determine solutions. Many hospitals are establishing clinics or outpatient facilities closer to where patients live to increase access to care.
To practice or test strategies for managing population health, many hospitals are providing incentives to their employees covered under their health plan. Hospitals are providing reduced costs or incentive payments to encourage employees to use preventive care and wellness services and seek care in the appropriate setting.
7. Taking on risk
To stay abreast with competition, many hospitals are adopting a hybrid approach as they continue to operate on fee-for-service principles while taking on more risk in performance-based contracts — for example, bundled payments, accountable care and other arrangements — with health insurers. This trend is likely to persist throughout 2013, as more hospitals consider and implement strategies to redefine their relationships with payors.
Demands for improved outcomes, efficiency and reduced costs are driving hospitals to act more like insurers, or work with insurers in more innovative ways. While certain systems like Oakland, Calif.-based Kaiser Permanente and Detroit-based Henry Ford Health System have offered health plans and insurance capabilities for years, other systems are beginning to follow suit.
In a 2011 survey from The Advisory Board Company, 20 percent of 100 hospital leaders said they were exploring insurance products. Some organizations, like Great Neck, N.Y.-based North Shore-Long Island Jewish Health System, moved beyond the exploration phase in 2012 and began laying the groundwork to offer health plans. If not offering health plans, providers are still finding new ways to align themselves with payors. For example, Anthem Blue Cross and University of California Health tightened their relationship in late 2012 when they formed an alliance to better manage chronic conditions through accountable care models and alternative delivery systems.
More health systems are also responding to employers in their marketplace and companies’ concerns over the costs of employee healthcare. Boston-based Steward Health Care launched Steward Community Care in February 2012 for small businesses within the coverage area of Fallon Community Health Plan. The specialized plan offers premium savings of at least 20 percent. Other providers are partnering directly with employers, such as Cleveland Clinic, which finalized a bundled payment arrangement with the Boeing Company in fall 2012. It will be interesting to watch how these strategies continue to evolve in the year ahead.
8. Engaging patients in their health
Efforts to improve population health and take on risk will both require hospitals to place as much focus on prevention and wellness as they do treatment. Hospitals will be required to not only take care of patients within their four walls but also encourage patients to manage their own healthcare as well. While some hospitals already engage in community outreach activities, a more concerted, systematic effort will be necessary to make long-term changes in health behavior.
The challenge derives from how to provide patients with resources, information and opportunities to do a better job of managing their own health — a goal that may seem counterintuitive but will be financially incentivized as reimbursement models change. In order to manage patients as a population, hospitals and health systems need access to a wide array of data. Full access to patient data across the care continuum will help hospitals to take a focused approach to changing patient behavior. For instance, many professionals suggest engaging patients in their care by meeting them where they are — offering them healthcare choices and resources based on their demographic data, location and socioeconomic status. Assessing and addressing a community’s needs forces hospitals look at the entire patient population instead of the disease.
Some within the healthcare industry have criticized healthcare reform for making providers responsible for their patients’ adherence to treatment plans and, in some cases, overall lifestyle choices — things providers may not be able to “control.” However, forward-thinking hospitals and health systems see the law as an incentive to achieve better health outcomes through patient education and engagement — a goal that will benefit individual communities and government spending.
9. Making sense of big data
The digitization of the healthcare industry is leading to “big data,” which refers to the terabytes of data collected 24/7 in an organization’s information and clinical systems. A single hospital stay for one patient alone generates tens of thousands of data elements (e.g., all medical supplies and billing information for every clinical procedure). Although the healthcare industry is only at the threshold of full-scale healthcare electronic medical record adoption, there is extensive optimism about how digitizing health records will lead to big data. Hospital and health systems can leverage this big data in order to effectively prevent readmissions, prioritize population health management goals and succeed in accountable care organizations. However, activating a big data resource requires using sophisticated technology to quickly and accurately collect, integrate and analyze this massive data resource.
The sophisticated technology needed to capitalize on big data is harder to come by than the data itself. While no one method or strategy for aggregating patient data will apply to all systems, all methods must result in reliable data. Only quality data translates into quality analysis. A clean data warehouse is the foundation of all data-driven analysis. All financial and clinical data points — everything from vitals to point of entry to procedural codes — must be consistent to ensure proper reporting and validity for modeling.
By integrating this vast number of patient attributes, the data warehouse very quickly becomes a data asset capable of producing key patient, financial and quality metrics. Data mining algorithms can run on the data warehouse to build models. These models zero in on correlations within the entire history of patient accounts, charges and clinical data elements to determine the key attributes, which will help hospitals create decision support mechanisms and prioritize population health management goals. The ultimate solution to maintaining data integrity will not originate from one hospital but a collective and cost-effective effort from all healthcare providers across the industry.
10. Maintaining compliance while cooperating with heightened and new regulatory audits
Hospitals can best avoid legal scrutiny by ensuring thorough compliance, but this may be an uphill challenge in 2013 as federal agencies intensify their regulatory efforts. The Office of Inspector General listed several hospital-centric initiatives in its work plan for this year, such as identifying trends in same-day readmissions, reviewing the effects of physicians billing Medicare as provider-based physician practices and keeping a close eye on how hospitals bill discharges and transfers.
The federal government is not only strengthening its fraud-fighting efforts, but also has grown quite vocal about them. For instance, in September 2012, HHS Secretary Kathleen Sebelius and U.S. Attorney General Eric Holder mailed letters to five major hospital groups about the government’s zero tolerance policy for fraudulent activity, specifically upcoding. In their letters, Ms. Sebelius and Mr. Holder called on groups like the American Hospital Association to help them in the fight against such improper activity.
Hospitals feeling inundated by the storm of regulatory demands are not alone. Richard Umbdenstock, president and CEO of the AHA, agreed with the government’s call for regulatory oversight, but he stressed hospitals’ need for more guidance — not more audits. “No one questions the need to identify billing mistakes, but the flood of new auditors is deluging hospitals with redundant audits, unmanageable medical record requests and inappropriate payment denials,” he wrote in an op-ed in The New York Times. The regulatory environment is not taking a pause: Hospitals have new regulatory challenges on their plate this year, such as HIPAA and meaningful use audits. The HITECH Act requires HHS to perform periodic audits to ensure compliance with HIPAA security rules and breach notification standards. Accordingly, the Office of Civil Rights launched an audit pilot program from November through December that will expand into 2013, making it a matter of when — not if — hospitals will be audited. CMS also launched meaningful use audits in the summer of 2012, but as of press time, the agency had released little information on how many providers will be audited. Auditors may focus on whether providers actually own their certified EHR, whether physicians regularly use the EHR and whether providers can support their claims for exemption to MU attestation measures, if applicable.
Finally, Medicare and Medicaid Recovery Auditors, formerly known as recovery audit contractors, remain a significant burden for hospitals and health systems. Medicare auditors topped a good chunk of their collection records in fiscal year 2012 — as of press time, collections for three of the past four quarters surpassed previous records and totaled $1.64 billion in overpayments. It’s likely Medicare auditors will maintain this momentum into 2013.
Providers have access to some dialogue and information on Medicare audits, such as CMS’ quarterly audit newsletters and the AHA’s RACTrac surveys, but Medicaid audits remain more ambiguous. Medicaid audits were launched in January 2012, but there was little update on the audits’ progress throughout the year, largely because a good portion of states did not have Medicaid audit solutions finalized for at least six months into the year. It has been estimated that once they begin gaining ground, Medicaid audits will focus on coverage and payment issues first, similar to Medicare audits.
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