Healthcare Reform: Will You Survive the Cut(s)?
By 2015, 30 to 50 percent of hospitals will face extreme budget shortfalls and have limited access to capital. Cardiology already has endured multiple cuts, including a 36 percent slash in SPECT imaging reimbursement for independent cardiovascular practices, which have forced many private practices to merge with hospitals, creating strain and resistance. Meanwhile, hospitals will need to restructure payment models and care delivery to survive (and possibly thrive) in this increasingly challenging landscape.

Within most hospitals, the cardiovascular sector accounts for up to 40 percent of all revenue and nearly 60 to 80 percent of profits. However, as the belt tightens around healthcare costs, cardiology will begin to see a decrease in unit prices and procedural volume. Already, PCI procedures are down 25 percent across the U.S. over the last several years. In addition, the average hospital's Medicare margin could decrease 1 to 2 percent per year. Today, it is estimated that community hospitals lose appoximately 12 cents on every dollar spent for Medicare patients and 35 cents per dollar for Medicaid patients, according to Kaufman Strategic Advisors.

As a solution to cut the lofty healthcare expenditures, the federal government is turning to accountable care organizations (ACOs); however, their ultimate design, benefits and costs remain an enigma. Due to these uncertainties, a vital question remains for hospitals: How can facilities stay afloat and survive the next round of reimbursement cuts while still providing optimal patient care?

Hospitals/private practices face-off

By 2020, Medicare costs are set to double from the current $528 billion to a whopping $1 trillion, according to the Congressional Budget Office. Already, 33 states have announced they will need to slash Medicaid payments in fiscal year 2012 to survive, according to a survey from the National Governors Association.

Nathan S. Kaufman, managing director of Kaufman Strategic Advisors in San Diego, suggests that the future of healthcare will call for:
  • A dramatic improvement of quantity and quality of outcomes per unit of cost. The fee-for-service model will need to be phased out and payments should instead be tied to value;
  • Collaborative and coordinated care;
  • Improved transparency in price and quality;
  • Hospitals to become more accountable for the services they provide; and
  • Patient-centered medical homes.

Due to the murky economic healthcare forecast, cardiology practices and hospitals must find strategic ways to tackle high costs and veer off the current spending path, which is now 16 percent of the U.S. gross domestic product, says Alexander A. Stratienko, MD, a cardiologist with Cardiac and Vascular Associates at the Chattanooga Heart, Lung and Vascular Center in Tenn.

In addition, the Centers for Medicare & Medicaid Services (CMS) have already threatened to slash Medicare physician payments by 29.5 percent in 2012, unless someone steps in to provide a long-term solution.

Hospital integration remains the paramount tactic for practices to deflect reimbursement cuts, however, it needs to be properly evaluated. Yet, within the first three years of an integration agreement, the hospital could lose $150,000 to $250,000, according to a recent perspective (New Engl J Med 2011;364:1790-1793). The authors noted that for hospitals to break even, newly hired primary care physicians would have to generate at least 30 percent more visits and specialists 25 percent more referrals. "Strategically, hospitals with a robust employment strategy will be well positioned to compete under various reimbursement scenarios," Kocher and Sahni write.

Sixty percent of cardiology practices already have fully integrated with hospitals in hopes of finding a safe haven. In fact, according to a recent Accenture report, only one-third of physicians will remain completely independent from a hospital by 2013.

However, some cardiologists remain fearful that hospital bureaucracies will overtake physician independence. Stratienko warns that cardiologists may have made a "Faustian deal" through these integration agreements that could ultimately hurt physicians when healthcare dollars begin to tighten in 2014.

"When there is employment and consequent loss of autonomy, will the physician be able to champion the patient's interest effectively?" Stratienko asks in a recent editorial (J Am Coll Cardiol 2011:57;2139-2140). "If hospital administrators appropriately protect the profitability of the hospital, who will protect the medical interest of the patient when the two are in conflict?"

However, others argue that integration may actually put hospitals and physicians on the same page, such as Richard A. Chazal, MD, a cardiologist at the Heart Group of Lee Memorial Hospital in Fort Myers, Fla. He says that integration creates a "win-win" situation that will save on overheads and improve care.

"Integration minimizes competition and allows us to cooperate to provide a higher value of care at a lower cost," Chazal writes (J Am Coll Cardiol 2011:55(20);2141-2144).

In fact, having hospitals conduct imaging exams can result in 30 to 50 percent premium reimbursements, offers Joseph G. Cacchione, MD, director of clinical integration and business development at the Cleveland Clinic. "With integration, hospitals have begun to recoup the losses of what the hospital paid previously per practice by this conversion to a provider-based model," he says.

Regardless of what transpires on the national political stage, "it is incumbent on the hospital and physician to ensure that patient care is at the forefront of the debate," Chazal says.

He also cautions that integration should not be too narrowly defined. "Employed integration with healthcare systems should not—must not—mean abrogation of responsibility for the quality of patient and community care," he says. It will be crucial for physicians and hospital administrators to actively engage with each other. Administrators must view the enhanced participation by physicians as advantageous rather than threatening.

Kaufman adds that hospital employment of physicians should not be viewed as "enslavement," but instead be viewed as a "structured relationship in which services are provided in exchange for money." With integration, hospitals also "avoid income erosion," and physicians gain compensation from aligned incentives and increased security.

How can hospitals stay afloat?

"Currently, hospitals are in the perfect storm," says Kaufman. "They are experiencing both Medicare and Medicaid cuts due to the caps of healthcare legislation. They also are enduring price pressures from insurance companies." High deductibles, copayments and the demand for increasing technology use have helped create this current cost conundrum. "Now hospitals will need to redesign how they provide better care more efficiently and physicians will play a key role in this process," he says.

Already hospitals have been closing down because they cannot keep up with the deficits decreasing the number of beds from 873,000 in 1995 to 808,000 in 2008, Kaufman says. He suggests hospitals have three options:

To raise rates (which will have little effect on costs);

To capture more of the market share. Yet, he defines healthcare as "a declining market," so most hospitals will not  experience growth; or

To attack cost structure, which includes three components— aligning personnel, cutting supply costs and standardizing care.

Cardiology must begin focusing on disease management and standardizing protocols. "We must move from an individual physician practice to a more programmatic approach to disease," Kaufman says.

To reduce costs, he says ineffective care such as duplicative exams, excessive paperwork and medical fraud must be eliminated from the system. The lack of coordinated care within U.S. healthcare racks up a hefty bill of $25 billion to $50 billion. Likewise, administrative system inefficiencies, such as coding, billing and documentation woes, can cost the system between $100 billion and $150 billion.

"Going forward, it will be important for physicians and hospitals to work together to develop innovative care delivery models that improve the efficiency and effectiveness of our healthcare system," offers Richard I. Fogel, MD, CEO of The Care Group in Indianapolis, a practice with 95 cardiologists that was acquired by St. Vincent's Medical Group in Indianapolis in 2010.

For instance, heart failure (HF) readmissions across the U.S. consume $17.4 billion, or 5 percent of Medicare spending, and the disjoined nature of healthcare isn't helping. Silos of care focus either on inpatient or outpatient care. Harmonizing these environments, along with linking services provided by emergency departments, primary care, hospitalists, cardiologists, home health nurses, skilled nursing facilities and hospice care, could create a ground-breaking care delivery model.

"Specialty medicine and primary care must be coordinated," Fogel offers. "We need to identify the most appropriate diagnostic testing and effective therapies to maximize patient outcomes. In addition, we need to focus on post-hospital care to reduce readmissions."

A team-based approach would ensure that patients are receiving care throughout the entire continuum—hospital to home. This could result in reduced HF readmissions and other avoidable situations that land patients back in the hospital. "Care coordination and effective EHRs will be critical," says Fogel.

Studies have shown that collaborative care can work. The Appleton Medical Center and Theda Clark Medical Center, part of ThedaCare Center for Healthcare Value, a five-hospital healthcare system in northeastern Wisconsin, employed a collaborative approach, and showed decreased costs and improved outcomes (Health Affairs 2011:30(3);422-425). Launching 24 quality improvement events, which reconfigured clinician roles, aligned care processes and improved leadership, decreased the cost per patient case by 15 to 28 percent and cut length of stay by 10 to 15 percent. The model formed trios of care—a physician, nurse and pharmacist team—who visit patients within 90 minutes of admission to review patient history, current status and health goals. The trio then formulates a care plan and "tollgates," or diagnostic and therapeutic benchmarks the patient must hit before discharge.

ThedaCare realized its system was losing between $1,900 and $2,200 in reimbursement per case because patients were being moved too quickly to post-acute care settings rather than home, even though the system's 30-day readmission rates were less than half of the U.S. average. After the measures were integrated into practice, productivity rose 11 percent and patient satisfaction rose from 68 to 95 percent between 2006 and 2010.

Hospitals and healthcare networks will need to employ multi-faceted approaches to maintain or increase revenues. For instance, it is imperative that facilities begin assessing possible diagnosis related group (DRG) payment cuts, according to Cacchione. Switching low-rated DRGs to high-rated DRG payments would have two implications: the hospital will be paid at a higher level and it will have a higher case-mix index—a modifier for Medicare reimbursements.

Physicians should become conscious of patient care at a lower price tag and negotiate with vendors to reduce technology pricing, length of stay and direct variable costs, which can be achieved by streamlining lab and imaging costs. "Physicians will now more than ever be forced to ask: 'Do we need this x-ray or is this lab test necessary?' This will ensure that every lab, test and exam has clinical utility," Cacchione says.

Problem list-based charting, reporting quality metrics and improving core measures through the use of health IT and clinical registries, such as PINNACLE, also could help to improve care and decrease costs.

"We can capture major comorbidities," says Cacchione. "This is important because it can establish the hospital at a higher weighted DRG and a more detailed medical record helps to drive both processes and clinical care improvements." The overall financial picture of the hospital also can improve, he says.

A major part of reform will be establishing protocols for HF, acute MI, diabetes and hyperlipidemia to help avoid hospital readmissions. Core measures, such as administering ACE inhibitors or ARBs to acute MI patients or beta-blockers at discharge, can be tracked in the EMR.

Responsibility vs. accountability

ACOs are meant to better align incentives, cut costs and improve patient care by moving from the current fee-for-service system to a value-based model that incentivizes hospitals for improving patient outcomes.

Some hope that the forthcoming healthcare model will reward physicians for what the current fee-for-service model does not:
  • Referring to the appropriate level of care;
  • Cost-effectiveness;
  • Self-policing the profession;
  • Coordinated and team-based care;
  • Standardizing best science; and
  • Participating in system initiatives.

Based on initial descriptors, the ACO model will seek to create network development and management, care coordination, quality improvement, utilization management, clinical information systems and data analytics. However, the cost of ACO implementation could be lofty.  

Recently, the American Hospital Association (AHA) predicted that the upfront costs to implement the ACO model would be $1.8 million more than the CMS first expected—between $11.6 million and $26.1 million. The question is, is it worth it?  

The AHA reported that each ACO could carry a price tag of $11 million over three years. "Superimposing ACOs on a typical community hospital will result in nothing but lost revenue," says Kaufman.

Health systems and legislators already are urging CMS to rework its 429-page proposed ACO rule, which they say is too narrow and would misalign incentives. Stratienko says the current ACO model is problematic because it is hospital- and payor-centric.

Cleveland Clinic is not immediately working toward an ACO model, Cacchione reports. "Instead, we are taking a measured approach to move toward risk-based care," he says, meaning the staff focuses on risk-based contracting where the system takes responsibility for patients through the entire care continuum. If a readmission occurrs for a heart-related procedure within 30 days "that readmission would be on our nickel," he says. In this model, the hospital would gain a fixed fee if the hospital can demonstrate it has optimized patient satisfaction, outcomes and costs.

Under healthcare reform, value-based purchasing is slated to begin in 2013, holding hospitals "financially accountable for patient satisfaction and quality," says Kaufman. "If a hospital underperforms, they will lose part of their revenue."

"Befriend the inevitable or it will become your worst enemy," Kaufman concludes. Hospitals will need to start gearing up for anticipated reimbursement cuts now before it's too late. As the system moves away from a volume-based reimbursement model, hospitals will need to reform the approach in which they deliver care to include disease management protocols, health IT and collaborative care.