Archive for July, 2011

HIPAA on Steroids!

Protecting a patient’s privacy has always been important, but now it rises to a new critical level. The Health Information Technology for Economic and Clinical Health Act (“HITECH”) put the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Privacy and Security Rules on steroids. Specifically, HITECH created financial incentives for healthcare providers to adopt and implement electronic health records, increased the penalties for breaches of HIPAA Privacy and Security rules and mandated the government to audit healthcare plans, clearinghouses, healthcare providers and business associates for compliance with HIPAA.

First, providers are eligible for financial incentives if they adopt, implement and “meaningfully use” electronic health records. In order to be deemed a “meaningful user”, the providers must attest to satisfaction of specific objectives and measures. The objectives are based upon five specific policy priorities; one of which is ensuring the …

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The Call for Fair Compensation

Periodically, the topic of nonprofit executive compensation arises. As a CPA working with healthcare organizations, I am often involved in structuring, reviewing and reporting on compensation plans for our clients.

On July 5, 2011, an article written by M. B. Pell was published in The Atlanta Journal Constitution addressing the topic of chief executive compensation at several tax-exempt, Atlanta area hospitals. In that article, a former state Department of Community Health Commissioner expressed an opinion that when a tax-exempt hospital’s CEO has a salary rivaling that of corporate executives, the charitable work [of such hospitals] is obscured by the pursuit of profit. The individual is quoted as saying [about high CEO salaries], “I think it makes a statement about what their priorities are, and I think that’s the bigger issue. It displays a lack of sensitivity for the communities they serve.” I disagree.

Tax-exempt organizations do not have shareholders in the …

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Definitions and Measurement

Thomas Edison’s famous quote: “Genius is one percent inspiration and ninety-nine percent perspiration” applies to every idea in health care policy, even those that only rise to level of common sense. Why the sweat? Because policy prescriptions need precise definitions to become operational: definitions of measures, standards, processes and outcomes. Definitions are difficult enough to create on a technical level, but to be useful they must also be understood and accepted by all participants.

Transparency in health care, for example, is one of the many phrases in health policy whose definition often varies from the reader to reader.  In general transparency means more information available to decision makers: consumers, providers, or policy makers. Operationalizing transparency however requires exact standards, precise wording, and clear goals.

For example it is often asserted (by myself and others) that if consumers had information on the costs of health care services and the …

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Trends in Healthcare Facility Transaction Valuations

In a period of consolidation within any market or sector, there will inevitably be a dramatic evolution of trends related to transaction rationale, deal structures and valuation trends.  With the rise in consolidation and transaction activity amongst healthcare provider organizations, such as hospitals, health systems, medical groups and ancillary provider entities, we have undoubtedly witnessed a time of significant evolution within this space.  And with the added factor of a major recession within the broader markets, the fluctuation of valuations in healthcare deals have indeed been interesting, to say the least.

For the past three to five years, “clinical integration” has become top of mind for executives in both hospital administration and medical group leadership, and this refers to the growing trend of alignment between medical groups and health systems.  Now that we have observed a few years of clinical integration, we have been able to compile enough data that allows …

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A Foundational Component to Reducing Healthcare Costs – Bundled Payments

The challenge of reducing healthcare costs in the U.S. is analogous to our country trying to be energy independent. Both are complex, achievable, will take time to solve and require a combination of solutions. Until we discover technological breakthroughs that cost effectively meets the market demand, challenges can be overcome with existing resources.

A foundational component to reducing the cost of healthcare is a reimbursement model for hospitals and physicians called “Bundled Payments”. This form of reimbursement addresses one of the underlying reasons for the escalating expense of healthcare. This is the misalignment of how hospitals and physicians are compensated. For example, hospitals are paid a set fee by Medicare for patients with a specific diagnosis. So regardless of how long a patient is in a hospital or the number of medical tests performed, the hospital is not compensated any more than the specified amount. Therefore, hospitals are incentivized to deliver high …

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Lowering Access with Telehealth

Many state public schools are now offering on line courses for elementary and high school students. These online curriculum could one day replace the brick and mortar institutions that students have traditionally attended. Technology continues to change the way we operate businesses in various fields. While reading about the importance of these education programs I thought about the field of Telehealth. It is analogous because the goal is similar; use technology to interact with clients in remote locations. Telemedicine may go one step better because it offers the exchange of both visual and auditory information to diagnose, train and teach patients and health care professionals alike.

Telehealth helps lower access to medical care through providing cost effective access to nursing services, primary care providers and specialist. This can be a great help in the area of ambulatory care as well as hospital medicine in both urban and rural areas. American Medical News recently …

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Is Consolidation a Good Thing for Healthcare?

Two weeks ago, I noted the heightened M&A activity across the nation and here in Georgia for hospitals.  Other bloggers on HealthFlock like Mark Reiboldt have also noted the expected wave of consolidation in a recent post.  With so much talk about the topic, I think it worthwhile to pause and ask ourselves what value consolidation brings to our industry.   From my vantage point, I have heard some argue that this is desperately needed for entity survival; others loudly state that it’s a fade and will inevitably lead to poor returns and future divestitures, as seen by failed mergers in other industries. 

To give an opinion, I’ll first note a few reasons why we’re seeing increased M&A activity in the industry.  According to in-depth analysis, The Advisory Board Company has claimed that five forces are responsible for this trend (to which I would generally agree):

  • Favorable Market Environment (e.g. low interest rates ease access to capital)
  • Increased Revenue Pressures (as a …

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The Implementation Headaches of Meaningful Use: Part 1

I name this post The Implementation Headaches of Meaningful Use Part 1 not necessarily because I plan a Part 2, 3, etc., but instead because I believe those Parts are inevitable in this process. Whether you like it or not, America is going to an Electronic Health Record. Not only are we going to an Electronic Health Record, but by gosh it is going to be Meaningful! Hence, the Meaningful Use requirements of the HITECH act. The Federal Government not only wants providers to adopt Electronic Health Records, but they want that adoption to lead to significant improvements in care.

It is an admirable goal, and in theory, it seems like a decent idea. However, as with all good ideas in theory, there is always reality to be faced, and reality is not always as rosy. We are currently on the eve of Stage 1 Meaningful Use Implementation. That means for eligible hospitals there are 24 Meaningful Use objectives to implement. There are 14 Required Core Objectives, and 10 additional …

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The “Cost of Capital” and Total “Cost to Own”

“Free Cash” isn’t actually free at all. Your capital has a cost whether it’s the cost of your long term bond financing, your shorter term capital equipment financing, receivables based cash flow line or any other money. All your cash has a cost.

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Your physician’s business relationships may be hazardous to your health

Consumers today need to take ownership understanding their physician’s motivation when they recommend surgery especially when it entails implantable products for surgical procedures such as a spinal fusion, knee or hip replacement. This motivation may be more than to help address a patient’s medical issue. It may also be a means for the physician to increase their personal income.

There is a growing trend in the healthcare industry that some physicians would not like consumers to know about. This trend is the development of physician owned distributors (PODs).  A physician owned distributor is a medical products supplier to hospitals that is partially owned by a physician or group of physicians. The primary role of the physician owned distributor is to provide products to its physician investors at the hospitals they practice medicine.

An example would be an orthopedic surgeon that performs hip and knee replacement surgery. This surgeon is an investor in the physician owned …

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