From the President


Richard L. Clarke, DHA, FHFMA

All over the country, finance officers are telling me they're worried about Medicare payment.

They say that Medicare often is their largest single payment source, and although Medicare payments usually are less than the full cost of treating Medicare patients, the revenue is generally predictable. But a "new normal" is coming.

Medicare payment techniques have evolved slowly but continually during my 40-year career. From cost plus, to cost minus, to prospectively set payment schemes, Medicare payment has changed to shift incentives. Initially, Medicare payment attempted simply to pay the cost of treating a Medicare patient. But that system provided no incentives for providers to control the cost of treating patients. So prospective-payment approaches were introduced to shift cost risk to providers. However, these payment techniques did not control adequately for the volume or intensity of services. As a result, Medicare payments per capita continued to rise two to three times the cost of living, and serious questions arose concerning the safety, volume, and efficacy of the care being provided to Medicare beneficiaries.

The next step in the evolution of Medicare payment is designed to shift the financial risks related to safety (hospital-acquired conditions), volume (unnecessary readmissions), and efficacy (adherence to core measures) to providers of care. In addition, experiments in bundling payments (Acute Care Episode) and integration of care processes (accountable care organizations) attempt to deal with the fragmentation and mixed incentives of the current prospective systems among hospitals, physicians, and other providers. In his Sept. 8 speech to Congress, President Obama hinted at further changes, calling for lawmakers to "gradually reform" Medicare.

It's no wonder that finance officers are concerned about Medicare payment. As Medicare payments shift risk to providers, the largest and most-predictable payer is becoming a lot less predictable. And predictability is just what financial leaders need to manage large capital investments in plant, equipment, and IT over time.

Welcome to the new normal. As is true in most other industries, predictable revenue sources are a thing of the past. We can, however, help to prepare our organizations for the likely approaches that Medicare and other payers will use to shift incentives away from volume and toward value-the relationship of quality to payment.

HFMA is engaged in thought leadership to help finance and other healthcare leaders deal with this new normal. Our Value Project is an excellent resource for administrative and clinical leaders to deal with shifting payment systems. In its first report, we identified the key issues related to producing value in health delivery and the important capabilities needed to thrive in the new normal.

The second phase of this project, currently under way, is examining key transitional and measurement issues that leaders must master to succeed in this environment. A report from the second phase of the project will be issued during the 2012 ANI conference in Las Vegas, June 24- 27, 2012.

Dealing with Medicare's new normal will be critical for finance leaders during the next decade. HFMA's Value Project and other initiatives will provide the insights and tools to make the transition. 


Publication Date: Monday, October 03, 2011

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