Financial Stability for Hospitals in the Age of a Growing Medicare Demographic

March 17, 2020

In hospital management, “breaking even” is far too often accepted as “good enough.” However, thanks to recent national shifts in what is perceived to be the best way to compensate healthcare providers for their hard work, hospital executives and administrators can now aim for profit-oriented goals – all while optimizing and maximizing patient quality of care.

The focus for most hospital professionals has traditionally been on integrating the care between inpatient and outpatient services. At the same time, there is an emphasis on serving the Medicaid population in a different manner than the Medicare population.

However, as the Medicare population becomes a larger demographic, particularly for hospital-based care, it will be increasingly important for hospital leaders to evaluate the factors impacting their financial stability.

In particular, the most poignant factors will be operational flows, revenue cycle management, and case mix index.

Operational Flows for Inpatient Care

With such a heavy focus on KPIs such as reducing length of stay, reducing the occurrences of infectious disease, and optimizing the ingress and egress of patients, many healthcare organizations forget to hone in on the demographics of the patient populations they are serving and how those figures impact revenue for the longevity and health of the organization.

In particular, with the increase in Medicare and Medicaid patient populations, it is doubly important for healthcare executives to examine and optimize their reimbursement methods. Not only are such considerations going to directly impact the financial stability of the organization, but also doing so can reveal operational inefficiencies and missteps that can directly impact other KPIs that are always on the hospital’s radar.

Indeed, operations and revenue cycle management (RCM) are intricately connected. Everything that the operations side of a hospital is doing drives all of the tasks that must be done on the revenue cycle side.

For instance, if your throughput in the hospital on the operational side experiences lag – such as if there are any delays in transferring between the ED and the inpatient department or if there is an extended delay in discharging patients – the result is going to be an amplification of the work on the RCM side.

As capitated contracts and varied reimbursement models are utilized more in hospitals, how hospital leaders and staff approach operations in the future is going to be significantly different than traditional fee-for-service systems because those capitated contracts dynamically change how an organization does business and treats patients.

Unfortunately, some hospital leaders conceptualize operations and RCM as distinctly different and miss valuable opportunities to improve on both sides.

Revenue Cycle Management & Medicare

Understanding the difference between fee-for-service and value-based payment contracts is absolutely critical. In particular, an organization’s back-end RCM staff must be extremely proficient at managing and filing such claims. Bundled payments, capitated contracts, and the like are tediously complex on both the healthcare delivery side and the health insurance side.

Tracking and trending this data is exceedingly difficult and often results in overpayments or underpayments based on inaccurate reporting. Inaccurate reporting starts at the front end with operational inefficiencies, missteps, or incorrect documentation.

For larger healthcare systems, it is imperative to have your RCM team tracking if the organization was paid correctly for every patient, every service, and under each contract. However, by building in certain structures such as a stop-gap to identify problems before a claim ever goes out the door, an organization can dramatically improve their clean claim rate.

While most RCM departments simply focus on working claim denials, a healthier model for organizations operating with capitated contracts, Medicare, and Medicaid bundled contracts is to identify issues before they go out the door and then once the claim or payment has come back to the organization.

As the Medicare demographic grows, it will be even more critical for a healthcare organization to have an RCM department that is supported by strategic procedures to maximize successful claims and minimize denials within an increasingly more complex reimbursement system.

Case Mix Index Changes

For Medicare and Medicaid aged patients, the cost to treat them and provide ongoing care from one or multiple providers is going to be higher than the cost to treat someone in their mid-twenties who is healthy.

Ultimately, case mix index is going to change the resources needed for a hospital to do business. If the majority of your organization’s patients are Medicare-age or Medicaid-eligible patients, your organization is going to require more resources. At the same time, the level of complexity of the issues that your staff is going to face will skew.

By looking at your 80% demographics – the majority of the patients your organization serves – a case mix index analysis will inform how your organization negotiates contracted rates with health plans due to the increased cost of seeing patients.

As the Medicare and Medicaid populations grow, an organization cannot remain static. Forecasting what your organization’s patient demographics may look like in the next five to ten years in light of these trends plus the factors of operational flows, revenue cycle management, and case mix index will help you be prepared to maintain financial stability.

Certainly, the challenges of a growing aging population are not going to be solved overnight. Rather, the important piece is that we all start discussing these trends and how they affect the various departments of healthcare organizations so that those different departments can all support one another as effectively as possible.

If your organization wants to get out in front of this trend, reach out to us and let’s talk about how your organization can make preparations for financial stability now and into the future.

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