Strong, nimble providers stand to gain volumes and efficiencies under health reform.

Hospitals are gearing up for deep reimbursement cuts-$148.7 billion in Medicare and disproportionate share hospital (DSH) payments over 10 years-as health reform rolls out.

But there are also revenue opportunities hidden in the reform law-for hospitals and health systems that are nimble and can demonstrate strong quality and financial performance, says Catherine Jacobson, FHFMA, CPA, senior vice president of strategic planning and finance, CFO, and treasurer, Rush University Medical Center, Chicago.

Increase Value; Increase Volumes

Leaders at Rush University Medical Center believe that getting ahead on the value curve-or providing higher-quality, lower-cost care than the average provider-will position their health system for success under health reform, said Jacobson during a recent HFMA webinar on health reform.

Research data reveal a wide difference among hospitals and health systems on quality and cost measures:

  • One study found a 12.7 percent difference between the highest-scoring multihospital systems on Hospital Quality Alliance core measures and the lowest-scoring systems. Risk-adjusted mortality rates among these hospital systems varied from a low of 10.35 to a high of 15.6 (HRET, A Guide to Achieving High Performance in Multi-Hospital Health Systems, March 2010).
  • Risk-adjusted and price-adjusted spending to care for end-of-life patients ranges from more than $95,000 per person to about $45,000 per person, according to Dartmouth Atlas data. Spending on heart attack patients ranges from $40,000 a year to under $20,000 (Skinner, J., Fisher, E., Unraveling the Confusion Surrounding the Recent Bach and Skinner, Staiger, Fisher New England Journal of Medicine Articles, February 18, 2010.)

Organizations that can demonstrate and communicate "their value in their market," or how they compare to competitors in quality/cost measures, stand to attract more patients, payers, and employers-and, ultimately, revenues, says Jacobson, who is also HFMA's 2009-2010 chair.

Revenues Need to Exceed Costs

"Many think that increasing quality means you need to increase your investments," says Jacobson. "But we're finding that increasing quality actually reduces overall costs."

For example, by reducing hospital-acquired infections and other "defects in the system," Rush is seeing a decreased need for costly resources (for example, nurse time involved in caring for patients, additional supplies needed to treat patients) and an increase in efficiency. "We can now focus on how to redeploy our resources to further increase our quality," says Jacobson.

Reducing operating costs will be crucial to economic survival as hospitals-often viewed as fixed cost enterprises-try to absorb deep cuts in Medicare and DSH payments. It is debatable how much these reimbursement cuts will be offset by the increase in the number of insured patients under health reform.

Health reform will extend insurance coverage to about 32 million more Americans by 2019, according to the Congressional Budget Office. However, about 16 million of these newly covered patients will be under Medicaid, which traditionally pays hospitals less than private insurance coverage.

Once again, Jacobson stresses the need to focus on value. "If you can bring your fixed costs down, your organization stands to benefit from the additional volumes," says Jacobson.

Thinking ahead, Rush is already considering how to handle the future increase in newly insured patients. "We are trying to determine the best place to treat these patients so we don't clog the system," she says.

Increased Efficiencies 

Another business opportunity: Consolidation opportunities.

Hospitals have traditionally offset lower Medicare/Medicaid payments through financially beneficial contracts with private payers. However, the days of cost-shifting may be tightening, according to some predictions. Some experts warn that private insurers-which face their own financial issues under reform-will be more frugal when negotiating contract rates with hospitals.

However, this may not be a problem for high-value, financially strong providers, says Jacobson. "There are good opportunities for strong organizations to gain market share and be consolidators, as merger and acquisition activity accelerates over the next few years," she says. "Increases in scale also allows for efficiencies."

Publication Date: Tuesday, April 20, 2010