At the Helm

RAND says MACRA could hurt hospital revenue by $250 billion. Here's our take.

by Yulan Egan

There's a new study out in Health Affairs that could put hospital and health system leaders on edge.

RAND Corporation researchers found that under MACRA, Medicare spending on hospital services through 2030 could fall by up to $250 billion—or increase by up to $32 billion. They also found that Medicare spending on physician services could fall by $35 billion to $106 billion.

Here are our big takeaways from the study.

1. Take the findings with a grain of salt

It's important to remember that these study results are projections, and the authors themselves stressed that they "are subject to a high degree of uncertainty."

The researchers projected Medicare spending between 2015 and 2030 under three MACRA scenarios with different assumptions about financial incentives under alternative payment models (APMs). They also made assumptions about physician participation in APMs based on those financial incentives.

In addition, they acknowledged that MACRA regulations could change and that "elements of MACRA such as the definition of APMs will also change over time." (You can read more about the study findings and methodology in a recent Daily Briefing article).

2. MACRA could hurt hospital revenues overall

Even with the broad range of outcomes, the study still makes an important point: MACRA has the potential to significantly hit hospital revenues, depending on the extent of physician participation in the Advanced APM track. It wouldn't be a surprise if MACRA reduces hospital revenue overall, since it is intended to reward participation in APMs that aim to reduce costs and improve quality. But some of the reduction in hospital revenues likely would come from hospitals' own efforts to bring down costs, since many physicians only will participate in APMs alongside health systems.

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3. Health systems need to take action now to be prepared

That MACRA could decrease Medicare spending on hospital services does not mean that providers should avoid participating in APMs.

Far from it—CMS has made it clear that it intends to increasingly tie payments to value over time. MACRA also appears to be here to stay; it has received widespread bipartisan support and GOP lawmakers did not propose changing the law as part of their recent efforts to repeal the ACA.

But health systems need to take four steps now to make sure they're positioned to succeed. They should:

Develop their own Medicare risk strategy, especially as it relates to a path to APM qualification. Given the threat to hospital revenue, health systems should view participation as an opportunity to help control the pace of transformation in their market.

Focus on physician alignment. If the overall size of the hospital revenue pool is at risk of shrinking, health systems will need to maximize referrals to capture a larger share of the market. MACRA may open up new opportunities for partnership with physicians who have historically wanted to remain independent.

In particular, the slow pace of payment rate growth for physicians under MACRA will put tremendous pressure on them to become more cost efficient, driving many to seek the resources and support of health systems. Competitors, in the form of other hospitals, large physician groups, and MSOs, will also recognize the opportunity for partnership, so health systems will need to move quickly and be proactive.

Double down on cost reduction. If hospital revenues are going to shrink, the best way to prepare is to improve cost structure. Health systems will increasingly need to move beyond labor and supply cost reduction and focus on more challenging elements of cost control such as reducing care variation and streamlining fixed cost structures.

Focus on revenue cycle performance. Hospitals will need to focus more on minimizing avoidable denials and underpayments while also improving their consumer-centric approach to collections. This will become especially important in commercial patient populations given the potential reduction in Medicare revenues.

Get ready for MACRA quality reporting

The 2018 MACRA reporting deadline is now less than a year away and the majority of providers still feel unprepared to report on their quality measures and unsure if their quality improvement strategy will lead them to positive or negative payment adjustments.

Join our webconference on April 27 to hear our expert take on how to get your organization ready.

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