Healthcare Reform Spawns Daunting Regulations

Cheryl Clark, for HealthLeaders Media , January 13, 2011
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No matter what, the cost curve will be bent.

The law prohibits the IPAB from cutting hospitals' payment rates before 2020, but that doesn't mean hospitals won't be affected by its decisions long before then.

Nathan Kaufman, a health industry analyst and managing partner of San Diego-based Kaufman Strategic Advisors, says many CEOs who aren't worried now about the IPAB may not understand the domino effect those cuts will have in just a few years.

"Physicians will want higher emergency room call fees, or they will want hospitals to hire them to offset their declines in revenue," he says. Those doctors might limit the number of Medicare and Medicaid patients they will see, forcing those patients to crowd emergency rooms, which will be paid far less than what the care costs.

Additionally, he says, drug companies will try to pass on their cuts to hospitals in the form of higher prices. Also unclear is how the IPAB cuts will affect critical-access hospitals, long-term care facilities, hospices, and other providers. Acute care hospitals may be directly or indirectly affected if those facilities get less.

Chris Van Gorder, president and CEO of Scripps Health, a five-hospital system in San Diego, says he was opposed to the creation of the IPAB, in part because unlike elected representatives, this board's appointees won't understand his unique challenges, for example Scripps' proximity to the border and the need to treat undocumented immigrants who need emergency care.

 "I'm afraid that many hospitals will struggle to cut costs, and will ultimately have their bond ratings downgraded, making access to capital difficult or impossible, and even shut down because they can't survive. The IPAB will just give politicians an excuse for why they can't do anything when hospitals get into trouble."

 Like many hospital executives, Van Gorder is taking steps to streamline his organization and reduce costs to better absorb federal reimbursement cuts---not just those coming from the IPAB indirectly,  but those occurring right now. In 2011, he expects federal reimbursement to his organization to be reduced by $8 million.

Some of the changes might be upsetting, he acknowledges. But in a memo to staff, he wrote how necessary they are. "We will do everything we can to preserve jobs and avoid layoffs. But to do that, we must eliminate variation in our health system that adds unnecessary cost."

He then announced an initiative to standardize operations throughout the five hospitals that, until now, greatly varied in each facility's departments. His team has identified savings from reducing variation that approaches $150 million each year.

Hospital Readmissions Reduction Program Saves $7.1 billion over 10 years

In general, hospital officials say that next to reducing costs, their second most worrisome concern is the financial impact of readmission reduction regulations that have not yet been proposed.

Hospitals with greater than expected 30-day readmission rates will see federal reimbursement cut across the board for all discharges. The cuts increase progressively, from 1% in FY 2013, to 2% in FY 2014, to 3% in FY 2015 and beyond. Hospitals will have cuts even if their patients are readmitted to other hospitals.

Leaders say they're eager to get going, and know this is something that must be done to improve care.  
Initially, heart attack, heart failure, and pneumonia re-admissions will be included in the calculations, which will be adjusted for risk. But in fiscal 2015, the secretary of Health and Human Services can add chronic obstructive pulmonary disorder, several cardiac and vascular surgical procedures---those now endorsed by the National Quality Forum---or any other condition she chooses. She can seek endorsement from the NQF for her selections, but she doesn't have to get it.

Readmissions may be especially tough for hospitals to cut, but very expensive if they don't. In 2010, the 30-day readmission rate for Medicare patients hovered between 18% to 20% for many hospitals, and added $17.4 billion to the federal bill in 2004. In 2013, the implications for hospitals overall could be enormous.

The AHA's May says there's a mathematical technical error in the readmission section of the PPACA language in which the penalty is magnified inappropriately.

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