How Hospitals can Reduce Loss from Medicare Changes

In 2012, Congress included Medicare in their budget sequester, and by 2016 roughly three-fourths of short-term acute care hospitals treating Medicare patients were losing money, averaging negative 10% profit margins.

It has been forecasted that Medicare enrollment will rise 3 percent a year until 2020, then at 2.4 percent for the following ten years. Today’s 55 million Medicare beneficiaries will expand to over 80 million by 2030, making the future of hospital monetization bleak.

Medicare is the largest federal domestic program in the U.S. and the likelihood of further cuts in payments seems inevitable. This means that if hospitals don’t act now to contain losses from Medicare, the future of their operations will be threatened.

To safeguard your hospital against these threats, you must be proactive in the following areas: using metrics to improve revenue and reduce costs; becoming smarter about outsourcing; and reevaluating medical supply and technology expenses.

Where Do These Medicare Losses Come From?

For the bulk of Medicare patients not enrolled in Medicare Advantage (about one-third), hospitals are on a fixed payment system for each hospital admission. This places tremendous stress on hospitals to manage the cost of these patients against strict policies on:

  • Labor expenses
  • Supply expenses
  • The elimination of wasted imaging procedures
  • The minimization of operating room time
  • The minimization of intensive care stays

Hospitals can also experience financial loss from penalties related to the following:

  • Excessive readmissions
  • Lengthened stays due to adverse drug reactions
  • Infections acquired within the hospital

These fixed payments have remained somewhat the same under the (over three decade old) Diagnosis Related Group (DRG) system, and for the newer, albeit dated, Ambulatory Patient Classification (APC) system concerning outpatient encounters.

Inpatient Medicare nonsurgical patients, however, are what’s really contributing to declining profits. These are growing in proportion to inpatient Medicare surgeries due to advancements in technologies that have made it possible to perform (what have historically been) inpatient surgeries in outpatient settings.

What Can Be Done To Reduce Loss From Medicare At Your Hospital?

How Hospitals Can Reduce Loss From Medicare Changes

Use Metrics To Help Reduce Costs And Increase Opportunities

As we have reported in a previous post, 15 cents of every healthcare dollar is spent on inefficiencies in revenue cycle management. In addition to looking at the heath of Medicare-related claims, hospitals can look for opportunities to increase revenues that are related to all patents.
These include:

  1. Knowing your outstanding A/R on a daily basis: Regularly reviewing A/R at 0-30, 30-60, 60-90, and 90-120 days will help you identify problems that negatively affect your cash flow and devise a course of action to address them.
  2. Monitor A/R by payers, as well as by providers: Monitoring this data on a granular level allows you to determine if payments to specific providers, by specific payers, and/or in specific facilities, have stopped.
  3. Running daily Medicare payments: If Medicare stops paying, you must determine the exact date it occurred.
  4. Running daily billed claims reports: Audit your software performance regularly to make sure daily claim submission metrics are within the expected range.
  5. Report on days sales outstanding and days in A/R: This is the metric that determines your cash flow if you stopped billing today.
  6. Total A/R review by quarter: Quarterly A/R monitoring will allow you to analyze your collection patterns, evaluate how your staff or billing department is addressing them, and determine whether you are leaving money on the table.

Check out our previous post on Revenue Cycle Metrics you need to be running to learn more.

Be Smarter About Outsourcing

Because reimbursements are the driver for most financial decisions, many hospitals form outsourcing partnerships in an attempt to save, or gain, revenue. However, we have found that the primary reasons for outsourcing IT services (ICD-10 and billing & coding services) and patient care services are due to the expertise of the vendor first and foremost, and cost savings, secondly.

As Medicare and patient care become more complicated, it is our take that hospitals should seek more sophisticated outsource partners that improve revenue long-term. Outsourcing the revenue cycle process, for example, can lead to a more efficient physician billing, coding and collections system with integrated auditing and analytics to help visualize and plan for future growth.

Re-evaluate Medical Supply And Technology Expenses

Some estimates put the expenses of medical supplies and technology at 13 to 20 percent of a hospital’s budget.

Rather than a hospital partnering with one major medical supply company or technology reseller and negotiating economy of scale pricing, we see hospitals using multiple vendors, often selected based on their relationships with physicians.

This sort of vendor selection does not make for bad products or services, but it does not help to centralize the decision-making process and therefore reduce spending. Hospitals should instead appoint a committee to get weigh-in from physicians on technology purchases, while utilizing evidence-based evaluations of purchases.

Kaiser Permanente is notorious for providing a documented process for evaluating, deploying, and monitoring new types of technology, equipment, diagnostics, and procedures.

Don’t Wait For Congress To Reduce Loss From Medicare

In the latest MedPAC report to Congress, there are recommendations that would help hospitals reduce loss for fee-for-service payments from Medicare Advantage and the MIPS. However, hospitals can’t wait for Congress to act on recommended changes.

They must be proactive on their efforts to make change in areas concerning Medicare as well as evaluate opportunities to increase revenues related to all patients. These recommendations will become even more important if Medicare budgets are cut once again, forcing your hospital to work with even tighter margins.

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