Managing the Impact of Healthcare Reform

How prepared is your organization to recognize and embrace the new and changing healthcare regulations that will no doubt impact both ‘big picture’ strategy and day-to-day operations in the coming years? Understanding what these changes mean on every level will be critically important, especially as hospitals strive to provide the highest level quality care to patients at the lowest cost. The Patient Protection and Affordable Care Act (PPACA) and the related Health Care and Education Affordability Reconciliation Act of 2010 (HCEARA) were signed into law in March of this year. Due to the depth and breadth of the impact of these two laws, they together represent the biggest change to affect hospital finances since the Medicare program adopted the DRG-based prospective payment system in 1983. As typical with any healthcare legislative changes, some of the provisions in the laws will have a positive impact on hospitals, while others will have a negative impact. In either case, making sense of the details can be a daunting challenge, especially with so many sweeping changes occurring at once. Although clinicians practicing on the front lines of cardiology may not see the direct impact of these changes, they MUST understand that they WILL impact their program in various ways —most particularly, because they will impact patients. Patients already monitor their healthcare costs, especially as increasing numbers of procedures may require an “out of pocket” fee, which could affect procedure volumes in some cases. Additionally, as a clinician, it is important to understand that the decisions made during a cardiology procedure, such as which medical device or pharmaceutical to choose, will no doubt impact not only the patient bill, but the hospital’s reimbursement as well. We believe that taking time and effort to study the legislation and understand the financial implications will be key as hospitals develop strategies to avoid fiscal penalties, while taking advantage of potential opportunities. Specifically, the expansion of insurance coverage, the Value Based Purchasing Program, the Hospital Readmissions Reduction Program, and the Medicare & Medicaid Health Care-Acquired Conditions (HAC) Payment Polices may provide some opportunities for financial benefit to the hospital. Of course, as the hospital benefits, there will be more resources available for the cath lab and other departments. To further explore the recent legislation, we have outlined some ideas for service line administrators and/or department leaders to better understand this fiscal impact.

Insurance Coverage

The main positive change will be the movement of patients from self-pay to covered. By 2014, the Acts will provide insurance coverage to an estimated 32 million Americans who are currently uninsured. Even though coverage for all will not be completed until January 1, 2014, there are some groups that will be eligible for coverage before that date. Coverage expansion began 90 days after the enactment of PPACA for those with pre-existing medical conditions. The healthcare reform bill provides funding to create a network of temporary, state-based, high-risk insurance pools for people with pre-existing medical conditions who do not have insurance. The pools are intended to bridge the gap until 2014, when insurance companies will no longer be able to deny coverage to anyone based on pre-existing conditions. On September 23rd of this year, insurance coverage was extended for dependent children to remain on their parent’s policies until the age of 26. Also enacted as of this date, the Acts requires all employers of 50 people or more to provide health insurance coverage to their employees. Then, beginning in 2014, the Medicaid program will be expanded to cover anyone whose household income is less than 133% of the federal poverty level. Also effective in 2014, most individuals who are not covered by an employer or government plan will be required to obtain health insurance coverage. With the expanded coverage, many industry analysts believe that that the number of procedures will increase. Corazon believes this could be especially true for cath labs, since many of the poor and uninsured who have not seen the benefits of the advances in interventional cardiology will now be eligible for treatment. For frontline clinicians working within cardiology, this change may impact the number of patients, the number of types of procedures, as well the time spent performing procedures. Which inevitably raises the question — are you equipped to handle an increase in volume? Do you have adequate staff (in numbers and/or skill sets)? Do you need to expand hours of operation, and if so, does the hospital have capacity to handle an increased patient population, be it an increase in observation status or inpatient admissions? A savvy service line administrator will have the foresight to begin a plan for the growth in these areas. Proactive planning for such increases and changes will be essential to a smooth transition after the enactment of these laws. And, if managed appropriately, this approach will no doubt increase the bottom line for the program, and in turn, the hospital. This change in coverage should increase hospital revenues, but there is still the risk that some individuals will not enroll. To further reduce uncompensated care, Corazon recommends hospitals provide staff and community education on insurance coverage options and programs that will help potential patients enroll in insurance plans as soon as they are eligible.

Value Based Purchasing Program

For many years now, hospitals have been reporting quality measures in order to receive the full annual reimbursement payment update amount. But, as expected, simply reporting scores will no longer be enough to receive the incentive payment. Starting in October 2012, the Value Based Purchasing (VBP) program will reward only those hospitals with good quality scores. And, the focus will once again be directed to key procedures that have already been the subject of scrutiny: acute myocardial infarction, heart failure, and pneumonia, along with surgeries from the Surgical Care Improvement Project, healthcare-associated infections, plus the facility’s score on the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey. Hospitals that meet or exceed the quality standards set by the Secretary of Health and Human Services will receive an increase in their Medicare payment effective October 1, 2012. Though this may seem to be the distant future, it’s most certainly not! Opportunities to improve performance are limited, since the time period that will serve as the basis for the payment will begin in October 2011. Since the program is designed to be budget neutral to the Medicare program, it appears that hospitals not meeting the quality standards will be paying for hospitals that perform well. Essentially, hospitals that do not meet the quality goal will see up to a 1% reduction in their Medicare payment rate. Over the next four years, the risk or reward will increase 0.25% annually. Corazon advises that administrative, physician, and program leaders at all levels of an organization know the quality scores over a range of key services — heart, vascular, and neuro among them. Indeed, not knowing performance scores, even from a broad perspective, puts the hospital at a disadvantage — because an understanding of current performance leads to an understanding of opportunities for improvement.

Hospital Readmissions Reduction Program

Medicare’s payment policy with regards to the Readmission Reduction Program does not offer any increase in payment. The opportunity here is avoiding payment cuts. Hospitals with higher-than-expected readmission rates would receive a reduced payment for every Medicare discharge. The payment reduction could be as much as 1% starting in October 2012 and increasing to 3% by October 2014 and thereafter. For the first two years, the payment policy will be based on readmissions related to three conditions: heart failure, heart attack, and pneumonia. In October 2014, chronic obstructive pulmonary disease (COPD), coronary artery bypass graft (CABG), percutaneous transluminal coronary angioplasty (PTCA), and other vascular procedures will be added. As a result of this new policy, cath labs will need to closely examine their operations to identify and eliminate the causes of readmissions. Are clinicians performing staged procedures wherein they bring patients in multiple times to repair several lesions? For angioplasty patients, the concern would be restenosis of the treated vessel within the 30-day period. Further, many patients are still leaving the hospital without a prescription for a platelet inhibitor. As the Readmission Reduction Program gets underway, hospitals whose readmission rates increase due to such practices may suffer financially.

Medicare & Medicaid Health Care-Acquired Conditions (HAC) Payment Policies

Medicare currently reduces payment to hospitals for cases in which one of a select number of secondary diagnoses was not present on admission but present upon discharge, and therefore is considered to be a hospital-acquired condition. Beginning in October 2014, Medicare will increase the penalty by reducing payments for such cases by 1%, in addition to the current payment reductions made for HAC cases. Beginning as early as July 2011, state Medicaid programs must adopt payment policies that are similar to Medicare’s current HAC payment policy. The policy must ensure that the hospital does not receive a higher payment due to the HAC. Indeed, a hospital may be unjustifiably penalized for an HAC if staff is not properly trained to document the specific condition as being present on admission. Therefore, staff training is necessary to assure all existing conditions are captured upon admission. Further, to avoid financial penalties, hospitals should implement systems that can help to minimize hospital-acquired conditions, such as an infection associated with a vascular catheter. Corazon believes hospitals that have invested in carefully educating their staff to these changes will be able to avoid penalties and receive correct payment for the care delivered to patients based on an accurate record of existing conditions.

Payment Cuts

Approximately half of the cost of all the legislation discussed above will be financed through savings generated from the healthcare system: The Medicare and Medicaid programs will reduce payments to hospitals. Hospitals may also feel the legislation’s payment cuts to others in the healthcare delivery chain such as insurance companies, pharmaceutical manufacturers, and device companies. Medicare adjusts payment rates annually by a market basket update factor. The market basket factor adjusts the Medicare payment for inflation. Starting in April 2010, and every federal fiscal year thereafter, starting in October, the market basket update factor will be reduced by 0.25% or more over 10 years to result in a 0.75% payment decrease by fiscal year 2019. These reductions will impact both inpatient and outpatient Medicare payments. Beginning in 2012, these reductions to the market basket update factor may be partially offset by a new annual productivity adjustment that will reflect increased productivity in the U.S. economy. In 2014, Medicare and Medicaid will reduce their Disproportionate Share (DSH) programs, which help to offset the cost of caring for indigent patients. The legislation assumes that the need for DSH payments will shrink since more people will have some form of insurance coverage according to other provisions of the legislation. It will be difficult to project the impact of the productivity adjustment or the reduction in DSH payment, but hospitals can prepare for the reductions in the market basket updates now by optimizing billing and collection processes and reducing costs. This is particularly important in the cardiac areas, because cardiac cases can result in high margins, but only if costs are managed, and the cases are coded and billed correctly.

Expansion of the Recovery Audit Contractor (RAC) Program

The Recovery Audit Contractor program, which currently audits Medicare Inpatient (Part A) and Outpatient and physician (Part B) claims is being expanded to include Medicare Advantage (Part C) and the Medicaid program. By December 31, 2010, each State must establish a similar RAC program for Medicaid under which the State contracts with a recovery audit contractor to audit Medicaid claims, with the goal of identifying improper payments made to hospitals and other providers. The RAC program was developed to help the Centers for Medicare and Medicaid Services (CMS) identify improper payments made by Medicare. The RAC contractors are private companies that identify overpayments or under payments made to hospitals and other healthcare providers in order to recover overpayments or return underpayments. Ninety-six percent of the errors were overpayments. With the expansion into Medicare Advantage and Medicaid claims, the financial exposure to hospitals could increase dramatically. The following steps can be taken to prepare for these audits:

• Visit the RAC websites to see what types of improper payments are being found; • Conduct an internal assessment to identify whether or not your hospital is in compliance with Medicare rules; • Identify corrective actions to promote compliance, such as an internal committee that will review cases and provide detailed action plans if indicated.

Percutaneous coronary intervention (PCI) inpatient cases have been heavily audited by RACs due to the relative short length-of-stay for the procedure. Therefore, the auditor’s main focus is to determine whether cases truly qualify as admissions. If the auditor determined a PCI case did not qualify as an inpatient admission, the hospital would be liable to repay the difference between the higher inpatient rate and the lower outpatient rate. The best prepared hospitals have documentation that reflects the intensity of services delivered and the severity of the patient’s illness in order to justify the admission. In summary, The Patient Protection and Affordable Care Act (PPACA) and the related Health Care and Education Affordability Reconciliation Act will no doubt impact the financial future of all hospitals — regardless of size, region, or scope of services. By understanding the changes and taking the appropriate actions, hospitals can flourish in the new healthcare legislative environment. ———————————————————— Cathy is a Lead Business Consultant at Corazon, offering consulting, recruitment, and interim management for the heart, vascular, and neuro specialties. Visit www.corazoninc.com for more information. To reach Cathy, call (412) 364-8200 or email cdinardo@corazoninc.com.