5 Reasons For Hospitals to Be Optimistic About 2011

1. The worst of the recession is over. In September, the National Bureau of Economic Research declared the recession had ended in June 2009. Oh, really? Of course, the economy is still rocky, but slowly and surely, the nation and the healthcare industry are slipping out of the recessions cold, clammy grip. For example, hospitals hired more than 5,000 employees in Oct. 2010, a five percent increase over Sept. 2010, according the Bureau of Labor Statistics. Recently, Covidien reported rising sales of capital equipment to hospital are a sign that hospitals are recovering from the recession. Most observers have stopped talking about a "double dip" recession.

Dose of reality: Even as the economy recovers, unemployment is expected to remain high, which translates into high levels of uninsured patients for hospitals. Chip Kahn, president of the Federation of American Hospitals, predicts the numbers of uninsured may get even higher in 2011. Meanwhile, hospitals are seeing a 0.4 percent cut in Medicare reimbursements for FY 2011 and Medicaid reimbursements are also expected to fall as higher federal matching grants give out in June.

2. ACOs offer a chance to innovate. While Medicare payments for accountable care organizations won’t start until 2012, some private payors already are setting up similar arrangements with selected hospitals and physician groups. More may start after CMS issues proposed ACO regulations, expected in December. Freeing hospitals of many reimbursement rules, ACOs will allow them to come up with their own ways to make the care process more efficient and improve quality. The new focus on innovative models of care is being orchestrated by CMS' new Center for Medicare and Medicaid Innovation, which plans to dole out $10 billion in funding for new projects in the next 10 years.

Dose of reality: The advantages of ACOs for hospitals remain sketchy until regulations are released. Based on results of the Medicare pilot that was the model for ACOs, it could turn out that the extra income earned by ACOs would not be enough to cover the expense of setting them up. Meanwhile, much of the savings ACOs would yield is likely to come from hospital budgets in the form of reduced admissions and ED visits.

3. Hospitals have learned how to align with physicians. As more care moves out of the hospital and fee-for-service is replaced by global payments, aligning with physicians is becoming a necessity. In the 1990s, hospital employment of physicians was generally a failure, but hospitals seem to have absorbed the lessons from that debacle. This time around, they have created incentives to make sure employed physicians stay productive. And they are trying out other relationships, such as affiliated physician networks, ASC joint ventures and co-management agreements for specialists. The MGMA predicts that within the next 10 years more than half of physician practices in this country will be employed by hospitals, and ACOs may speed up that trend.

Dose of reality: While primary care physicians and cardiologists have closely aligned with hospitals, many other physicians continue to resist the trend. Physicians still have a strong independent streak that doesn't disappear over night. Andrew Hayek, chair of the Ambulatory Surgery Center Advocacy Committee, predicts hospitals will eventually ratchet down payments and many physicians will sour on employment, dropping out of their agreements with hospitals.

4. Hospitals will embrace EHRs and become more efficient. Hospitals are expected to flock to electronic health records next year, when HHS starts paying them for implementing systems that meet federal meaningful use standards. One qualifying hospital could receive as much as $11 million and practices could get as much as $64,000 per physician. Altogether, the government plans to hand out as much as $30-$40 billion for IT upgrades. In addition to improving patient safety, this wave of healthcare IT is expected to improve processes, refine communications and enhance regulatory compliance.

Dose of reality: By 2009, only 12 percent of hospitals had adopted even basic EHR systems and because of their recession, many hospitals do not have the money to buy these expensive systems. Since meaningful use payments are awarded after implementation, they cannot be used to buy and install systems. And what about those purported savings? While EHR may reduce expenses over the long run, a study by Arizona State University researchers found costs for hospitals actually rose in the first three years of implementation.

5. Better payments for cardiac and neuro service lines.
The inpatient perspective payment system, which went into effect Oct. 1, raises relative weights 1.9 percent for MCD-5 cardiovascular DRGs and 2.2 percent for MDC-1 neurosciences DRGs. And as IPPS payments rise, hospitals are shoring up their cardiovascular service lines by hiring more cardiologists.

Dose of reality: While inpatient payments go up, some inpatient cardiac procedures are converting to outpatient status, where cardiac and neuro payments are dropping. Under the 2011 outpatient payment prospective system, which starts Jan. 1, will cut reimbursements for outpatient coronary stent placement and pacemaker procedures. The biggest drop will be for echocardiograms, which fall 13-25 percent.

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