A Silver Lining? 4 Trends Straining Hospital Cashflow in 2013 Could Lead to Better Patient Billing Practices

Three years into the passage of the Patient Protection and Affordable Care Act, some hospitals have already begun to feel a strain on revenue from traditional payors as a result of the law's changes. Pressure is expected to grow in 2013 as CMS rolls out even more payment reforms and private payors prepare for the health insurance exchanges. This is in addition to the 2 percent cut in Medicare rates due to the federal sequestration that began April 1, 2013.

In this article, we will analyze some of the major trends exerting downward pressure on cashflow for most hospitals, and then discuss ways that those hospitals can relieve that pressure and even grow revenue.

First, to better evaluate the landscape and opportunities in 2013, here are four changes stemming from health reform that are expected to strain hospital revenues beginning this year.

1. Value Based Purchasing for Medicare. While the VBP system was first conceived in 2005, the PPACA has put into motion a stronger link between quality and reimbursements. In October 2012, CMS began using a pay-for-performance-based methodology to determine inpatient prospective payment system rates. The methodology will calculate performance scores based on two areas: clinical practices (70 percent of the total score) and patient satisfaction, or HCAHPS results (30 percent of the total score). Under the VBP policies, poor scores (as compared to the hospital's historical performance) can lead to a 1 percent reduction of base IPPS rates. By 2017, the penalty will increase to 2 percent of the IPPS rate.  

IPPS payments will also be linked to readmissions, with penalties for hospitals that report excessive readmission rates. The readmission reduction program will focus on measures for specific conditions, including acute myocardial infarction, chronic heart failure and pneumonia. The penalty for excessive readmissions starts at 1 percent of IPPS rates and increases by an additional percentage each year until it reaches 3 percent in 2015.

2. Uncertain Medicaid reimbursement. The Supreme Court's ruling that states would not be required to expand their Medicaid programs could result in higher than expected demand for uncompensated care. Extending Medicaid to low-income adults was originally expected to cover half of today's uninsured adults and channel federal funds towards hospitals. However, in states that choose to forgo the expansion, hospitals may be faced with more bad debt and charity care than their counterparts.

3. Pressure from commercial health plans. In anticipation of the federal health insurance exchanges, large health plans are beginning to pressure hospitals and health systems into accepting drastically lower rates. An estimated 23 million people will be eligible for coverage through an exchange starting Jan. 1, 2014. And health insurance companies who want to keep premiums competitive to grab up new members are looking toward hospitals to help control their costs.

Plan design is expected to change with the lower rates: Hospitals that agree to reduce what they charge will be rewarded as one of the selected providers in a very narrow network. For some hospitals, agreeing to rate cuts in exchange for network inclusion may be the only way to get a share of exchange patients. The cuts can be substantial: some insurers are even asking providers for rates somewhere in between Medicare and Medicaid's.

4. Experimental payment models. Both CMS and private payors have begun to introduce new payment models that may shift more financial risk to providers. CMS's bundled payment pilot will experiment with various forms of bundling hospital, physician and post-acute care reimbursements into single episode-of-care payments. Accountable care organizations will also require providers to better coordinate care to maintain reimbursement rates. Private payors have been following suit, introducing PFP based contracts and their own ACO models. While there is also great opportunity for savings here, this also represents some of the most change and uncertainty from all major payor sources to hit hospitals at one time.

With these trends converging, many hospitals will face a longer and more complicated route to stable and predictable revenue and cashflow.

The good news is that hospitals can mitigate this risk by efficiently maximizing their patient-driven payments as a critical driver of the revenue cycle. Patient out-of-pocket payments, from both the insured and uninsured, currently make up only a small percentage of the overall payor mix. However, patient revenues represent one of the few growing revenue and cashflow sources that can be directly impacted by hospital management. From 2009 to 2011, the average amount of patient responsibility increased from 21 percent of total allowed charges to 26 percent, according to Instamed's “Trends in Healthcare Payments Annual Report 2011." As such, patient payments is a significant opportunity for forward thinking administrators.  

As providers work to maximize patient revenues, taking a closer look at the overall patient billing experience can optimize collection efficiency and minimize losses. This is not as easy as just sending a bill though. In many cases, even while patient portions are rising, millions of dollars are lost each year to bad debt or expensive collections efforts as patients are confused over bills and insurance. With the proliferation of high-deductible health plans and consumer-driven healthcare, patients are increasingly looking for more clear, user-friendly bills.

For providers to capture this opportunity, they must look beyond the prevailing assumption that patients are just unable or unwilling to pay bills. Recent studies by firms like McKinsey suggest the opposite is true, namely "more than 74 percent of insured consumers are both able and willing to pay their out-of-pocket medical expenses for annual liabilities less than $1,000 a year. Yet collection rates lag well behind these levels, even for relatively small payments."

As further motivation for action, the overall billing experience has growing evidence as a key driver of patient satisfaction for the hospital itself. Recent studies by firms like Connance have shown patients satisfied with billing are five times as likely to recommend the provider to a friend, and satisfaction is closely linked to recommendations. This suggests the impact of efforts to improve the billing and payment experience not only increases revenue and cashflow, but also improves patient satisfaction.

Overall, health reform is shaking up the traditional payor mix and the biggest sources of reimbursement, Medicare, Medicaid, and private insurance, are shifting. This all points to an urgent need to prioritize patient payments, the one area that is trending upwards. These trends coupled with changing patient expectations are forcing providers to re-think how they manage the overall patient experience to increase revenues while positively impacting patient engagement and ultimately loyalty. In the medium term, investing in a patient-friendly billing and payments experience becomes increasingly important as the implementation of the PPACA continues to unfold.

Tomer Shoval is a veteran e-commerce business leader, and a respected expert on the intersection of healthcare, technology and consumers. He founded Simplee in 2010 to deliver financial transparency to patients about what they owe and why, leading to increased trust with the billing process. Simplee is committed to being the leader in patient engagement and self-service patient payments (web and mobile).

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars