Christopher Kerns, Health Care Advisory Board
November 15, 2011
Hospitals and health systems across the country are beginning to recognize an unfortunate reality: per-unit pricing from all payers, public and private, is likely to grow far less quickly over the coming decade than in previous years. While efforts to negotiate sufficient rate increases from commercial payers will continue, providers have little leverage over Medicare and Medicaid pricing decisions. As prices stagnate, it becomes more important than ever that hospitals manage to collect every dollar earned. Yet the gap between price and actual collections can be expansive, and changing market circumstances threaten to widen it further.
Inaccurate coding leaves money on the table
It is no secret that imperfect coding and documentation practices can lead to the loss of significant revenue when services performed are not accurately reflected in billing. The Advisory Board has found that even a moderately successful coding and documentation improvement program could yield nearly $2 million for a typical 300-bed hospital and a best-in-class program could offer up to $4 million in benefit.
The imperative to improve documentation practices is only growing stronger. For one, the impending transition to ICD-10 means the potential exists for more frequent denials, under- and over-coding mistakes, and even payer-side errors. Post-payment audit initiatives, such as the Medicare Recovery Audit Contractor program, further heighten the importance of accurate documentation. And as the patient population becomes more complex and multiple comorbidities become more common, the chance that a relevant condition that affects billing is missed becomes greater.
Quality shortfalls erode revenues
Even if coding and documentation were perfect, the increasing prevalence of pay-for-performance programs means a substantial proportion of revenue remains at risk. Leaving aside the quality risk inherent in optional arrangements like the Medicare Shared Savings Program, hospitals and health systems will certainly be facing performance risk through new penalties for readmissions and hospital-acquired conditions.
Furthermore, Medicare’s Value-Based Purchasing Program withholds 1% of Medicare inpatient revenue beginning in 2013 and scales up to 2.5% over 5 years. To earn back the withhold, hospitals need to excel on a variety of quality metrics. Those who do best will actually earn back more than is withheld, but poor performers will earn less. As payer mix shifts more toward Medicare, even a few percent loss of Medicare inpatient revenue will have a dangerous impact on operating margins.
Patient collections increasingly important, even after coverage expansion
Hospitals can also expect greater risk for patient collections. Employers are already beginning to shift more financial responsibility for health benefits onto their employees. The coverage offered through insurance exchanges beginning in 2014 is expected to leave a greater share of costs to patients than has been typical for commercial insurance.
A number of proposals to restrict Medicare spending involve higher co-pays, higher deductibles, or both. Hospitals have long struggled with patient collections, and while coverage expansion will reduce the number of fully self-pay patients, the collections risk for insured patients will be greater than ever.
Advisory Board support through challenging times
Health Care Advisory Board, Clinical Advisory Board, and Financial Leadership Council members may access Customized Medicare Value-Based Purchasing Impact Assessment to estimate the financial impact of CMS's Value-Based Purchasing program. Newly updated to include the changes proposed in CMS’s November 1 Outpatient Prospective Payment System CY 2012 Final Rule, the tool accounts for new quality measures will be introduced to the program in FY2014, most notably three mortality measures.
Preliminary analysis of the data demonstrates that even those hospitals that are estimated to perform well under the VBP program in FY2013 could be significantly impacted by the inclusion of the new measures in FY2014. In fact, over 60% of hospitals may see a swing in payments of at least 0.1%. Almost 10% of facilities see a swing of a full quarter point or more (in either direction), largely driven by the introduction of the mortality outcomes measures. While such payments amounts may sound relatively minor, at a facility level the impact on hospital payments could be considerable. Access a facility-specific estimate of your incentive payment.
Learn more about the challenges ahead
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