At the Margins

Our latest insight into health care margin improvement efforts

Experiencing MS-DRG volatility post ICD-10? You're probably not alone.

by Jordan Kreke December 7, 2016

While the ICD-10 transition is in the rearview mirror for most organizations, several of our members have reached out to us asking if we have heard instances of year-over-year volatility in certain MS-DRG volumes—and whether any fluctuations in certain DRG volumes could be related to post ICD-10 transition issues.

In response, we sifted through the recent CMS final inpatient regulations, along with some recently available claims data to try and answer the question. While our analysis did reveal some instances of MS-DRG volatility, the picture is not fully conclusive without a full set of FY 2016 claims detail. If your organization suspects any seemingly inexplicable shifts in volume that may be related to coding changes under ICD-10, we would love to hear about where you are seeing such impacts.

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Don't believe the headlines: Why you shouldn't look at VBP results in a vacuum

by Cameron Ferrey November 29, 2016

With the recent release of the final adjustments for CMS's Hospital Value-Based Purchasing (VBP) Program, we now have results for two out of three of CMS's inpatient pay-for-performance programs—the other being the Hospital Readmissions Reduction Program (HRRP).

Much of the media discussion has focused on the "half win, half lose" VBP story, but that narrative misses the broader picture: In reality, when program results are stacked together, more hospitals will find themselves facing reduced Medicare payments when all is said and done.

As has become custom, readmissions data are typically released in August each year while the VBP and Hospital-Acquired Condition (HAC) results follow in Q4. In each of the last two years, the VBP and HAC results were simultaneously announced in mid-December, but this year VBP results were released earlier, on November 1. HAC penalties remain unannounced for the time being.

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Rethinking the definition of "unfunded care"

John Johnston, CPA, MHA November 17, 2016

We all know the definition of charity care and the moral obligation to provide services to those who cannot afford to pay for their health care. We also know the magnitude of bad debts that hospitals write off every month. The sum of these two realities is a burden all hospitals carry.

But there is another layer of unfunded care that can impose an even greater financial burden on a hospital, without in any way furthering the hospital's mission-related efforts—stemming from inpatients whose length of stay (LOS) exceeds the Medicare Geometric Mean Length of Stay (GMLOS). These patients incur care delivery costs that extend beyond the time period Medicare uses to set DRG weights, which drive payment levels. It is important for hospital leaders to help their clinical teams understand the financial magnitude of this gap and then direct improvement programs to optimize care delivery within this patient population.

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CY 2017 Outpatient Final Rule: Early impressions of the site-neutral payment provision

Kenna Hawes November 2, 2016

Late yesterday, CMS released its much-anticipated Hospital Outpatient Prospective Payment System Final Rule for calendar year (CY) 2017. Tune into our webconference on November 16 to learn more about the biggest developments from the 1,377-page regulation.

The final rule provides a positive payment rate update for hospital outpatient departments (1.7%), with total payments expected to increase by $773M in 2017.

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When patients become consumers, what's the impact on hospital finances?

by Lulis Navarro October 20, 2016

As individuals continue to swap low premiums for high deductibles, the accelerated rise in patients' financial responsibilities presents an emerging threat for hospital margins. CFOs often ask us, "How will my hospital's finances be impacted by health care consumerism?"

To begin to answer this question, we used a financial model to quantify the impact of a consumer-driven market. The bottom line: as things stand, there is no scenario under which hospital finances will look better than they do today. In fact, our results indicate that the average hospital could lose between 4% and 20% of net revenue.

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Poor surgical planning is costing you—and your patients

John Johnston, CPA, MHA , Sharon Ward, RN, MS, CEN October 10, 2016

With competition for surgical referrals intensifying, many hospitals have streamlined the process of getting patients from the surgeon’s office into the operating room (OR). A reduced lead time may be advantageous for a healthy 25-year-old who schedules elective knee surgery, but not all patients benefit from such a compressed timeframe: An unintended consequence of the well-oiled scheduling system is that it leaves the most complex patients—the elderly or those with chronic conditions—unprepared for surgery and at greater risk for complications, a longer inpatient stay, costly readmissions, and a higher-cost surgical episode.

With rising performance penalties and more payment tied to risk, some hospitals are recognizing the need to create a separate, more involved pathway for those high-needs surgical patients. This model—the perioperative surgical home—is capturing the attention of hospital leaders who are struggling with surgical costs and outcomes and are looking for an innovative approach.

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Why liquidity matters: On bond ratings, borrowing costs, and default risk

Trevor Goldsmith September 30, 2016

Although many hospitals and health systems are struggling with the demands of payment transformation and a rapidly evolving and increasingly consumer-oriented market, aggregate total margins in the hospital industry are in fact at a 20-year high, hitting over 8% in 2014. Plenty of organizations are using the cash to bolster their financial reserves. But hospital executives—often motivated by board members concerned about maximizing their service to their communities—frequently question the necessity of adding to rainy day funds.

So without attempting to settle the question of how much liquidity is enough (it will vary by organization), we’d like to offer some thoughts on why liquidity matters in the first place. To do so, we are going to need to consider the interaction between hospital finances and the credit market.

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Need to cut costs? You may be looking for savings in the wrong places.

by Jenna Koppel September 23, 2016

Hospital and health system leaders are always telling us they need to cut costs. In 2014, nearly 80% of health system executives reported goals to cut costs at their facility by at least 5% across the next three years, and 19% reported they needed to cut at least twice that amount.

Cutting costs is always difficult, but many executives make it even harder by using the wrong approach to identify areas for cost savings. All too often, leaders set targets based on current budget allocations. So, the biggest budget categories are expected to yield the bulk of savings. (For example, if salaries and benefits accounts for 50% of the budget, leaders often expect about 50% of total savings to come from salaries and benefits.) The problem with this approach is that it doesn't provide insight into the opportunity for savings within each category.

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