Becker's Hospital Review

8 Sign up for the COMPLIMENTARY Becker's Hospital Review CEO Report & CFO Report E-Weeklies at www.BeckersHospitalReview.com or call (800) 417-2035 10 Challenges and Opportunities for Hospitals in 2014 (continued from page 1) teams welcome these second-level reviews, as they don't want any surprises either and appreciate validation that they are carrying out projects correctly. gle-digit point above Medicare reimbursement rates, which generally cover 85 to 95 percent of fully allocated costs. 4. Sustaining the mission. This challenge is interpreted differently depending on the institution, but many organizations, particularly nonprofits, are spending time looking at their market position in order to survive reimbursement cuts. The second challenge lies in signing patients up for the exchange. "Hospitals need to make sure there is maximum awareness to ensure their patient base is insured," says Mr. Kerns. The third challenge for hospitals will be dealing with the effects of high-deductible plans, which make up a majority of those offered on the exchanges. "This places a huge collection burden on hospitals," says Mr. Kerns. Historically, hospitals' recovery rate for collections has ranged from 18 to 30 percent, meaning organizations have to significantly upgrade their collection capabilities. Although hospitals will have to make some changes to their collection practices, they have a big opportunity this year to reduce their overall bad debt under the exchanges, since most bad debt stems from uninsured patients. If high-cost patients gain coverage under the exchanges, hospitals can reduce one of the most extractable expense categories, says Mr. Kerns. As he points out: Exchanges were supposed to be one component of the healthcare reform law to benefit hospitals, and there is still a chance to realize that. 2. ICD-10. ICD-10 will go live Oct. 1, 2014, a day some hospital leaders are more cognizant of, while others have pushed it to the back of their minds. The amount of preparation hospitals have devoted to ICD-10 varies greatly from institution to institution. Some have been working diligently for the past two to three years and have made great progress. Other organizations are incredibly far behind. The latter problem isn't limited to small practices or 90-bed hospitals, says Ed Hock, senior director of The Advisory Board Co. "We talked to 10 health systems that, even as of a couple weeks ago, have done next to nothing," he says. Why are some health systems so behind? "Every reason from they just went through a merger to they just implemented an electronic medical record to they are just trying to survive," says Mr. Hock. Hospitals that haven't been taking ICD-10 seriously make up a sliver of the pie, he says. Most have had a hard time preparing for it simply because their resources and time are devoted to meeting other high-priority demands. "This is a really important year," says Mr. Hock, but the transition will also be taxing as staff and physicians are asked to learn new systems, terminology and work patterns. There is a silver lining, however. Organizations that have properly prepared for ICD-10 have an opportunity to improve numerous different processes, from coding to the way they engage with physicians to centralization and implementing new technology. 3. Organizational bandwidth. Healthcare executives may be busier today than they've ever been. They practically need a map to navigate their priorities and external pressures, some of which are conflicting. Executives aren't used to having much room on their plates, but healthcare reform presents a whole new type of demand on their bandwidth. "The difference today is the dollar levels of those projects are extremely large," says John Dugan, partner with PwC. Take implementing an EMR system, for example. That project touches a vast number of people throughout the organization, and its repercussions are sometimes unforeseen. "There are numerous examples where providers haven't budgeted the full cost of that technology," says Mr. Dugan. "It may cost double what they estimated. That right there is tremendous stress. Who has responsibility over that?" To deal with this, hospitals and health systems must first refresh their strategic plans. They look at the next three to five years and determine what projects they can undertake with their current bandwidth and resources. Some organizations are also building new internal functions to structure better project management and governance around these investments. "It's not unusual to see the creation of performance improvement offices to help with the coordination and interdependence of initiatives," says Mr. Dugan. He has also seen more boards ask for external assistance in evaluating how well a hospital or health system's management team is executing their respective projects. "They're saying, 'Can someone come out here and really report back to us on this EMR initiative,'" says Mr. Dugan. Proactive management For community hospitals, the largest challenge may be a matter of remaining independent. For safety-net hospitals, it may mean remaining solvent while undergoing reduced disproportionate share hospital payments, particularly in states like Georgia that did not expand Medicaid. And for academic medical centers, the challenge may be in training the next generation of physicians and maintaining top clinical care and medical research considering the cuts to Medicare's graduate medical education funding. Of course, all providers still have to deal with extra cuts from sequestration. Each of these scenarios and the repercussion of healthcare reform are bringing executives to ask themselves if their organization will be able to ccomplish its goals. Going into 2014, nonprofit hospital and health system leaders will need to be mindful of their charitable mission and how they are reporting charity care, particularly with the newly insured. "There have been more nuances relating to the Internal Revenue Services' requirements for levels of charity care provided," says Mr. Dugan. "The large population that will have insurance over the next two to five years, does that provide a vehicle to further question an organization's mission?" Igor Belokrinitsky, principal with Booz & Co., says hospitals can really prove and differentiate themselves in a market by focusing on or refining their mission. "Just as hospitals reconsider their physician alignment and ambulatory strategies, it's also time to dust off the old mission statement," he says. "Is it ready for the future, or is it still stuck in the past?" Safety-nets, for instance, may have to decide whether they should continue offering everything to everybody, or focus on a few service lines and double down on those. Community hospitals face a similar decision, particularly about leaving more specialized services to newer and more advanced providers, or forming clinical affiliations. And academic medical centers may need to determine whether their premium prices are justified by the acuity of their patients. "If your mission is to be on the forefront of research, but 80 percent of your patients don't really benefit from that because they have straightforward clinical needs, how does that align?" says Mr. Belokrinitsky. 5. Price transparency. The outpouring of hospital chargemaster data in 2013 frustrated many healthcare leaders. Many executives and organizations made the distinction between chargemaster prices (i.e. "sticker prices") and how much they actually receive in exchange for a service. "That's good for hospitals to point out," says Mr. Kerns of The Advisory Board Co. "Just because we have more transparent charges doesn't mean we have more transparent prices." With that said, attention toward hospital charges, prices or overall cost of care is unlikely to subside in 2014, especially as consumers take on more financial responsibility for their care. Areas that may be especially prone for scrutiny are imaging, diagnostics, pharmacy and ambulatory surgery, as these services are more price sensitive, according to Mr. Kerns. Katherine Hempstead, PhD, team director and senior program officer with Robert Wood Johnson Foundation, came to realize something about the CMS' inpatient and outpatient pricing data last year. "Even though patients don't pay charges, when people look at this variation in price that has nothing to do with quality, they know something about those prices is wrong," she says. "That's the sign of a malfunctioning system." How hospitals will respond to these cost pressures will depend on the price sensitivity in their market and whether there is a significant reason for variation in their prices. "Hospitals have to be careful about how they do this, because in many cases they're offering a premium service, and in many cases they're not," says Mr. Kerns.

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