Becker's Hospital Review

Reimbursement & Revenue Cycle 41 Moody's: Hospitals Will See "Eroding Profits" in Move to New Payment Models By Bob Herman F or-profit and nonprofit hospitals face growing risks to their bottom lines over the next several years as they complete the transition from a fee-for-service system to a value-based payment system, according to a report from Moody's Investors Service. One of the central tenets of healthcare reform, and President Barack Obama's Patient Protection and Affordable Care Act, is changing how providers are paid to deliver care. Value-based purchasing, bundled payments, capitated payments and shared savings programs in accountable care organizations are the new, evolving reimbursement models for hospitals and health systems. The organizations that will succeed the most in the transition, Moody's analysts said, will be larger hospital systems "strongly aligned with their medical staffs." For example, Moody's pointed to the integration efforts of Rochester, Minn.based Mayo Clinic, Danville, Pa.-based Geisinger Health System and Salt Lake City-based Intermountain Healthcare. Moody's said small, nonprofit, standalone hospitals "will be at greater risk" for financial troubles under these reimbursement models. "Hospitals will be in danger of eroding profits as they straddle two types of reimbursement Study: Larger, Investor-Owned Hospitals Typically Have Higher Charges By Bob Herman O n average, hospital charges are almost four times higher than what Medicare actually reimburses, and those charges are usually higher for hospitals that are investor-owned, within a system and located in urban regions. In a blog post for Health Affairs, David Muhlestein, director of research at Leavitt Partners, conducted a study to find out characteristics of hospitals that have higher-than-average and lower-than-average charges compared with what they are actually reimbursed. Mr. Muhlestein used data that HHS and CMS released in May. That data listed the top 100 most frequently billed inpatient discharges, charges and Medicare reimbursements for the thousands of hospitals paid under Medicare's inpatient prospective payment system. Here are some of Mr. Muhlestein's findings: • Across all hospitals and all diagnosis-related groups, the average amount charged by hospitals was 3.77 times higher than the actual Medicare reimbursement. • Higher charge-to-reimbursement ratios mostly came from for-profit hospitals, hospitals that were part of a system or in a joint venture with physicians and hospitals that had more beds. • Lower charge-to-reimbursement ratios mostly came from rural hos pitals, academic medical centers, government-owned hospitals and hospitals that had a health plan. n systems: the current model, which incentivizes healthcare providers to use more services, and new models that emphasize value," said Diana Lee, Moody's vice president and senior credit officer, in a news release. The report also said medical device companies stand to lose the most in the shift to value-based care, as hospitals and health insurers are looking to reduce admissions and procedure volumes — the lifeblood of medical device companies' success. Health insurers are positioned to benefit the most, Moody's said, because they will now be able to share more financial risks with providers. n Number of Providers With Risk-Based Contracts More Than Doubles Since 2011 By Molly Gamble T he number of providers with risk-based contracts for total cost of care has more than doubled since 2011, according to findings from The Advisory Board. The finding is from The Advisory Board's 2013 Accountable Payment Survey, which is an ongoing benchmarking initiative based on more than 110 responses from senior healthcare executives, with most representing large, multihospital health systems. The adoption rate for risk-based total cost of care contracts rose from 14 percent in 2011 to 35 percent in the 2013 survey. Also, more providers adopted bundled payments in that same timeframe, as the adoption rate grew from 16 percent to 27 percent. The Advisory Board said these initial survey results suggest the trend toward more provider accountability is not likely to subside. "Of those still sitting on the sidelines, more than half anticipate engaging in total cost of care contracts within the next three years; two-thirds expect the same to be true for bundled payments," according to the report. n

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