Operating a hospital in the United States during the past couple of decades has been challenging, but never boring. These challenges and the absence of boredom will certainly not diminish in 2014. There are so many important developments currently in progress affecting hospitals that it would be impossible to address them all in a brief article like this. So let's focus on just a few of the most significant developments that hospital operators will be spending a great deal of time responding to in 2014.
Complying with CMS' new "two midnight" rule should be high on the list of concerns for hospital executives in 2014. This rule addresses the problems surrounding the use of observation status that have been much discussed of late. Hospitals that have failed to respond to this rule had best start doing so immediately given that the amnesty period declared by CMS will expire on March 31, 2014. The education of admissions staff and physicians will play a critical role for hospitals wishing to avoid negative scrutiny by RACs and administrative contractors in 2014.
Speaking of enforcement policies and practices, there is no reason to think the trend toward increased enforcement in expanded areas of hospital operation will diminish in 2014. The number of "voluntary disclosures" for Stark law violations will undoubtedly continue to increase. The compliance function will only become more important for hospitals and health systems. Furthermore, as the number of audits of hospitals' payment claims increase — which they surely will — through RAC and Zone Program Integrity Contractor audits, among other enforcement activities, hospitals will need to employ more resources through both additional personnel and outside assistance, which will only add to the severe financial pressure many hospitals are facing. Hospital owners and operators would be unwise to ignore or underestimate the need to invest more resources into their compliance programs as the potential consequences include not only monetary repayments and penalties but also criminal prosecutions.
Of course, the most significant development facing our country's hospitals in 2014 is the continuing rollout of the Patient Protection and Affordable Care Act. The current uncertainty regarding the ongoing implementation of the PPACA is keeping a great many hospital executives up at night.
First, there is the question of volumes and expanded insurance coverage. When the PPACA was first proposed, the hospital industry, by and large, supported its enactment upon the belief that it would result in tens of millions of additional U.S. residents having health insurance coverage. It was expected that this would in turn result in both increased volumes of patients and a significant reduction in the charity care burden that has increasingly plagued hospitals in recent years.
With the less than satisfactory — some would say disastrous — performance of www.HealthCare.gov to date, it is impossible to know how many people will successfully enroll through the healthcare insurance exchanges and have coverage this year. Coupled with this uncertainty is the well-publicized cancellation of millions of insurance policies held by individuals. Many of these individuals will succeed in obtaining new coverage through the exchanges, and some insurers have taken advantage of President Barack Obama's executive action allowing them to continue offering policies that aren't PPACA compliant this year. However, during the first few months of 2014, a significant number of these people could potentially be without coverage and would struggle to pay a large hospital bill.
In addition, despite the delayed mandate for employers having more than 50 full-time employees to provide health insurance to those employees or face a penalty, many large employers are expected to either reduce the scope of the coverage they do ultimately provide or shift additional costs to employees. For example, American Electric Power Co. now adds a $50 monthly surcharge for spouses of employees who are eligible to obtain coverage through their own employer. Again, in the short term, it is reasonable to expect that fewer rather than more Americans will be covered as individuals dropped from employer plans attempt to obtain health insurance through the state-run exchanges.
Another factor that will impact hospital patient volume is the generally accepted belief that the PPACA will result in more surgical procedures being performed on an outpatient basis. Many believe outpatient surgery is both more cost-effective and more efficient in terms of physicians' time. The reduced reimbursement called for by the PPACA may well accelerate this transition from inpatient to outpatient care.
Regarding reimbursement, the phasing out of the Medicaid Disproportionate Share Hospital program will adversely affect many hospitals. The phase out — which commences this year — was justified on the premise that expanded insurance coverage would lessen the financial burden on hospitals treating a disproportionate number of uninsured individuals and Medicaid patients. If far fewer individuals obtain coverage than was originally expected, the impact of this reduction, and eventual elimination, of DSH payments will be significant.
Finally, due to the PPACA's emphasis on linking reimbursement to quality, hospitals find themselves in a situation where, from a financial viewpoint, they are living in two somewhat contradictory worlds. On the one hand, as the overall reimbursement pie shrinks, hospitals will need to operate more efficiently and cut costs. Going forward, however, an increasingly significant element of a hospital's reimbursement will be based on clinical outcomes and patient satisfaction. Increasing quality while cutting costs — especially labor costs — can be a great challenge. Indeed, for hospitals to be successful under the ACA, new operating strategies will need to be developed and implemented in short order.
For all the foregoing reasons, the life of a hospital executive in 2014 will not be a dull one. Increasing regulation and enforcement activities, together with the unpredictable impacts of the PPACA, will challenge those in the hospital industry as never before.
George W. Bishop III has provided corporate legal services to healthcare and other clients for nearly 40 years. Serving as lead counsel on approximately 200 transactions involving both investor-owned and tax-exempt healthcare providers, Mr. Bishop has extensive experience in mergers and acquisitions, joint ventures and syndications, healthcare regulatory issues and antitrust matters.
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