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

March 2016

By Venson Wallin, CPA, The BDO Center for Healthcare Excellence & Innovation

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 the organization’s board and advisors to ensure the ship isn’t taking on too much water. To do that, they should be asking the following questions to gauge how the organization is being impacted by reimbursement changes and how well prepared it is 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. Commercial payers are increasingly moving in this direction, as well: UnitedHealthcare paid out roughly $43 billion in value-based payments to doctors and hospitals in 2015 and plans to increase such payments to $65 billion by 2018. In this environment, providers must uncover what models are working or not working and how these changes are impacting the organization’s revenue. Fifty-one percent of hospitals said value-based payment programs have achieved positive ROI, but interoperability capabilities will continue to be a major concern over the next few years, according to the Healthcare Financial Management Association’s (HFMA) Value-Based Payment Readiness Survey. Healthcare providers will need to consider what adjustments can be made to ensure the organization has the ability to share clinical information across the continuum and make positive results sustainable.

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. The American Hospital Association (AHA) released an issue brief on Medicare’s bundled payment initiatives in January, outlining the associated challenges for hospitals, as well as the opportunities to improve quality and achieve positive financial results. It’s very likely that CMS will soon start mandatory bundled payments for other episodes of care—and other payers will soon follow. To achieve success under these initiatives, providers will need to invest in new capacity and infrastructure, and carve out new approaches for the future.

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. Therefore, providers will need to consider what kind of settlement agreements are in those contracts and how the timing of those settlements will impact financial results.

4. How is the organization handling revenue decreases stemming from CMS reimbursement reductions?

There are a variety of programs creating potential reimbursement reduction issues. Among them is CMS’ Hospital Readmissions Reduction Program—only 799 of the 3,400 hospitals in the program performed well enough to avoid a penalty for fiscal year 2016, and 38 will face the maximum 3 percent penalty. Many hospitals are facing penalties under the Hospital-Acquired Conditions Reduction Program, as well—758 of the 3,308 hospitals will face a 1 percent reduction in Medicare payments. 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. As these programs are rolled out and enforced, hospitals and other providers must consider what efforts are being made to avoid penalties, and what kind of cost that presents in the short term versus long term.

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. CMS, commercial payers, healthcare providers and other parties have formed a Core Quality Measures Collaborative in an effort to reduce some of the complexities and increase multi-payer alignment around quality reporting, and issued a first set of core measures in mid-February. It’s beneficial for organizations to stay abreast of these evolving rules and guidelines, in order to measure accurately, efficiently and in accordance with industry standards. In addition, some of the metrics hospitals use may incentivize providers to meet established measures in a manner that is not consistent with the organization’s culture. It’s critical that organizations have systems and processes 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 this rating system. These and other reimbursement changes are pushing hospitals to improve outcomes and reduce costs by creating networks of high-quality post-acute care partners. In turn, ratings and metrics will grow increasingly important in vetting and creating those partnerships. CMS is pushing forward with star ratings for hospitals, as well; last year, it introduced ratings based on patient experience. In April, CMS will publish a complementary rating, which will analyze a hospital’s performance based on quality measures in seven key areas. As this develops, organizations will have to consider what kind of rating they can expect to receive and how that may affect long-term stability and viability. 

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.

Making the shift from volume to value will increase exposure to risk in new ways. These are the boardroom conversations that help minimize risk exposure as forward-thinking leaders and advisors guide their organizations through healthcare transformation.

Venson Wallin, CPA, is a Managing Director for The BDO Center for Healthcare Excellence & Innovation, where he is the National Healthcare Compliance and Regulatory Leader. He can be reached at vwallin@bdo.com.

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