Post-sequester fiscal strategy for all hospitals

In the wake of the March 1 sequestration deadline, healthcare providers must step up efforts to deal with new harsh realities. Bottom line, there is one overriding strategy all hospitals should implement.

Get more efficient: Hospitals must keep trying to get more efficient in the delivery of care. The goal is to trigger cost reductions and revenue enhancements to improve operational performance. To survive in the new world of healthcare, most providers will need to boost performance by 20% to 40%, which can be achieved by focusing on certain categories, according to a tweet from Huron Consulting. This, of course, is a long-term strategy.

A big part of the success of this effort is to engage physicians at the beginning. They have the specific clinical expertise necessary to redesign how care gets delivered, so their commitment will make or break your process improvement programs.

Impact of the cuts: To formulate specific strategies, you need to understand the main impact of sequestration (the automatic spending cuts Congress agreed upon as part of the Budget Control Act of 2011). The trouble is that it’s difficult to keep track of them all and to know when they will occur and how large they will be for your organization.

The main cut affecting healthcare providers is the 2% cut in Medicare reimbursements to hospitals around the nation. Based on figures that the Office of Management and Budget reported last September, the average hospital will see a reduction in payments of about $800,000 to $1.3 million. Unlike Medicare, the Medicaid program escaped without a single direct cut.

Rural hospitals are bracing for what they see as a harsh impact of the Medicare cut. Of the country’s 2,022 rural hospitals, 1,237 are already operating in the red, reveals a new report from iVantage Health Analytics, a business intelligence company. The cuts are likely to plunge 63 more providers into negative profit margins because of the rate decrease, and 12,000 jobs could be lost, the report says.

Aside from Medicare, hospitals could also see cuts to federal special education funding, grants that pay for social services and housing assistance. Also affected could be any state aid hospitals receive, although those cuts would likely show up in the next fiscal year.

Specific tactics: While waiting for efficiency and process improvements to kick in, there are many short-term tactics to attack costs. Some ideas we hear hospitals are employing include: scaling back programs, postponing infrastructure investments, and headcount control (e.g., eliminating positions, layoffs).

Also, consider some very simple ideas that can trigger quick savings. For example, some hospitals are saving on electricity by replacing high-energy bulbs with those that are energy efficient. In a similar vein, we hear of one hospital that put timers on its 100 automatic coffeepots to turn them off when nobody was around.

Keep in mind that you need to set aggressive cost-reduction targets due to the more austere environment. Stay away from benchmarking against the cost structures of your peers, who could be performing below par. Your targets should be designed to achieve the strong financial results your organization needs to grow and survive.

Loophole in final rule on manufacturer payments to providers

A final rule under what’s known as the “Sunshine Act” requires drug and device manufacturers to report payments or gifts they make to physicians and teaching hospitals.

The reporting is done to the Centers for Medicare & Medicaid Services (CMS) and is designed to shine light on potential conflicts of interest. However, experts say a loophole exists that could allow a quick way to get around the new rule.

In the shadow: It appears that there is a loophole known as the “CME exemption,” according to an article on Forbes.com. The finalized rules allow companies to pay physicians as speakers for continuing medical education (CME) events "as long as the companies don't select the speakers or directly pay them," according to the article. “In other words, accredited third party CME providers will be entirely exempt from reporting payments to speakers,” the article says.

CME events function essentially as marketing opportunities for the pharmaceutical and device makers that sponsor them. So, of course, physician attendees will be influenced about what drugs and devices to use. That’s the payoff.

Ed Silverman, editor of Pharmalot, a website that tracks the pharmaceutical industry, said in an article in The Atlantic: "CME providers exist to facilitate the messages propagated by manufacturers." He added, "By deciding disclosure is not warranted, the administration is allowing a form of laundering to be sanctioned."

For more information: A good analysis of the final rule, which goes into effect Aug. 1, 2013, has been prepared by Bass, Berry & Sims PLC, a Tennessee-based law firm.

FTC stamp of approval of PHO can act as model

One strategy hospitals are using to cope with new reimbursement models is to form a joint venture with physicians and create a physician hospital organization (PHO). The trouble is, a PHO could run afoul of antitrust laws unless it’s set up right.

FTC OK: A new staff opinion letter from the Federal Trade Commission says the agency will not challenge the proposed formation or operation of the Norman Physician Hospital Organization (Norman PHO) in Norman, Okla. Based on Norman PHO’s representations, the FTC staff concluded that the proposed activities “appear unlikely to unreasonably restrain trade.”

Norman PHO requested the advisory opinion from the FTC. The network includes approximately 280 participating physicians and the hospitals in the Norman Regional Health System. The PHO is designed to offer clinically integrated services as a way to achieve improved quality of care, reduced costs, and increased patient satisfaction.

The PHO will enter into horizontal combinations or pricing agreements only in the provision of physician services. It will not enter into agreements with competing providers of inpatient hospital services, or outpatient hospital and ambulatory care services because there are no competing providers. Norman is the only provider of such services that will participate in the network. As a result, the payers will not be forced to contract with it—they are free to bypass the network and contract individually with participating providers.

The letter also states that “Norman PHO’s proposed joint contracting appears to be subordinate to the network’s effort to improve efficiency and quality through the clinical integration of its participating physicians.” Because of this, the FTC takes a “rule-of-reason” analysis approach, as opposed to using a strict interpretation of the antitrust laws.

What it is: A PHO is an entity created and jointly owned by physicians and a hospital. It is established either as a for-profit corporation, a partnership, or a limited liability company (LLC). For a physician practice that wants to remain independent, a PHO is an alternative to direct employment by a hospital or joining an accountable care organization (ACO).

A key element of a PHO is a shared savings agreement designed to move physician compensation away from being based on productivity and toward pay-for-performance. To do this, incentives are created that reward clinical quality and delivery of cost-effective care in a collaborative clinical model. This aligns the hospital with healthcare reform’s new reimbursement models that tie financial rewards to the quality of care.

The FTC approval in this case provides some important guidelines to hospitals looking to establish a PHO. Of course, whether any proposed PHO passes muster will depend on the facts and circumstances of its particular situation.

Top 10 healthcare technologies to keep your eye on

C-suite execs in healthcare know that technology can help improve the quality of care and reduce costs. But which ones have the most potential? A new report from the ECRI Institute reveals the technologies experts say healthcare leaders should pay the most attention to in 2013.

1. Electronic health records (EHR). In the rush to achieve meaningful use criteria, make sure the system is safe;

2. MHealth. No longer tethered to computers, providers are using mobile health (mHealth) technologies to collect, monitor, and deliver healthcare information;

3. Alarm integration technology. Device alarm hazards are a big problem. This technology is designed to reduce alarm fatigue and improve alarm management;

4. Minimally invasive cardiac surgery. Now that it has cleared regulatory hurdles, hospitals look to ramp up transcatheter aortic valve implantation (TAVI);

5. Imaging and surgery. Full-scale imaging systems are moving into hospital ORs to guide surgery and verify its success;

6. PET/MR. Positron emission tomography (PET) combined with magnetic resonance (MR) technology in one machine is designed to yield better images and more accurate diagnoses of certain types of cancer;

7. Bariatric surgery. A possible cure for type 2 diabetes;

8. Supply chain. MR-compatible pacemakers can increase procedures and costs with no corresponding increase in reimbursement, so the clinical benefits must be weighed;

9. Radiation dose safety. New focus on computed tomography (CT) radiation dose and its harm triggers manufacturers to compete for incremental advances in dose reduction and monitoring; and

10. Lung cancer screenings. After early positive test results, many healthcare facilities have begun to offer lung cancer CT screening. But the false-positive rate is very high, so challenges exist.

These technologies have been selected for their ability to increase efficiency (e.g., reduce retesting) or greatly affect operations and care patterns, according to the report.