How Are Changing Reimbursement Models Impacting Risk? 7 Questions to Address This Quarter

Healthcare providers are starting to feel the impact of the accelerating pace of reimbursement changes. Delivery models are transforming, ushering in new opportunities and risks that organizations must manage. As providers navigate these rough waters, it’s up to boards to ensure the ship isn’t taking on too much water. We’ve put together a list of key questions that board members should be asking to gauge how the organization is being impacted by reimbursement changes and how well prepared they are for a new environment.
  1. What kind of financial impact is the shift to value-based reimbursement having on the organization? The Centers for Medicare & Medicaid Services (CMS) is aggressively pushing alternative payment models; already there are more than 38 different models in play. What’s working; what’s not; and why? Which of the models is your organization participating in and what is the impact on your organization’s revenue?
  2. How is the organization planning to handle bundled payments? CMS is moving to a mandatory bundled payment model for knee- and hip-replacements in April, affecting hospitals in 67 markets. It’s very likely that CMS will soon start bundling payments for other episodes of care – and other payers will soon follow.
  3. Does the organization have any new contractual commitments as a result of partnership and/or affiliation discussions, and how are they being vetted? The move toward bundled payments and accountable care organizations (ACOs) is forcing increased collaboration between providers all along the care continuum, and giving rise to new contracts.
  4. How is the organization handling revenue decreases stemming from CMS reimbursement reductions? There are a variety of programs creating potential reimbursement reduction issues, including CMS’ Hospital Readmissions Reduction Program and Hospital-Acquired Conditions Reduction Program, and recently 55 hospitals filed a lawsuit against the U.S. Department of Health and Human Services (HHS) because of Medicare payment reductions tied to a new CMS rule that classifies hospital stays of less than two midnights to be outpatient cases.
  5. What controls are in place to measure and validate the accuracy of quality outcomes? There are hundreds of quality metrics that providers must track and report, and some of these metrics may incentivize providers to meet established measures in a manner that is not consistent with the organization’s culture. What kind of systems and processes are in place to prevent fraud and compliance issues?
  6. How do the organization’s star ratings and quality metrics compare to peers’? Medicare’s Five-Star Rating system is becoming increasingly important as a measure of quality, with CMS announcing a major move to tie bundled payments to its Five-Star Ratings system. Reimbursements are pushing hospitals to improve outcomes and reduce costs by creating networks of high quality post-acute care partners. Ratings and metrics will grow increasingly important in creating partnerships. Will the organization be positioned to be included in narrow networks or excluded? What does the answer to that question mean for the long-term stability and viability of the organization?
  7. What impact will the shift to quality reimbursement have on revenue recognition? With bundled payments, ultimate settlements for allocation of payments among the network participants may occur much later than the period in which the services were provided. Organizations will need to consider the timing of recognition as well as the need for reserves for annual settlements. Additionally, organizations will need to prepare for a new revenue recognition accounting standard, ASC Topic 606 Revenue from Contracts with Customers, which takes effect for all public entities in 2018 with all others following suit a year later. ASC 606 will require companies to determine revenue recognition based on five steps—including by determining the transaction price, which could prove especially difficult for healthcare organizations operating under a value-based model. (Read more about the healthcare-specific implications of ASC 606 here, and for timely information on transitioning to ASC 606 and applying it to your organization, visit BDO’s Revenue Recognition Resource Center here.)
Making the shift from volume to value will increase exposure to risk in new ways. These are the board room conversations that help minimize risk exposure as forward-thinking leaders guide their organizations to healthcare transformation.