How are Hospitals Making Up for Reimbursement Shortfalls?

by webadmin on November 1, 2013

HUC-thumb3How does your organization make up for reimbursement shortfalls? Do you compensate for these shortfalls by shifting the cost of government insurance and uncompensated care to the privately insured?

This is what conventional wisdom has said is the best strategy for the longest time, Steve Jacob of DHealthcare Daily writes. However, two recent studies have concluded that the assumption is inaccurate.

According to Jacob, economist Vivian Ho of Rice University, along with her colleagues, “looked at revenue by payer at Texas hospitals between 2000 and 2007. They concluded that hospitals have grown revenue by increased use of technology.

According to Ho, there is simply “no evidence that hospitals are shifting costs to private payers to compensate for the fact that they have to deal with the nation’s highest percentage of uninsured patients. She said technology accounted for two-thirds of the growth in prices. She also noted that hospitals are treating sicker patients because lower-acuity cases are being treated more frequently in outpatient settings.”

Similarly, a study from Health Services Research found that rather than shifting the cost burden to the privately insured, nonprofit hospitals are actually reducing operating costs, while for-profit hospitals are absorbing a decline in profits. This was based on “Medicare cost reports for more than 2,000 hospitals between 1996 and 2009.”

Jacob notes, “The Affordable Care Act permanently slows the growth of Medicare payment rates for inpatient hospital care. Texas hospitals had to absorb Medicaid cuts of 8 percent and 2 percent in the 2009 and 2011 legislative sessions, respectively.”

Despite this, hospitals are finding ways to remain profitable, often by cutting rates for private payers so as to attract more of them to the hospital.

Writes Jacob, “A May Health Affairs study found that a 10 percent Medicare rate reduction was associated with a 7.73 percent reduction in private insurer rates. A study of Florida outpatient surgical hospitals found that Medicare rate cuts resulted in a higher volume of procedures from private payers, which suggests the hospitals lowered their private rates to attract more business to offset the Medicare losses.”

Furthermore, the Ho study also found “that reimbursement for uninsured and self-pay patients exceeded costs for each of the seven years, and reimbursement was higher than that of private-pay patients from 2000 to 2004. The relatively high reimbursements reflected local hospital-district tax revenues that support public hospitals, as well as Medicaid Disproportionate Share Hospital (DSH) and supplemental Medicaid Upper Payment Limit (UPL) funds.”

Jacob adds, “The ACA gradually will cut both programs.”

This “cost of doing business” only escalates with each passing year, Lance Lunsford of the Texas Hospital Association, said, especially when Medicare and Medicaid reimbursements, as well as reimbursements for Texas’ workers’ compensation programs, don’t come close to equaling the cost of care.

Steve Love, president and CEO of the DFW Hospital Council, said Texas hospitals are having to deal not just with the elimination of UPL funds and the reduction of DSH funds, but also with the state’s refusal to expand Medicaid, “leaving hospitals responsible for treating the uninsured without what historically were federal subsidies for uncompensated care. He noted the Medicaid 1115 waiver will help recapture some federal funds, but the waiver was not meant to replace UPL funds.”

One solution, Ho said, was for “the government to step up comparative-effectiveness research to encourage providers to avoid expensive procedures that do not improve patient outcomes.”

“Medicare is not allowed to consider costs at all in coverage decisions,” she said. “That is unacceptable. If there is no improvement in benefit and (procedures) cost more, why not just pay for already-cheaper alternative? It doesn’t make sense to me.”

As healthcare executives, how is your organization making up for reimbursement shortfalls? Have private-insurer rates been reduced to attract more to the organization? What is the best solution for making up for these shortfalls?

-by Pete Fernbaugh

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