Remember this?  Ezra Klein does, and so do I:

Uwe Reinhardt, a prominent health economist at Princeton (and prior SHM plenary speaker) writes a bi-monthly column for the NY Times.  Provocative and whip smart–whether you agree with him or not–he scribed an interesting column last week on hospital governance.  Part of his column focused on nonprofit IRS filing statements.

AHRQ released a helpful brief in 2013 assessing costs (not prices) for hospital stays.

Inpatient health care costs for Medicare, longer term, exhibit a downward growth rate–still ascending but slowing.  However, prices for employed individuals moved upward and at an accelerating rate (distinct from Medicare).  The number of admissions from both groups also decreased. 

I clipped sentences while reading the last few weeks with the intent of compiling them for this post.  I want you to examine below and glean a pattern.

On average, as of 2012, Medicaid pays 58% of primary care Medicare fees.  Variability exists amongst the states:

We have additional 2011 hospitalist salary data out for consideration.  The title of the linked piece, “Has hospitalist pay finally peaked?,” asks the right question.  Today’s Hospitalist culled the data from 1000 hospitalists from various regions and venues.

Uncompensated care is an overall measure of hospital care provided for which no payment was received from the patient or insurer. It is the sum of a hospital’s “bad debt” and charity care.

Charity care is care for which hospitals never expect reimbursement. A hospital incurs bad debt when it cannot obtain recompense for services rendered.  EMTALA, ability, or willingness to pay influence the latter and determine the vigor of institutional response when faced with shortfalls in payment. Hospitals must attempt to assist patients’ when they are unable to meet their obligations however.  Current law mandates they make these efforts and risk their reputation and then some, if they abrogate caregiving duty.  As a reminder, you may recall this fiasco.

Uncompensated care comprises 5-6% of total expenses for an average hospital and has risen the past few years due to the recession. Payer mix and hospital locale influence its effect on revenue, with urban and public hospitals suffering most.  Estimates range as high as 16% for these facilities.

Nonprofit hospitals receive various tax exemptions from federal, state, and local governments with the expectation that, in return, facilities will provide benefits to the community.  The definition of “benefit” and the amount hospitals contribute or are able, are subject to continued debate (g00d 2-page RWJF primer).

The government is examining charitable activity of late, as some hospitals are stretching its definition (at taxpayer expense).  Providing free care at a local shelter versus “complimentary screens” for LASIK surgery for example, raise levels of philanthropic nuance even your brother-in-law the tailor can parse.  Conversely, other facilities are drowning in debt, and exemptions of any size won’t rescue their dwindling coffers.  The Affordable Care Act requires hospital to improve measurement and reporting of these services.  The present value of tax-exempt benefits rewarded to hospitals is greater than $10B.

With razor thin margins then, how do some hospitals cope with unpaid bills—especially when they run in the red?

In addition to improving efficiency, fundraising, pursuing non-clinical sources of revenue, and engaging in mischief, they also receive disproportionate share (DSH) payments.  If you unaware of them, stay vigilant, as your hospital may receive (and will likely experience) their loss.  Controversy exists, with some hospitals receiving DSH stipends in excess of financial need.  A brief overview:

The United States government provides funding to hospitals that treat indigent patients through the Disproportionate Share Hospital (DSH) programs, under which facilities are able to receive at least partial compensation.

Although 3,109 hospitals receive this adjustment, Medicare DSH payments are highly concentrated. Ninety three percent of total DSH payments go to large hospitals in urban areas and teaching hospitals receive about 65 percent of all DSH payments. Additionally, because Medicaid eligibility and coverage vary widely across states, Medicare DSH payments are distributed unevenly across geographic areas: the Middle Atlantic, South Atlantic, and Pacific regions account for 60 percent of all DSH payments but only 46 percent of Medicare discharges.

And on the reductions to the DSH payments:

PPACA aims to reduce:

• Funding for the Medicaid DSH program by $17.1 billion between 2014 and 2020

PPACA requires the Secretary to:

• Develop a methodology to distribute DSH reductions in a manner that (1) imposes the largest reduction in DSH allotments for states with the lowest percentage of uninsured or those that do not target DSH payments; (2) imposes smaller reductions for low-DSH states
• Determine the best way to implement the cuts in a way that will target states that direct the lowest percentage of DSH allotments to hospitals with high volumes of uninsured and Medicaid inpatients. The 16 states considered “low DSH states” will be reduced by 25%, and all other states will be reduced by 50%.

All hospitals will feel the cuts, but the needy will suffer “least” (relatively).  However, the increase in newly insured individuals due to the ACA may not adequately compensate teetering safety net hospitals, and the net loss may be more than they can withstand. In Massachusetts, Boston Medical Center suffered great loses after state reform was implemented–in a manner similar to the ACA–and paid volume did not materialize:

“Ironically, hospital officials blame the downturn partly on changes ushered in with the state’s groundbreaking mandatory health insurance law, which Boston Medical Center supported and that benefited many of its patients. As part of the law, the state phased out special subsidies for hospitals that treat large numbers of poor patients, a significant shock for Boston Medical Center.”

You will hear more about DSH payments as hospital margins get squeezed.  For some facilities, this cash lifeline is vital and the ensuing battles between the have and have not systems will elevate its importance as congress seeks solutions to budgetary gaps.

Bonuses:

• Making the Case: Reduce Surgical Complications vs. Lose Money, You pick!
• Rationing End of Life Care:  In a debate, is the voting audience swayed by a “ration” or “spend away” approach.  Click the results and find out.  Is there hope?
• Now that this paper is out, I am lost.  How can I continue my ways and plead “don’t waste your money?”
• One of the better posts I have read recently and worth your time.  You will rethink P4P!  His book is even better.
• System failure or negligence?  Holy cow, what do you do with this “bad apple?”

However, where is the part about changing the instruction manual?

A new study out today in Health Affairs looks at observation units and their potential to reduce direct spending on inpatient care.  The investigators found:

“Using a systematic literature review, national survey data, and a simulation model, we estimated that if hospitals without observation units had them in place, the average cost savings per patient would be $1,572, annual hospital savings would be$4.6 million, and national cost savings would be $3.1 billion. Future policies intended to increase the cost-efficiency of hospital care should include support for observation unit care as an alternative to short-stay inpatient admission.”

In analyses such as this, estimates are based on literature availability and quality, and admittedly, diversity in diagnoses goes beyond chest pain.  Recall many of the studies you read on this subject are “chip shot” presentations (like chest pain), and extrapolating findings to all comers is difficult.  However, it focuses us on where efficient practice exists and hospital redesign might occur.

Notably, the authors mention the 800-pound gorilla:

“The rising cost of inpatient hospitalization has drawn increased scrutiny from both public and private payers.  Specifically, the Centers for Medicare and Medicaid Services was recently authorized to expand the Recovery Audit Contractor program to all fifty states after a successful pilot demonstrated more than $900 million in savings by identifying short-stay inpatient admissions that were deemed inappropriate.

As a result, hospitals have felt pressure to avoid short-stay inpatient admissions and have increased the use of observation care, employing the “admit-to-observation” status. But this status is largely a billing change and not a delivery model change intended to improve efficiency.”

I have written about this problem before.  This study is helpful.  The intervention saves society and payers money, and will likely reduce patient harm.  However, without the right incentives, why would a hospital take this admission hit:

Additionally, without a modification in the observation status rule, confusion will persist, and hospitals (and hospital-based providers) will continue to wade through a swamp of opaque CMS guidance.

To fix this problem, hospitals will need to downsize slowly, reducing both their direct and indirect ER and ward costs over years, not months.  They will also require a payment policy that makes sense.  Thus, an admit is an admit; an observation is an observation; and the patient exits the hospital unharmed.  A per diem versus bundled payment is another conversation, for another day.

CMS is overseeing a physician initiative in four states, and you likely know little about it.  Additionally, you are probably unaware of the program it seeks to inform.

In 2015, Medicare will begin to assess physician performance on cost and quality data.  Through a value-based code, our newly adjusted fees will reflect these measurements, relative to our peers—with the intent of raising the care delivery bar at the doctor level.  The public will have also access to this information.

You may have heard CMS has posted a proposed rule for modifying physician pay–for both specialists and primary care docs: