As we close the curtain on 2015, regulatory changes in financial compliance are prepping to take center stage in the New Year. From ICD-10 and Meaningful Use to bundled payments and the Two-Midnight rule, there’s no shortage of players in 2016’s looming healthcare drama.
“The business of medicine has been under significant change for the past 20 years,” said Bobby Guy, healthcare merger and acquisition lawyer at Polsinelli’s Nashville office. “We’re looking at massive change as to how healthcare services are delivered, and what’s driving the way they’re delivered is the way they get paid. The business of medicine is being used to change the delivery of healthcare, and it’s being driven directly by the government.”
Causes of Financial Stress
Polsinelli, which employs 750 attorneys in 18 offices, recently released a roadmap for healthy companies to avoid financial distress – the “Polsinelli/TrBK Healthcare Distress Indices Special Report: Causes of Healthcare Distress in 2014.” Tort litigation, payment delay and reimbursement changes were among the top six causes of healthcare distress cited by healthcare entities with assets greater than $1 million dollars.
“We have a healthcare services distress index to track what’s going on in the market,” Guy explained. “Any change creates winners and losers.” According to Guy, distress in healthcare services has improved by 25-30 percent since the end of 2014, but that trend may be about to change due primarily to the Oct. 1 launch of ICD-10.
An acceptance rate of about 87 percent was achieved in the final round of testing before launch. However, extrapolated to the number of daily claims, that means 600,000 rejected payments a day, and some providers anticipate upward of 50 percent reimbursement reduction while they wait for delayed payment. The impact of a weaker cash flow will be evident by December, since most companies collect 45-120 days from time of billing.
“Nashville’s a leader in the hospital system market, and most here are ready for it,” Guy said of the recent transition. “It’s going to be harder to adapt for the smaller providers in the nonprofit world and senior living, who are often the most fragile part of the system and have little cash on hand.” But don’t expect the government to help bridge the gap. While the law builds in a one-year grace period for physicians, hospitals and other providers will face the expense of technology and training head-on. “It presents a major financial hurdle for the healthcare services industry over the next six months and will cause a major cash flow shortage period for companies who have trouble adapting,” Guy said.
Bundled Payments & Out-of-Network Plans
Another player is the bundled payment system, reflecting the industry-wide move from fee-for-service to pay-for-performance. While bundled payments account for under five percent of the market, Guy said they’ll play a much more significant role by 2018.
And then there’s the increasingly popular out-of-network debate. “There’s been an out-of-network strategy used by a number of providers, and some have been successful in the past,” Guy explained. “They’ve been getting marginalized more recently and a lot of what’s driving that is the prevalence of high deductible plans.” Higher deductibles for out-of-network providers mean patients pay more out of pocket than health saving accounts allow them to save, and the battle is creating a cash flow problem for out-of-network systems, as well.
Two-Midnight Rule
Editor's Note: Since this was originally published, CMS has decided to stand firm on ts controversial program despite calls from outside parties to reevaluate the program and key stakeholders presenting a number of alternatives during the comment period.
CMS introduced the Two-Midnight rule October 2013, requiring patients to cross two midnights as an inpatient to receive maximum reimbursement. (See separate story.) Anything shorter is considered an outpatient observation stay, paid out at a lower level. The problem, Guy said, has been the many cases that don’t quite fit the seemingly arbitrary timeframe – i.e. the patient who arrives at 12:15 a.m.
The rule was challenged in October 2015, with a final ruling expected this month. “Two-Midnight is still in place, but CMS’ $220 million reduction of reimbursement that accompanies the rule is now under significant challenge,” Guy said. “There’s been some question about whether or not CMS can actually hold back that money while this is going on. It’s hard for a major healthcare system dealing with ICD-10 and everything else … so what’s it like for a small system? When you look at distress in healthcare, more than 40 percent of companies attribute it back to some form of government reimbursement or payment delay.”
Moving Toward Efficiency
Ultimately, changes in payment are driving consolidation in order to create efficiency – a push that could move the system toward more coordinated care. Theoretically, that would deliver better management of chronic conditions and fewer unnecessary procedures. But first, everything must be moved down the acuity spectrum, Guy said.
For high acuity settings, financial health means bringing enough new Medicare and Medicaid patients into the system to make up for loss of services that now go to lower acuity settings. Secondly, entities must diversify to receive the benefit of low acuity services where they can – such as integrating more surgery centers or repositioning high acuity skilled nursing centers as lower acuity rehab centers.
“We think about it as the acuity principle,” Guy said. “By moving healthcare down the acuity spectrum, we begin to see things happening in lower cost settings. In healthcare we’re seeing a bifurcation, and a lot of creative destruction of the traditional healthcare model.”
