Re­form: they've got an app for that

Ex­ec­u­tives project im­pact of re­form on rev­enue

Modern Healthcare - - Front Page - Melanie Evans

The ex­ten­sive changes to fed­eral re­im­burse­ment, the health­care safety net and in­surance reg­u­la­tion an­tic­i­pated un­der health re­form have left in­dus­try ex­ec­u­tives scram­bling to project what will hap­pen to rev­enue and ex­penses in the com­ing decade.

Some, rather than wait, have turned to mod­els that rely on as­sump­tions and es­ti­mates to try to an­swer ques­tions that ex­ec­u­tives say are cen­tral to cap­i­tal in­vest­ments and strate­gic plan­ning. The mod­els at­tempt to an­swer ques­tions such as: “What will Med­i­caid pay hos­pi­tals as an es­ti­mated 16 mil­lion gain cov­er­age through the pub­licly fi­nanced in­surer?” and “How sig­nif­i­cantly will re­duced Medi­care pay­ments af­fect rev­enue, and when?”

The mod­els, re­leased or un­der devel­op­ment by trade groups, in­clud­ing the Amer­i­can Hos­pi­tal As­so­ci­a­tion, Greater New York Hos­pi­tal As­so­ci­a­tion, and Hos­pi­tal & Health­sys­tem As­so­ci­a­tion of Penn­syl­va­nia, don’t pro­duce re­li­able pro­jec­tions, but rather a best guess— or many guesses— as health­care ex­ec­u­tives them­selves plug a num­ber of sce­nar­ios into mod­els.

“I wouldn’t hang my hat on the ex­act dol­lar amounts,” said Aaron Co­ley, vice pres­i­dent of de­ci­sion sup­port for Me­mo­ri­alCare Health Sys­tem, a six-hos­pi­tal sys­tem based in Foun­tain Val­ley, Calif. Nonethe­less, the pro­jec­tions are use­ful for the more gen­eral in­for­ma­tion they of­fer about what will hap­pen to op­er­at­ing mar­gins, he said.

Me­mo­ri­alCare, us­ing a cal­cu­la­tor re­leased by the AHA shortly af­ter the sweep­ing health re­form leg­is­la­tion be­came law, projects the sys­tem’s Medi­care and Med­i­caid rev­enue will drop by $158 mil­lion through 2019, give or take $16 mil­lion to $24 mil­lion, he said.

Ex­panded in­surance may off­set the lost rev­enue by 25% to 30% dur­ing the same pe­riod, Co­ley said, though he said pro­jected gains from fewer unin­sured pa­tients in­clude “more crys­tal ball pre­dic­tions” than those for rev­enue cuts un­der health re­form.

Co­ley said Me­mo­ri­alCare also mod­eled the po­ten­tial rev­enue loss should em­ploy­ers drop pri­vate cov­er­age and leave em­ploy­ees to buy ex­change plans, one po­ten­tial mar­ket shift not in­cluded in the AHA mod­els.

With­out know­ing how many em­ploy­ers may do so, Me­mo­ri­alCare es­ti­mated the rev­enue it would lose should half of its pri­vately in­sured em­ploy­ers move work­ers into an ex­change, which ex­ec­u­tives ex­pect to pay hos­pi­tals rates that fall short of com­mer­cial plans and closer to Medi­care.

The sys­tem would lose more rev­enue each year through 2019 than pro­jected fed­eral cuts for the en­tire decade. “There’s this huge suck­ing sound of rev­enue,” Co­ley said. He ac­knowl­edged that pro­jec­tions in­clude a num­ber of un­knowns but said they re­main use­ful. Pro­jec­tions “help ed­u­cate and cre­ate a ral­ly­ing cry for why we need to re­struc­ture and be more ef­fi­cient as an in­dus­try,” Co­ley said.

Me­mo­ri­alCare added the AHA pro­jec­tions to its long-term fi­nan­cial plan and has made plans to re­duce ex­penses to off­set re­duced rev­enue, he said.

The Ohio Hos­pi­tal As­so­ci­a­tion, Colum­bus, also us­ing the AHA cal­cu­la­tor, cal­cu­lates sched­uled re­duc­tions of Medi­care pay­ment to hos­pi­tals will squeeze $31.4 mil­lion from Ohio hos­pi­tal rev­enue in 2011, which be­gins Oct. 1.

Medi­care rev­enue for the state’s hos­pi­tals will drop by $528 mil­lion through 2014 and to­tal $4 bil­lion dur­ing the first decade af­ter the law passed.

Rev­enue cuts un­der the law’s re­duc­tion to the sup­ple­men­tal Med­i­caid pay­ments for the unin­sured, known as dis­pro­por­tion­ate share pay­ments, to­tal an­other $521 mil­lion through 2019.

Jonathan Archey, the di­rec­tor of fed­eral re­la­tions for the Ohio as­so­ci­a­tion, said such pro­jec­tions are more data-driven and less sub­jec­tive than es­ti­mates for other pro­vi­sions, such as ex­pan­sion of sub­si­dized in­sur- ance through pri­vate mar­ket ex­changes, which will de­pend on how con­sumers and the mar­ket re­spond.

In­struc­tions for the AHA model cau­tion hos­pi­tals re­peat­edly that its two cal­cu­la­tors—one for Medi­care and Med­i­caid pay­ment re­duc­tions; the other for cov­er­age ex­pan­sion—in­clude es­ti­mates and omit other fac­tors that could af­fect pro­jec­tions.

“You have to know from the be­gin­ning they’re only es­ti­mates,” Archey said.

Medi­care’s sched­uled re­duc­tions tied to pro­duc­tiv­ity hinges on es­ti­mates and the AHA did not in­clude fur­ther po­ten­tial cuts tied to qual­ity, such as hos­pi­tal-acquired con­di­tions or pa­tients who land back in the hos­pi­tal un­nec­es­sar­ily. Pro­jec­tions for ex­panded in­surance cov­er­age rely on es­ti­mates by hos­pi­tals for what plans sold through in­surance ex­changes will pay, and the trade group en­cour­aged hos­pi­tals to test a num­ber of re­sults.

Mean­while, the Greater New York Hos­pi­tal As­so­ci­a­tion will re­lease a model un­der devel­op­ment to its mem­bers for test­ing in Septem­ber, which the trade group said will con­tinue to be re­vised and up­dated.

Karen Heller, ex­ec­u­tive vice pres­i­dent of health eco­nom­ics and fi­nance for the trade group, said the early es­ti­mates al­low hos­pi­tals and health sys­tems to make de­ci­sions about whether to pur­sue new pay­ment mod­els un­der re­form, such as ac­count­able care or­ga­ni­za­tions, or other av­enues, such as merg­ers.

The trade group’s model seeks to cal­cu­late how in­di­vid­ual mar­kets may be af­fected by health re­form.

Among the pro­jec­tions are es­ti­mates for the per­cent­age of newly in­sured Med­i­caid pa­tients that may ex­ceed hos­pi­tals’ ex­ist­ing ca­pac­ity and es­ti­mates us­ing Cen­sus Bureau data for the num­ber of work­ers in small busi­nesses, which may be more likely to drop pri­vate ben­e­fits, Heller said. Still, the model seeks to project how re­cur­ring and far-reach­ing changes un­der the law will af­fect hos­pi­tals. More limited changes may be added in the com­ing years, she said.

“I hit the big ones,” Heller said. “The things I left out did not have large im­pli­ca­tions for over­all sav­ings and fi­nanc­ing of the bill.”

Heller: Es­ti­mates aid with de­ci­sions on pur­su­ing pay mod­els.

Co­ley: “I wouldn’t hang my hat on the ex­act dol­lar amounts.”

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