CMS Explores Consolidated Payment System

Over the last several years, CMS has worked with the Medicare Payment Advisory Committee to streamline payments for a number of patient services and procedures. Each group has proposed changes to Medicare billing that, if adopted, could streamline and reduce annual healthcare spending for the program.

The current payment system allows for differing payments for the same service depending on where and by whom it was performed. Hospital outpatient departments, for example, receive a higher payment than a physician’s office for the same procedure. However, differentials are also present when measuring payments received by the same physician for the same procedure based on how it was coded.

Several elements contribute to the billing differences that CMS and MedPAC hope to eliminate, including packaged versus separate payments; where providers choose to perform services (and patients choose to receive them); and different methods of weighing payments between different facilities.

Proposed changes include updates to this year’s physician fee schedule and limiting billing to either physician rates or hospital rates. The larger question this creates, however, is which system is the best to determine payment rates at all

A site-neutral payment program is slowly developing: beginning in 2016, long-term care hospital pay rates will shift to align with existing inpatient PPS rates. In the meantime, both CMS and MedPAC continue to identify inconsistencies in payments and potential solutions for them.

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Medicare Payments Concentrated in Few Specialties

Medicare’s 2012 payments to providers were largely concentrated in a few specialties, according to recent disclosures.

An analysis of federal physician billing data illustrates that 14 percent of disbursements went to the top one percent of physicians, with the bulk of payments concentrated in oncology and ophthalmology.

Without information about individual patient cases, though, physicians argue that the raw data lacks the necessary context to be applied effectively. Billing data was off-limits from 1979 until 2013 due to an injunction filed by the AMA for this reason, among others. Many physicians are also concerned that patient and physician privacy could be at risk now that billing data is available.

That oncology and ophthalmology top the list of highest-paid specialties is unsurprising given that Medicare patients aged 65 and older are their primary demographic. Much of the money paid out to ophthalmologists covered many common eye drugs that the physicians purchase up front and prescribe for little profit. On the other hand, last year CMS reduced payments for cataract surgery to reflect updates to the procedure.

Economists hope to use billing data to identify physicians who perform high-revenue procedures with little value to the patient in order to increase their billing. The greatest concern posed by the information as presented is the possibility that some seniors may go through unnecessary treatment simply for a higher paycheck. The AMA cautions that the data released do not illustrate the value of services provided, however.

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New Bill Delays ICD-10 Again, Indefinitely

Despite claims by the Centers for Medicare and Medicaid Services that the October 1, 2014 deadline for the final transition to ICD-10 was firm, President Obama has signed a new law that will push ICD-10 back until at least October 2015.

H.R. 4302, “Protecting Access to Medicare Act of 2014”, is primarily the latest in a series of patches to Medicare’s sustainable growth rate; however, Section 212 of the bill prohibits the Secretary of Health and Human Services from replacing the current coding standard, ICD-9, with the new ICD-10 any time before October 1, 2015.

The delay has caused significant frustration and may compound difficulties for providers racing to be ICD-10 compliant. Providers at various stages of preparation for ICD-10 will have to maintain both their ICD-10 systems and their current ICD-9 systems until the switch takes place; in addition, many providers who are prepared to begin training for ICD-10 will have to postpone their efforts until a new deadline is announced.

Because the ICD-10 mandate is unfunded, the cost of preparation has fallen to providers who may suffer financially due to a delay. There is also little indication that payers are prepared for billing changes that will take place with ICD-10. At the same time, however, providers who are not as close to full ICD-10 implementation will have at least an additional year to upgrade technology, train their employees, and update their procedures. For payers, the delay will provide additional opportunities for critical end-to-end systems tests.

Proponents of ICD-10 argue that the new system will allow for more accurate coding of a variety of medical conditions, which will not only improve the quality of care but will also streamline billing processes by reducing requests for additional documentation. Health information management professionals recommend that providers stay on track for complete ICD-10 preparation, including a complete shift to ICD-10 coding with translations to ICD-9 until the standard is changed.

ICD-10 may also have a significant impact on healthcare vendors. Medical billing and coding agencies stand to benefit from providers choosing to outsource coding in advance of changing standards, yet all vendors may face longer waits for payment from facilities struggling to meet increasing financial demands.

We will continue to monitor updates to the ICD-10 transition and report on them as they come.

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Hospital Fee Models Make Pay-for-Performance Problematic

Attempts by healthcare payers to incentivize quality care by providers are nothing new. However, a study on pay-for-performance programs, as they are called, indicates that the practice may not improve the quality of patient care to the intended extent.

Most hospitals currently operate pay-for-service models, in which providers receive a set amount for each service provided. This model tends to encourage quantity over quality and time-intensity over efficiency. Pay-for-performance, which Medicare has already implemented through its Hospital Readmissions Reduction Program, flips the traditional fee model on its head and reimburses facilities for “quality” treatment – or, in the case of the HRRP, penalizes hospitals that fail to meet established benchmarks for patient care.

There are several issues with pay-for-performance, from what to measure to the size of the incentive offered, and the model’s impact on hospitals’ performance is mixed.

What “performance” is measured?

Many payers in this model focus on measuring adherence to processes rather than patient outcomes. A facility may qualify for incentives because they follow procedure accurately, but that does not necessarily reflect added value. Providers will prioritize the care for which they will be rewarded, while showing no change or a negative change in other measures.

Measuring outcomes, meanwhile, can lead to an artificially inflated or deflated result because the care provided is only one element of patient outcomes. In addition, facilities working for certain outcomes may be risk averse to treating patients unlikely to see a positive outcome.

How should incentives work?

Andrew Ryan from Weill Cornell Medical School claims that in most pay-for-performance models, the incentives offered are insufficient to compel providers to improve their practices. On the other hand, increasing incentives may be cost-prohibitive to many facilities.

Either way, even the best pay-for-performance program may not motivate caregivers to improve their practices. One suggestion to overcome this obstacle is to leverage providers’ risk aversion by paying incentives up front, and requiring providers to pay back money for standards they fail to meet.

Is there a better way?

System-wide change to the payer-provider relationship may be a better path to higher quality care than tweaks to payer methods. Individual providers may lack the resources or motivation to attack systemic issues, but payers and providers can collaborate and cooperate with one another to address those problems together and build a system that provides the quality care that patients deserve without relying on financial incentives to do so.

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September Layoffs Largely Concentrated in Healthcare

The once recession-proof healthcare industry took a large hit in September, reporting more layoffs than any other industry for the month.

Hospital layoffs

Healthcare providers let go more than 8,000 employees, including administrative staff as well as doctors and nurses, in an ongoing effort to reduce costs. Some notable reductions are Vanderbilt University Medical Center’s 1,000-employee cut and Cleveland Clinic’s 3,000-employee buyout plan. Reductions are projected to continue into next year, cutting into the past year’s gains in private hospital employment.

The layoffs are a response to a variety of funding cuts and changing hospital conditions, including new reductions established by the Affordable Care Act. Medicare and Medicaid reimbursements in particular have fallen sharply due to sequestration and additional penalties associated with the Hospital Readmissions Reduction Program, which cuts reimbursement to hospitals with excessive readmissions for applicable conditions. Other factors include:

  • Research funding from the National Institutes of Health was cut five percent due to sequestration;
  • Increasing numbers of patients are aging into Medicare, which reimburses at lower rates than private insurance;
  • Despite the ACA’s expansion of Medicaid, 26 states have chosen not to expand the program and accept greater funding (Vanderbilt cites this as a primary cause of their cuts);
  • Private insurance policies are paying out lower amounts, passing costs on to patients with higher deductibles and co-insurance;
  • Inpatient stays have shortened since the recession began, decreasing in length by four percent from 2007-2011.

Healthcare consultants, however, point out that hospital layoffs are a shortsighted solution that many facilities will have to reverse as more patients take advantage of their access to affordable healthcare and seek treatment they may have otherwise eschewed.

There are alternative solutions for facilities looking to shore up their cash flow. Medical receivables factoring gives hospitals immediate access to cash that they can use to meet their expenses without cutting employees they will likely need to call back in the next few months. PRN Funding has more than a decade of experience in the healthcare industry and can help meet the unique needs of providers. Apply today to learn more and get the cash ball rolling.

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Hospitals Shed Light on the ACA Blame Game

Following Cleveland Clinic’s announcement last month of more than $300 million in budget cuts, we addressed the ongoing blame game over the Affordable Care Act in the mainstream media. Members of the mainstream media have been slow to take up the question, but this week the Plain Dealer asked the question: Is Obamacare really to blame for cuts at the Cleveland Clinic and other hospitals?

Frustrated business person overloaded with work.

The Cleveland Clinic has previously attributed their budget decision to “a number of factors”, as have other hospital systems considering or implementing similar cuts. Now, hospitals spokespersons and health care analysts have provided a more in-depth explanation of exactly how the Affordable Care Act will affect hospital systems going forward.


Hospitals already handle a large annual gap between the health care they provide to Medicare recipients and the reimbursement limits that the Centers for Medicare and Medicaid Services place on various services. The ACA includes an additional Medicare spending reduction of $716 billion over the next ten years. Some of the cuts are specifically directed at hospitals, such as the Hospital Readmissions Reduction Program.

Another portion of the pending cuts to hospitals is $22 billion over ten years from the Disproportionate Share Payments (DSH), which cover charity care in hospitals with large numbers of uninsured patients. Hospitals expect to compensate for this particular cut with insurance payments from previously uninsured patients who will have access to coverage through the federal health exchange. These cuts come in addition to other reductions approved by Congress since the ACA passed in 2010.


The ACA expanded Medicaid coverage to include patients earning up to 138 percent of the federal poverty level, in an attempt to provide an affordable health care option to parts of the population too poor to pay a monthly premium even with tax subsidies to help. To ease state concerns about the costs of expansion, the federal government will pay all new Medicaid costs through 2016, when they will scale back their coverage to 90 percent.

However, when the Supreme Court upheld the ACA’s individual mandate they failed to uphold the obligation of the states to expand their individual Medicaid programs. In states such as Ohio and North Carolina where the government has chosen not to expand, hospitals will not be able to recoup the loss of Medicaid DSH funds cut through the ACA. With fewer newly eligible Medicaid patients than projected, hospitals are forced to contain their costs through other means.

Bad debt

Hospitals must already contend with bad debt from patients who do not cover the portion of their invoices beyond coverage limits, as well as costs they swallow from providing charity care. The Medicare and Medicaid restrictions described above will contribute to this ongoing problem but interestingly enough, so will the health plans available to patients in the online marketplaces.

The affordability of health care is a complex matter that goes beyond the cost of the monthly premium. Insurers balance low premiums such as those available in Bronze or Silver plans with higher deductibles and out-of-pocket costs, meaning that a patient who seeks care at the hospital will end up with a higher portion of the bill once that care is provided. As much as a third of uncollectible hospital bills are estimated to belong to patients with health care.

Still, hospitals are optimistic that higher numbers of insured patients will create a net gain, as they will be able to reduce their bad debt expenses for uninsured patients and will instead receive payment for at least part of services provided directly from the insurer.

The Cleveland Clinic is one large example of how the Affordable Care Act may affect hospital operations, yet they also offer an important caveat against framing the discussion of other facilities’ budget decisions solely within the context of the ACA.

If you provide services to a hospital or medical facility, healthcare factoring can help you maintain a positive cash flow without falling victim to uncertain hospital payment terms. PRN Funding offers a variety of healthcare factoring programs designed to meet the unique needs of healthcare vendors. The application process is fast and easy – contact us to start today.

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