New Payment Changes Impact Community Hospitals

Community hospitals are at the center of the reimbursement changes driving changes in the delivery of care. On April 1, 2013, the Centers for Medicare and Medicaid Services (CMS) will cut Hospital Periodic Interim Payments (PIP), Critical Access Hospital (CAH) and Cancer Hospital interim payments, and pass-through payments for Graduate Medical Education, Organ Acquisition, and Medicare Bad Debts by 2%. This 2% cut is an addition to the 1% cut that was initially instituted for acute care hospitals under the American Taxpayer Relief Act which was intended to correct the fiscal cliff in January. This additional 2% cut is due to the sequestration cuts that automatically go into effect. Many hospitals rely upon the PIP payments from Medicare to be able to cover costs and often times provide funds for day-to-day operations. Accordingly, on Monday, hospitals will be suffering a 2% cut on their operating revenues.

In addition to the CMS budget cuts, the third-party insurance marketplace is also changing. Recently, there appears to be an influx of high deductible plans or modifications to employers’ benefit plan designs in order to minimize the increase in the premiums from one year to the next. It appears that many employers are instituting different health plans that either offer a different type of coverage for health benefits or places a larger portion of the premium or deductible on the employees. Accordingly, when individuals have high deductible plans or have a larger financial responsibility, individuals will often think twice before going to a doctor or having an elective procedure. If you are an individual who previously had insurance through your employer that provided full coverage and a low deductible or low co-insurance, you would often go to the doctor without hesitation when you had a medical need. People are starting to think twice about whether or not to go to the doctor or have an elective procedure done in light of the deductible or their own personal responsibility for the cost. A combination of the cuts to the Medicare Program as well as the changes in the insurance marketplace is impacting hospitals’ bottom lines.

Even without the change in the insurance marketplace, the beginning of the year is a time when most people do not have elective procedures or go to their physician a lot, unless they are very sick, because the deductible has not been paid yet. Typically during the months of November and December, people will go to the hospital for their elective procedures or to see their doctor, because the deductible has been met over time during the year. So the combination of the low volumes of patients and the immediate CMS cuts due to sequestration will serve as a double whammy for hospitals in the 1st and 2nd quarters of 2013.

Hospitals are strategically looking outside of the box to figure out what other additional sources of revenue are available to be able to operate the hospitals, pay their staff, purchase the proper equipment and supplies and ensure that the hospital is available to the community. This is becoming a harder and harder issue for rural hospitals and it also is now impacting the larger community hospitals as well. Thus, driving changes in the model of how they deliver care, how acute care hospitals engage patients and strategic growth in new services to ensure that they can continue to make sufficient revenues to support the hospital’s viability. Obviously, these changes are being driven by financial concerns, but ultimately, these changes are changing how healthcare is actually delivered, one of the goals of the Healthcare Reform Act.

Specifically, hospitals are moving towards financial and clinical integration with not only physicians, but other healthcare systems to offer a full spectrum of services at a lower cost. Hospitals and healthcare providers are also looking at ways to try and engage the patient, so the patient is more accountable for his or her care, to prevent readmissions, inappropriate hospital visits and to ensure compliance with medication treatment plans. All of these initiatives are slowly, but surely, starting to change how healthcare is delivered and it is forcing healthcare providers to think outside of the box.

Patients are a key component of how services are delivered. Today, patients are more engaged in considering the cost of healthcare because of their own personal responsibility for their insurance premiums. However, patients must also be more accountable for ensuring that they engage in good healthy behavior, comply with medication treatment plans and comply with the instructions of the physicians. Everyone has a part to play in making sure that hospitals are available for the community’s acute care needs. Without the entire community working together to change how healthcare is delivered, the shortage of the dollars in the healthcare industry will ultimately adversely impact access to healthcare as there will be providers who will no longer be able to operate. Accordingly, everyone must work together to ensure that each community has access to quality acute care services and that the healthcare needs of the community are addressed through the cooperation and engagement of all parties involved in the healthcare delivery system.

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