Distressed Opportunities for Healthcare

Risk-based payments may at first seem catastrophic, but providers that adapt can thrive. As I discussed on Feb. 19 in the webcast “Distressed Opportunities in Provider Healthcare,” hospitals that face bankruptcy or are struggling to emerge from it can use the new, better quality metrics and quality improvements the Affordable Care Act incentivizes to turn themselves around – even as utilization drops and reimbursements shift. We’ve taken on the challenge of providing better care to more people before, and now we can do it on a grander scale.

For skeptics, here is an example of a successful turnaround that I was steeped in back in 2008. I was asked to lead a small, struggling three-hospital system that had been losing money for a decade and faced stiff academic competition. Volumes were decreasing and, being in the poorest city in Massachusetts and operating under a model that presaged the Affordable Care Act, we had many of the challenges hospitals are now facing nationally.

We decided to go full-risk, full-capitation Medicare advantage, essentially creating an accountable care organization in which the hospital and system received money prospectively for a population of Medicare patients. If we saved money, we kept it. If not, we were doomed.

Nationally, the Medicare Shared Savings Accountable Care Program aims to save 2 percent of the Medicare budget. But by going full-cap and initiating secondary prevention programs to reach out to the 3 percent of patients incurring 49 percent of care in our system – some call it “hotspotting” – we were able to save 13 percent. All of that money went to the bottom line and was shared with primary care physicians participating in the program. We not only avoided bankruptcy but became the most profitable community hospital system of the 64 in the state in 2010. We also improved care, dropping our Medicare Advantage admission rate from 373 per 1000 to 170 per 1,000.

A distressed hospital is not a doomed hospital, but distressed hospitals that want to survive – that need to thrive – in a value-based paradigm can’t cut their way to profitability. Providers can’t lower patient satisfaction and fail to deliver the quality the new metrics are demanding. Those that do will close – 29 closed last year, according to the Medicare Payment Advisory Commission. Of the approximately 6,000 hospitals that exist today, we may see 1,000 either close or morph into other healthcare entities over the next decade.

Quality Assessments – It Comes Back to Data

Clinical quality audits provide one way to avoid going down with the masses. Data is ever-more critical to hospital success, and it says a lot about the quality of existing healthcare data that such basic-sounding remedies as ensuring billing and coding are accurate can mean the difference between closing down and expanding. Look at the hospital’s metrics – not just financial or fiscal balance sheet data points, but the “clinical balance sheet,” as well.  We recommend that all hospitals consider a clinical restructuring in order to avoid the need for an enforced balance sheet restructuring.  Look intensely and dispassionately at the quality metrics that relate to revenue streams, and prospectively correct them before the revenue stream gets into trouble.

Prospectively targeting patients using care disproportionately has also been proven to save on the cost of care and help keep accountable care organizations and hospitals with risk-based contracts in the black. That 49 percent of care costs incurred by 3 percent of the population in the Massachusetts system? By providing additional resources to those who needed them most, we dropped that to 41 percent. This is, again, a data-intensive effort that requires looking at accurate, validated records for diagnoses, medication and overall costs in order to stratify risk and deploy resources to contain it.

Without good data, hospitals are not only at risk of losing payments they had received in the past, as 90 percent of all Medicare fee for service payments will be tied to quality by 2018 and disproportionate share payments are going away, but it exposes them to new risks: Dissatisfied patients could potentially come after providers whose quality metrics are misleading.

Is it possible to simultaneously reduce reimbursements, save distressed hospitals, save money, and reduce suffering by providing better care? Yes. In fact, it’s imperative.