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Hospital budget and financial managers need to try these reimbursement categories on for size to determine the potential impact to the hospital's bottom line:
- Hospital Acquired Infections (HAI)
- Bad Debt
- Recovery Audit Contract Program (RAC)
- Value-Based Purchasing (VBP)
- Wage Index
- IME Payments
RACs, changes in bad debt interpretations and HAI are sure bets and it is just a matter of time before they are implemented. VBP, changes in wage index and potential reductions in IME payments are still a work in process with some more likely than others. The one thing all of these categories have in common is the potential for reduced Medicare reimbursement.
REVIEW OF THE SURE BETS
Hospital Acquired Infections
On October 1, 2007, the secondary diagnosis that is present at the time of admission (POA) will be required to be reported with the discharge information on a federal level. On the heels of this requirement, as of October, 1, 2008, the Centers for Medicare and Medicaid Services (CMS) will have identified two DRG assignments that if POA is not applicable, then a reduced payment will be received.
This is the continuation of what could be termed "quality adjustments" in Medicare reimbursement (the first was paying for quality reporting). The first step is two DRG assignments and if the trend continues, one could imagine this to be expanded in the future.
Bad Debts
Historical bad debt interpretations by CMS and the Medicare Fiscal Intermediaries (FIs) have recently change as a result of some current administrator decisions and court decision. These changes in interpretation may jeopardize a hospital's bad debt reimbursement-at least in the transition period between interpretations and more long term if new interpretations are not met. In addition, Medicare bad debt funding is proposed to be eliminated in the current Federal Fiscal budget. It should be noted that last year's initial budget contained a similar provision to eliminate bad debt and that provision did not survive the final version of the budget.
Recovery Audit Contract Program
As part of the Tax Relief and Health Care Act of 2006, it was mandated that the RAC program be implemented nationally by 2010. The current three year pilot demonstration project enacted in California, Florida and New York has yielded approximately $300 million in overpayments to various hospitals. It appears that RAC intends to become part of the regular Medicare audit protocol; therefore, hospitals must be prepared by having initiatives built into their regular work flow and an interdisciplinary taskforce ready to respond.
REVIEW OF THE WORK IN PROGRESS CATEGORIES
Value-Based Purchasing
CMS is beginning to transform itself from a passive payer to an active purchaser of care, hence the emergence of Medicare's VBP, that links payment more directly to performance and quality. Here is yet another example of "quality adjustments" - the trend is obvious.
CMS recently issued a 40 page options paper that outlines the current plan for implementing VBP. The proposed VBP option to cover reimbursement is to shift a specified percentage of Medicare expenditure from the base rates to a VBP incentive payment that hospitals would need to earn based upon certain measurements from reported quality standards. The key point here is there will be no additional funding for VBP.
Although, CMS is preparing a blueprint for VBP, Congress will need to approve any such plan before it may be implemented. If Congress can act quickly enough, VBP may be ready to implement by FY 2009.
Wage Index
Wage index has historically been a hot reimbursement topic to the hospital industry. Afterall it is basically one pot of money (budget neutral) and most hospitals are vying for their legitimate piece of the pot. Congress has set the stage for re-evaluating the whole wage index methodology in its latest to do list: MEDPAC to review the current wage index methodology and give a report by June 2007 outlining potential changes. Is an overhaul to the current system coming? CMS is then to outline potential changes to the wage index in FY 2009. It should be noted that Congress did not mandate a change to the wage index methodology at this point, so all hospitals should pay attention to any released information regarding the wage index to determine potential impact prior to any formal implementation.
Some preliminary MEDPAC information indicates a "smoothing" technique, which may suggest a neighboring county or CBSA (core- based statistical area) wage index change to assure more similarity between adjoining areas. If you are a hospital in an area with a higher wage index than a neighboring area you can read between the lines and perhaps see a potential decrease? Stay tuned and continue to advocate on behalf of your hospital's best interests in this regard. Actual implementation of a new wage index methodology will require congressional consent, which should give hospitals the chance to weigh in with their legislators.
IME Payments
MEDPAC has recommended a reduction in the Indirect Medical Education (IME) payments to shift the reduced amount to a quality incentive payment program (again "quality adjustment" theme is touched upon) in its March 2007 report to congress. CMS responded in the proposed IPPS regulations stating that such a revision would require a change in statute. Even if that bullet was dodged in this year, this could be something to watch for down the road. MEDPAC is making this recommendation in order to redistribute a portion of the IME payments in order to "further level payments."
Conclusion
Medicare typically represents a substantial amount of a hospital's revenue; therefore, any reduction to the aforementioned reimbursement areas should be monitored and estimated at the earliest possible stages. In order to operate efficiently and profitably under the Medicare regulatory environment, a hospital is forced to find the right fit for each category of change in reimbursement. In other words, the shoe must be worn regardless of the fit into the bottom line.
For more information, please contact Tina Ford at 732-839-1223 or via email at tford@beslerconsulting.com.
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