David Hammer

In addition to the economic fallout and CDHC, healthcare CFOs are also grappling with the following challenges.

Major changes to the Medicare inpatient prospective payment system.
The Centers for Medicare & Medicaid Services (CMS) has made major changes to reimbursement practices with the implementation of severity-adjusted diagnosis-related groups (MS-DRGs). The goal of severity-adjusted DRGs is to improve the accuracy of payment rates for inpatient stays. These changes are designed to increase the accuracy of Medicare payments and prevent hospitals from choosing more profitable cases over the less profitable ones. The challenge is to get a process and system in place that supports this new billing paradigm. With MS-DRGs, hospitals need to code more completely and ensure that all codes affecting reimbursement make it to the bill. The current DRG system requires at most two diagnosis codes and one procedure code for DRG assignment. With MS-DRGs, however, it is possible that every complication needs to be coded because each affects reimbursement.

Medicare Recovery Audit Contractor (RAC) audits.
As part of the Medicare Modernization Act of 2003, providers can be subject to audits that are implemented by Medicare Recovery Audit Contractors (RAC), firms that are paid on a contingency-fee basis to conduct postpayment reviews that identify Medicare fee-for-service overpayments and underpayments. The demonstration ran from March 2005 to March 2008. Under the Tax Relief and Health Care Act of 2006, the U.S. Congress authorized the expansion of RACs nationwide by January 2010.

Most CFOs realize that RAC audits are an evolution of Medicare's long-standing practices, although with the added complication of a contingency-fee-motivated contractor.

ICD-10-CM coding. CMS is calling for the adoption of the expanded International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding to replace the ICD-9 coding, which has been used in the United States since 1977. The updated codes, which are used in most other industrialized nations, offer increased ability to accommodate new technologies and procedures. Data captured by the code sets could help healthcare organizations improve clinical quality, more rapidly identify pandemics (think SARS), and better support clinical research studies.

The problem? ICD-10 presents a huge administrative challenge because it incorporates many additional codes, and the codes themselves provide much greater detail. ICD-10 codes use seven alpha or numeric digits, whereas the ICD-9-CM codes use three or four numeric digits. As a result, healthcare providers face the challenge of making sweeping changes across a number of departments--from finance to IT to medical records to nursing--just to accommodate the new codes. Healthcare organizations not only will need to implement new information systems to accommodate these codes, but also will need to train staff members from multiple areas to work with the more comprehensive coding system.

Pay for performance. Hospitals also are dealing with pay-for-performance programs, which pay providers based on clinical outcomes as well as quality, structural, and even patient satisfaction measures. Under such programs, hospitals are rewarded for superior performance and penalized for subpar performance. For example, some healthcare payers are no longer paying for care that is required as a result of medical errors. Medicare has stopped paying extra for eight specific conditions that can generally be avoided. However, many hospital systems cannot accommodate pay-for-performance reporting without critically needed capital investments. As a result, some organizations are continuing to fund these IT initiatives, while other capital expenditures are being placed on hold.


David Hammer is vice president, revenue cycle solutions, McKesson Provider Technologies, Fort Lauderdale, Fla., and a member of HFMA's Florida Chapter (david.hammer@mckesson.com). 

Publication Date: Sunday, March 01, 2009

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