Webinar Discusses 6 Strategies to Offset Reductions in Medicare Reimbursement

The healthcare system is so significant to the U.S. economy, and as such it is essential for all people involved to improve its effectiveness and efficiency, especially as major Medicare cuts are on the horizon, says Ken Perez, director of healthcare policy and senior vice president of marketing at MedeAnalytics.

Mr. Perez recently led a webinar titled, "Medicare Zero: An Analysis of Reductions to Medicare's Hospital IPPS and Ways to Improve Medicare Margins to Breakeven or Better." By understanding the history and significance of Medicare as well as the reductions to the inpatient prospective payment system for fiscal year 2012, hospitals can still find ways to offset the upcoming Medicare reductions — they just have to be diligent. "Medicare reimbursement is a major factor in hospitals' finances, and Medicare margins are already poor," Mr. Perez says. "The next 10 years look to be a perfect storm for hospital finances, but the process and delivery of care constitute an area of promising opportunities."

Significance and impact of Medicare today
With 47 million beneficiaries, Medicare consumes roughly 12 percent of the federal budget, Mr. Perez says. In FY2010, the total gross Medicare spending was $528 billion, and by 2020, that figure is expected to be near $1 trillion.

To break it down even further, four out of 10 hospital stays are financed by Medicare, and Medicare is the leading payor for hospitals, as it constitutes anywhere between 35 and 55 percent of a hospital's revenue. However, just because a hospital relies on Medicare doesn't mean it always covers all costs. According to recent figures, roughly 61 percent of hospitals lose money on Medicare, Mr. Perez says.

He notes that there are several reasons for the reductions to the hospital IPPS. The Patient Protection and Affordable Care Act is perhaps the most highly discussed issue, but he adds the documentation and coding improvement adjustments and the Budget Control Act of 2011 have had and will have significant implications as well.

DCI was a result of CMS changing from DRGs (diagnosis-related groups) to MS-DRGs (Medicare severity diagnosis-related groups). This change led to an unintended enlarging of Medicare outlays. Consequently, CMS has been applying DCI adjustments to hospitals to correct for past overpayments and to stop the flow of future overpayments. The BCA's implications for Medicare and hospitals are right around the corner, as the 12-person Joint Committee must find ways to reduce the national deficit by an additional $1.5 trillion over 10 years by November 23. In the event the Joint Committee does not agree on a proposal or its proposal is not approved by both chambers of Congress, the so-called "trigger" plan will be instituted, which would cap Medicare cuts at 2 percent, or an estimated $126 billion, and reportedly would be limited to cuts to provider payments. This could have far-ranging consequences for hospitals, as each IPPS hospital stands to lose millions of dollars, Mr. Perez says.

Strategies for hospitals to consider
With those somewhat discouraging figures in mind, Mr. Perez still says there are six strategies hospitals can employ to help offset the reductions in Medicare reimbursement.

1. Partner with clinical leadership. Mr. Perez admits this might be one of the hardest strategies for hospitals because it involves a hospital CFO saying, "Houston, we have a problem." To confront that problem, CFOs must work and meet with physicians, chief medical officers and other clinical colleagues to discuss strategies on how to decrease costs, improve quality and reinforce a financial-clinical partnership.

2. Perform detailed margin analysis. "As with both medicine and car repairs, we need to know where it hurts and what's not working," Mr. Perez says. Hospitals must identify what MS-DRGs have reimbursements that are significantly lower than the actual costs. This involves looking at all service line margins down to the physician and patient level, and perhaps most importantly, hospitals must perform ongoing margin analysis, he says. Isolated and sporadic analyses will not procure enough relevant results.

3. Engage with service line managers and physicians.
Establishing a clinical performance improvement action team with service line managers and physicians can be eye-opening in regards to identifying reasons for Medicare clinical denials and overall costs. Hospitals should focus on specific items, such as supply utilization, length of stay, drug costs, and readmissions within 30 days. Physician scorecards, for example, can help give a macro-level assessment as to why there are variations between several physicians' costs for performing the same procedures.

4. Revamp care coordination.
Evaluating and improving care coordination policies is one of the central themes of accountable care organizations. An improved discharge process can reduce costly and avoidable readmissions, and connecting with a local or regional health information exchange can help facilitate improved care coordination, Mr. Perez says.

5. Ensure efficient operating room utilization. The OR is a valuable, high-revenue and high-cost center of any hospital, Mr. Perez says. There are several ways a hospital's OR can reduce delays and costs, such as improved scheduling, standardization of processes and operational reporting. He adds OR throughput data analysis is a useful way to track these efficiencies. For example, variances in OR turnover time, delay incidence rate by surgeon and OR cycle time by procedure are some of the metrics that could be measured and gauged to improve the OR.

6. Improve emergency room operations. ERs present both staffing and space challenges to hospitals, and running data reviews on what is and is not working can trim off the cost-absorbing inefficiencies. "Data analytics can help assess the ER's supply and drug utilization, use of ancillary testing and perhaps most important, inappropriate usage," Mr. Perez says.

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Related Articles on Medicare:

6 Ways Hospitals Can Survive the Onslaught of Medicare Cuts
Opportunities in the New Bundled Payment Initiative
How to Navigate the RAC Appeals Process

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