How The ACA is Hitting Hospitals

The ACA Is Hitting Hospitals Hard

When it comes to the Affordable Care Act — also referred to as Obamacare or the ACA — some hospital organizations are already feeling the pinch. Today we will examine the specific provisions that are impacting hospitals, and why some organizations are already worried about the changes.

Hospital Value-Based Purchasing Program — Reimbursement Hit: 1% in 2013, 2% by 2017

Section 3001 of the Affordable Care Act addresses value- rather than volume-based payments to hospitals, and measures hospitals according to certain quality measures. Some of these measures are clinical and related to patient outcomes, while others are less tangible, such as patient satisfaction. Hospitals which perform well could receive incentives, but for those who perform poorly in regard to attainment and improvement, it could mean a cut to payments. For under-performers, Medicare payments will be reduced this year by 1%, with additional cuts equaling up to a 2% reduction in Medicare payments by 2017. This value-over-volume approach is really targeted toward ensuring that hospitals are providing optimal care, and toward driving those who are under-performing to make changes through financial incentives and penalties.

Hospital Readmissions Reduction Program — Reimbursement Hit: 1%–3%

Section 3025 of the Affordable Care Act, which was effective beginning in Oct. 2012, penalizes hospitals which have higher-than-standard readmission rates. This year was the first year that cuts in reimbursement went into place, and it only took into account three measures that were reported on, including readmissions for heart attack, heart failure, and pneumonia. The policy will be expanding in subsequent years to track additional conditions, and hospitals will be responsible for diligently tracking readmissions and providing appropriate reporting to CMS. Beginning in 2014, the reimbursement reduction for hospitals which have a significant readmission rate will increase to a maximum of 2%, and in 2015 it will increase to a reduction rate that maxes out at 3%.

The Shift in Payments Related to Acquired Conditions — Reimbursement Hit: 1%

Section 3008 of the Affordable Care Act is the most recent section of the Act that will begin to impact some hospitals in FY 2015. This section relates to Hospital-Acquired Conditions, such as infection, and creates a numerical score for hospitals. Those hospitals which are shown to have a score in the highest quartile compared to the national average will receive a reduction in their reimbursement rates of up to 1%. This measure has been set forth to drive quality of care by targeting several hospital-acquired conditions which are considered preventable if best practices are utilized. A sample of these conditions is as follows:

• Blood incompatibility
• Urinary tract infection
• Falls or other injuries while at the facility (burns, dislocations, fractures, etc.)
• Catheter infection
• Air embolism

Total Hits and Disproportionate Share Hospital Payments

While it will be increasingly important for hospitals to operate in a way that drives quality and efficiency, there has been some concern voiced over the triumvirate of ACA reforms. Physicians worry that there may be less money to care for an increased population of patients, and with the influx of uninsured and under-insured individuals who will not be covered under the Affordable Care Act, it is difficult to construct a baseline on which to build these quality measures. In fact, when you think of large populations of individuals with chronic, co-morbid, and untreated conditions that will now have access to healthcare, you are looking at a substantial influx in the volume of complex cases that hospitals may need to deal with. Add to that the fact that the pool of reimbursement money allowed to treat patients as a whole may be decreasing, and we will see fewer healthcare dollars stretched to treat more patients at less cost. It is an equation that has some deeply concerned.

In addition to the reimbursement hits, Disproportionate Share Hospital (DSH) payments to hospitals are being decreased. DSH payments are payments that were traditionally paid to hospitals to help them cover the cost of uninsured patients who were treated. Beginning on or after Oct. 1, 2013, some hospitals will have their DSH payments reduced to 25% of what they have typically received. A detailed breakdown on the potential impact of this, along with calculations, was done by Rob Schile and can be found here. The remaining 75% of the typical payment will be readjusted and redistributed to hospitals. While some hospitals may experience an increase in their DSH payments, some will see significant decreases, which may again contribute to concerns over cash shortages.

How the ACA Is Hitting Hospitals: Bracing for the Impact

There are several things that hospitals should be doing to brace for the ACA’s impact. At a minimum, hospitals should ensure that they understand the ACA triumvirate as well as predictions on how it will impact their specific organization. Mindsets should be shifting from the fee-for-service framework toward a value-driven approach to the provision of care. Organizations should ensure that they have appropriate internal reporting to track the key measures that will be critical to their success in the ACA environment. This includes knowing your admission and readmission rates, and not only understanding the quality measures that payments will be based on, but having the detailed data to drill down into those measures. Quality improvement plans and proactive approaches will become essential in the new environment, and specific care should be taken to ensure that hospitals are prepared across clinical, quality, and cost metrics. Finally, detailed financial analysis and predictive modeling should be employed so that organizations can mitigate their risk of being caught off guard by unexpected cash flow problems in the face of reform. Now is a great time to receive unbiased, objective advice about your organization and to have an organizational analysis performed.