Policies and Procedures That Will Put Your Hospital on Sound Financial Footing in 2016

Hosptials in 2016

Though recognized as one of the greatest rocket scientists in history, Wernher von Braun, who was the chief architect of the Saturn V superbooster that sent American astronauts to the moon, once said, “I'm convinced that before the year 2000 is over, the first child will have been born on the moon.” Clearly, predicting the future isn’t easy — especially when you’re in the midst of monumental change. That’s precisely why hospital finance executives need to implement policies and procedures to solve the challenges that unfold in 2016. Here’s what you’re likely to encounter and the strategies that can help you overcome obstacles on the healthcare reform journey.

Leverage data to reduce preventable readmissions.

Earlier this year, Kaiser Health News reported that, once again, more than half of the nation’s hospitals faced readmission penalties that ran to a collective $420 million, subject to the Centers for Medicare and Medicaid Services (CMS) Hospital Readmissions Reduction Program. The good news? Few hospitals incurred the maximum reduction, and the number of overall penalties did not change significantly from the previous year.

Unfortunately, in the next federal fiscal year, the CMS will begin tracking readmissions for more conditions. Heart attack (AMI), heart failure, pneumonia, total hip or knee replacement (THA/TKA) and chronic obstructive pulmonary disease (COPD) — those five conditions have been used to calculate hospital readmission penalties until now. Now, however, coronary artery bypass grafting (CABG) has been added to that list. In addition, the readmission measure for pneumonia is slated to expand to patients with sepsis or respiratory failure discharge diagnosis who have an underlying diagnosis of pneumonia on admission. We know from experience that the expansion of conditions, such as the addition of THA/TKA and COPD for 2015, leads to higher penalties for many hospitals.

What can hospitals do to reduce preventable readmissions and avoid penalties? Studies have shown that several practices can have a positive impact on readmissions:

  • Reducing medical complications during the initial hospital stay
  • Providing clear discharge instructions and using teach-back methods to ensure patients understand the post-discharge care plan
  • Coordinating follow-up patient care with rehabilitation services, post-acute care providers and primary care physicians

In addition to putting such practices in place, hospitals can analyze data from EHRs, clinical and cost accounting systems to identify key indicators of readmission risk. For example, analyzing patient demographics, procedure and diagnosis codes and relevant clinical and financial data and using predictive modeling can help hospitals pinpoint variations in care that lead to readmissions and establish proactive procedures to mitigate risk.

Take on ICD-10 with confidence.

After years of anticipation, ICD-10 is finally here — and hospital finance executives will feel the impact in 2016. In an article exploring the implications of ICD-10, Becker’s Hospital Review highlights key issues hospitals face:

  • Lost productivity. As with any new process, ICD-10 coding will reduce productivity, at least in the short term. Becker’s Hospital Review anticipated as much as a 35 percent drop in productivity for coding, billing and claims management through early 2016, with a gradual increase as personnel become acclimated to the new standards. The article contends, however that hospitals might “never truly regain ICD-9 efficiencies.”
    With more than 19 times the procedure codes and 5 times the diagnosis codes than ICD-9, ICD-10 demands better physician documentation. Munson Healthcare’s chief CFO, Mark Hepler, told Becker’s Hospital Review that “ICD-10 elevates the visibility of clinical documentation quality and its importance to the financial health of the organization.”
  • Increased denials. The specificity of the new codes, combined with the learning curve for accurate documentation, will lead to an increase in denials, at least in the immediate future. According to CMS estimates, denials could rise 100 to 200 percent early on. And, says Becker’s Hospital Review, denials from commercial insurers could rise even higher.
  • Impeded cash flow and revenues. As hospitals encounter the above challenges, the natural progression equals will lead to a slowdown in cash flow. Based on numbers from hospitals that were either already dual-coding or practicing ICD-10, six months into this year, hospitals could experience A/R delays of up to five days, which could mean millions of dollars in reduced cash flow. For hospitals with less ICD-10 experience under their belts, the delays could be even longer.

To minimize the negative impacts of ICD-10 implementation, hospital finance needs to take action now. What policies and procedures can help?

  • Ramp up staffing to alleviate the pressure of lost productivity and increased claims denials. By managing personnel needs proactively, you can minimize disruption and avoid coding bottlenecks.
  • Use predictive modeling to understand the impact that higher claims denials will have on cash flow. Feeding patient and accounting data into such algorithms enables you to gain greater visibility into cash flow and put plans – and funds – in place to weather cash shortfalls that may occur as a result of increased denials.
  • Analyze historical claims data to understand ICD-9 denials, then develop proactive plans for addressing the causes for denials, such as coding errors or insufficient documentation. This will help you eliminate some of the risk associated with the move to ICD-10.
  • Continuously analyze denials data to uncover patterns and trends. If you understand why denials take place, you’re better positioned to address the root causes.

It’s not all bad news. As Mark Hepler points out, moving to ICD-10 actually “strengthens the connection between clinicians and finance; leading to improved processes and efficiency.”  By putting hospital data to work and tackling potential ICD-10 challenges head-on, hospitals can reduce the negative impacts while gaining valuable data for future analyses.

Stay on the road to quality and value-based reimbursement.

The pressure to shift from fee-for-service to quality and value-based reimbursement models ensures that finance executives play a crucial role in hospitals’ future success. Keeping the right staff — individuals who are experienced in healthcare finance, detail-oriented and alert to the issues that clinicians and administrative staff face — is even more important in this evolving reimbursement environment. Consider for example, the case of Connecticut Children’s Hospital, which current bills 52 to 57 percent of all charges through Medicaid because children generally qualify for Medicaid, even when their parents do not.

With changes to the state’s Medicare reimbursements, however, the hospital’s outlook has been altered. Connecticut Children’s Hospital CFO Patrick Garvey notes, “We don't have a big Medicare business, so we don't necessarily have the Medicare billing skills that we're going to need.” He acknowledges that he must constantly reassess staff to ensure the hospital has the right mix of people, right skillsets and sufficient bandwidth to meet changing needs.  

Beyond staffing considerations, hospitals also need robust patient and cost accounting analytics to better understand how quality and value intersect. Regardless of the model being used – accountable care organizations, patient-centered medical homes or bundled payments – the deep insights provided by such data allows healthcare organizations to evaluate costs across the entire care continuum care to drive better — and more predictable — performance. We’ve seen evidence of such successes at leading healthcare organizations already.

With the right hospital finance policies and procedures in place, your healthcare organization will be positioned to explore the new frontiers of today’s healthcare landscape and overcome any barriers that might appear.

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