Healthcare Financial Management Association speaks with Dale Baker, president of Baker Health Care Consulting, on what the industry can expect of Medicare payment from the Obama administration and what hospitals need to be aware of in terms of health reform and changing incentives.

HFMA:  Now you're the president of Baker Health Care Consulting.  How did you come to work in the health care sector?

DB:  Okay, I really started in the health care sector right out of college.  I graduated in 1968 and started to work for, at the time, Ernst & Ernst in Indianapolis. They had the Medicare contract, and so in essence, they were doing the fiscal intermediary audits at the time for really the first year cost reports, because Medicare came into existence as of July 1, 1996, and a lot of the hospitals had just filed their first cost reports either in late 1997 or early 1998. So, I had hit the public accounting profession just as the Medicare audits were starting, and boy it was a great way to learn about health care.

HFMA:  I can imagine

DB:  It was like getting in right at the ground floor.

HFMA: And the recent Obama administration has been very focused on health care issues recently.  What are some things to watch for regarding Medicare payment?

DB:  Okay, now this we can go kind of a global and talk about the big picture, which is what I think you want to do, and, well first of all, I think the challenge to the health care industry is, and what the Obama administration is asking us to do, is find a way to treat the 47 million uninsured Americans in a manner that, by increasing our productivity so as not to increase federal expenditures compared to where they're headed right now.

So basically, I think what the industry is being asked to do is how can we add 47 million people to the insurance rolls and provide quality health care at about the same amount of the gross national product as we're currently doing, and it's a very tall order that we're being asked to do here.  You know, and there's a number of ways that this is going to be financed and a number of ways that are important.

Fighting for the industry's perspective, the comparative effectiveness studies, which are beginning right now, and this is, how do we get better bang for our health care buck, and to take a look at not just cost effectiveness of drugs and individual treatment things, but how do we treat diabetes, how do we treat, how do we prevent heart disease, what can we be doing so that we actually reduce the amount of procedures we need to do in the future. And therefore have either hopefully better health outcomes than we have presently with a lot less procedures, but that's going to be, I think, the goal of the industry in the next few years. And the other thing is to somehow get from, right now, from every procedure we do, we get paid, and that's got to change somewhat to be payment, you know, to help prevent diseases rather than just on a per procedure type basis. So that's the direction we have to move.

HFMA:  And do you see technology playing a huge role in this?

DB:  Electronic health record is being touted as something that can be used to, number one, is to gauge the quality of care and to hopefully assist in developing treatment patterns that are very cost effective, etc, so certainly technology in the electronic health record is a key ingredient of the Obama plan.

HFMA:  Have you seen any trends recently in terms of payments?

DB:  There's a lot of things out there right now, that you know, it's a little bit early, because first of all, there's no administrator of CMS under the Obama administration, so the people that are at CMS right now are in acting capacities, and they're basically the lifers at CMS. And until we see what they do in the final rule, we haven't seen a lot of new initiatives this year other than the fact that there's DRG creep that has reduced the amount of the increase in the standardized amount this year, at least in the proposed rule, to virtually nothing so that there's no increase in Medicare payment being forecast this year.

We'll know what that is about the first of August and we'll know a lot more in a couple weeks than we do right now.

There's a couple things that CMS has started to do that deserves to be looked at.  One is state by state rural floor budget neutrality, and this has the impact of significantly reducing payment in Vermont, New Hampshire, Connecticut, New Jersey, and California because there's a large number of hospitals using the rural floor wage index, which is urban areas that would have a wage index lower than the rural area of those individual states, and that's something that has been done by the Bush administration. And at least in the proposed rule, the Obama administration looks like they're going to continue to do that.  It's being implemented 20%, 50%, and for the 2011 year, 100%, and so that's one of those changes that, again, we'll know whether that's going to take hold or not about the 1st of August.

There's also a lot of activity on MedPac. MedPac has the proposal to change the wage index and to use Bureau of Labor Statistics, the statistical data from about 1.2 million establishments, both hospitals and non-hospitals to gather information and to replace the wage index, which all comes from Medicare cost reporting data right now from the individual hospitals. With the MedPac, BOS type data, and again, I don't think we're going to see any outcome on that, the CMS' consultants, Acumen LLC, a think tank from Stanford University out in Palo Alto is, their final report is not going to be issued until after the final rule. I think that means that the decisions on what to do with the wage index and geographic reclassification are going to follow what happens or be done concurrently with health reform.

HFMA:  Okay, and that's August 1st, correct for the final rule?

DB:  August 1st, we're going to see the final rule.  They're not going to do anything on the wage index, with the Bureau of Labor Statistics wage index on August 1st, there's no chance.  They've slowed down Acumen's report, and they have said they will not do anything until Acumen's report is finalized and there's a public comment period, so the earliest they could do something is a year, over a year from now - October 1 of 2010 would be the very earliest.

One of the things hospitals need to be thinking about now for health reform is the changing incentives, the incentives that used to be, work made money, and now the incentives are going to be moving toward work that costs money. Procedures cost money not make money, because we've got to figure out a way to be much more efficient than we've been in the past.

Publication Date: Thursday, October 08, 2009