Where the Rubber Meets the Road, Will Hospital Reimbursement End Up as Roadkill?

Nov. 19, 2013
Kaiser Health News has done an in-depth analysis of hospital payments related to the Value-Based Purchasing and Readmissions Reduction Programs mandated by the ACA, with regard to the potential impact going forward on hospital reimbursement. The implications, for those hospitals least prepared to meet the demands of those programs? Not good.

I was grateful to learn that the folks at Kaiser Health News had done an in-depth analysis of hospital payments related to the Value-Based Purchasing and Readmissions Reduction Programs mandated by the Affordable Care Act (ACA), with regard to the potential impact on hospital payments for fiscal year 2014. As the Kaiser Health News analysts noted, the “big-picture” number is this one: nearly 1,500 U.S. hospitals will be seeing their FY2014 reimbursement cut, based on their seeing outcomes that the Centers for Medicare & Medicaid Services (CMS) has deemed suboptimal in one or both of the programs.

And the costs of suboptimal performance. Let’s say, for example, that ABC Hospital ends up in the bottom quartile of performance in the value-based purchasing program, and also ends up as a poor performer in the readmissions reduction program. Taken together, ABC Hospital would face a 3.25 percent Medicare reimbursement cut. If ABC Hospital is a typical community hospital with a typical 50 to 60 percent of its revenues coming from Medicare (let’s say 55 percent here for the sake of argument), that would mean a 1.7875-percent overall loss of revenues for FY 2014. And if ABC Hospital is running on a 2-percent operating margin overall, a 1.7875-percent loss of revenues would be a financial catastrophe.

Now, to add to the implications of this, let’s imagine that some commercial health insurers will follow Medicare’s lead and begin applying value-based purchasing and readmissions reduction formulas to their contracting—something that seems incredibly likely, given that commercial payers have followed Medicare’s lead in most respects, for decades now. Now we’re talking about potentially crippling reimbursement cuts.

Yet astonishingly, many hospital leaders still haven’t built the robust IT infrastructure required to master the challenges of these two core provider-focused ACA programs. Yes, it’s true, there are many obstacles to doing so. A hospital needs to have fully implemented, and begun already to optimize, its use of its electronic health record and other core clinical information systems. On top of that, its leaders need to have built a robust data warehouse, to have purchased or created strong data analytics systems, and to have hired or promoted internal people into key analytics and clinical informatics positions. And it would help to have a CMIO!

But the reality in any case is that it is far from automatic for any hospital’s leadership to be able to position their organization optimally to meet the requirements of these two programs. Indeed, only a minority of hospitals even now are well-positioned for value-based purchasing and readmissions reduction.

So the results of this Kaiser Health news analysis will probably come as a shock to many in the hospital world. They shouldn’t; this “news” has been predicted for at least three years now. But, as the proverbial rubber meets the proverbial road, everything starts looking different once one begins to talk about real money.

So the time is now, and indeed, the time is already past, but now is definitely a better time than never!!—to get moving in these absolutely essential areas. For hospital leaders to assume that “everything will be fine” when it comes to potential reimbursement cuts coming out of the value-based purchasing and readmissions reduction programs, would be beyond-foolhardy.

In the meantime, we at Healthcare Informatics are dedicated to helping our readers learn about the latest innovations in these areas. And fortunately, the true pioneers in the industry are moving forward decisively on both value-based purchasing and readmissions reduction. Stay tuned, as we bring more reporting on the innovations being created and executed in this areas going forward. And expect a bumpy ride down this particular road to the future.

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