Tim Wolters

As we go to press, the U.S. House of Representatives and Senate are in the process of merging five separate health care bills in an attempt to arrive at one final bill. It is unclear what, if any, legislation will pass this year. It is also unclear how efforts to reduce the number of uninsured will affect health care providers (hospitals, skilled nursing facilities, home health agencies and other organizations) and professionals (physicians, psychologists, nurse practitioners, therapists and other individuals). However, certain themes are emerging from the debate and seem likely to be included in any final legislation. 

Changes in payer mix

The debate continues over a public option that would compete with insurance companies. Regardless of the outcome of this issue, a key component of any final plan would likely be to reduce the number of uninsured through expansion of Medicaid or similar coverage options. The means to pay for this additional coverage is the source of much controversy. While providers and professionals likely benefit from reductions in uninsured patients, if the added coverage is financed by reductions in existing Medicare or Medicaid payments, there will be trade-offs. Providers and professionals treating a high number of uninsured now may see a net increase in revenue after health care reform. However, those with a lower mix of uninsured may see a decrease in revenue as existing Medicare and Medicaid payments may be reduced to help pay for expanded coverage.

Medicare and Medicaid disproportionate share (DSH) payments, in particular, are at risk. Several plans reduce future federal and state DSH payments as the number of uninsured decrease. Providers and professionals should evaluate their payer mixes and monitor collections from significant payers. Long-range planning should consider potential shifts in collections by payer during these tough economic times and over the next few years if health care reform is enacted.

Effectiveness and outcomes

Quality of care has been discussed extensively for a number of years. Hospitals, home health agencies, physicians and other professionals currently receive a portion of their Medicare reimbursement based on participation in quality reporting initiatives. Over the next few years, it is likely a portion of Medicare reimbursement will be tied not to reporting, but to actual outcomes.

Effectiveness and value-based purchasing are similar concepts, combining cost and outcomes to reward best performers with incentive payments. A possible scenario to implement these concepts would be to withhold a pool of payments from different provider groups, such as hospitals, skilled nursing facilities, home health agencies, etc. and redistribute the pool to those providers with the best outcomes. Other proposals would require a productivity adjustment to reduce provider payment updates by estimated improvements in productivity within the health care industry.

On a more specific level, hospitals already see reduced reimbursement for patients who develop certain conditions after admission. Another specific area likely to reduce hospital reimbursement in the next few years will be payment adjustments for hospitals with high readmission rates for certain Medicare inpatients.

While initial implementation of value-based purchasing and effectiveness provisions may be tied exclusively to Medicare payments, prior experience suggests state Medicaid plans may adopt such provisions over time. As a rough estimate of how much reimbursement may be at stake, providers and professionals could estimate 5% of their total annual Medicare and Medicaid payments as the pool of funds that may be redistributed among provider and professional groups. Those with better outcomes may benefit from those positive outcomes, while those with poorer outcomes have reimbursement at risk. Such provisions could eventually apply to other payers. Providers and professionals would do well to monitor their outcomes and overall delivery of patient care. CMS has a number of resources available for review at www.cms.hhs.gov/QualityInitiativesGenInfo/.

Specific Payment Provisions

Every major piece of health care legislation in recent years included targeted payment provisions to fix perceived inequities in payments to providers and professionals. Any final legislation this year is likely to include several such provisions. The provision receiving the most attention would prevent the 21.5% cut in the Medicare physician fee schedule CMS proposes to implement January 1, 2010.

Other provisions under debate would extend rural hospital protections, including the outpatient hold harmless reimbursement scheduled to expire December 31, 2009. Several home health provisions would seek to prevent further cuts in reimbursement, while others may expand proposed reductions in home health outlier payments.

Providers and professionals should monitor the debate and communicate concerns to their legislators. They should also review their reimbursement environment to ensure they are taking advantage of available special reimbursement provisions.

Contact your BKD advisor for information on specific regulations and the impact of proposed legislation.