Not a Member?  Become One Today!

Big Changes Expected in Hospital Reimbursement Post Reform
HR executives recognize magnitude of change, grapple with complexity of industry transformation

By Stephen Miller, CEBS  1/16/2012
 

HR executives at U.S. hospitals and health care systems expect health care reform to hasten the transformation of the industry’s traditional business model, according to a survey by consultancy Towers Watson titled Readiness for Change: New Directions for the Hospital Industry. The survey, conducted in June and July 2011 with responses from HR executives at 106 hospitals and health care systems throughout the U.S., found that:

93 percent of respondents expect cuts in reimbursement levels.

77 percent say they will need a wider range of skills on their staff.

75 percent expect a higher ratio of outpatient to inpatient care as well as an increased need for primary care capabilities.

67 percent anticipate a shift in the payer mix, with fewer private payers.

Payer mix refers to the percentage of revenue received by a medical practice from different sources: examples include Medicaid, Medicare, indemnity insurance, through managed care systems and by self-paying individuals. The mix is important because Medicare and Medicaid often pay hospitals less than what hospitals report it costs to treat patients, leading them to bill private insurance at higher rates.

“A perfect storm of forces is hitting the hospital industry all at once,” said Heidi Toppel, a Towers Watson senior consultant. “Industry executives have no illusions about the extent and magnitude of the forthcoming change. But the scope and complexity can be daunting, especially since hospitals have to rethink and refine core business and operating processes while continuing to deliver quality care to the communities they serve.”

Biggest Challenges: Cost and Quality of Care

The findings demonstrate a consistent push/pull between a business-as-usual mind-set and the need for fresh thinking and approaches to delivering care efficiently and effectively. In terms of their greatest business challenges over the next two to three years, respondents cited:

Managing costs (72 percent).

Improving quality of care (56 percent).

Managing changes in the payer mix (25 percent).

Few hospital HR executives cited among their top challenges the need to increase collaboration with local providers of community health and wellness services (18 percent), arguably a critical focus for the future, according to Towers Watson. On the other hand, most respondents (90 percent) saw customer service (for instance, patient satisfaction) as a far stronger competitive differentiator over the next three years, in keeping with a future that will emphasize positive patient outcomes on many levels.

Talent Gaps Loom

The survey found that most respondents aren’t experiencing serious labor shortages and believe that turnover and retirement are manageable, although two-thirds reported slight to moderate shortages of physicians and nurses. However, most respondents expect additional shortages over the next two to three years, with the biggest gaps expected in patient-facing roles. More than two-thirds of respondents (70 percent) expect shortages of bedside registered nurses to increase moderately to significantly, while more than half expect increased shortages across a range of roles, including nurse practitioners, physicians, allied health professionals and clinical technicians.

These projected shortages help explain why, looking ahead two to three years, respondents cited concerns about staffing risks to a far greater extent (71 percent) than they did financial risk (52 percent) or operational risk (39 percent).

“We expect a sizable percentage of experienced physicians and nurses will likely retire over the next decade, potentially creating a diminished supply of clinical staff down the road,” said Toppel. “The danger is that today’s glut of recent medical and nursing school graduates could mask this looming problem, so hospital HR executives can’t take their eyes off the talent management ball if they want to ensure they remain competitive in the labor market. What’s more, there can be advantages for hospitals in using this current period of relative labor market calm to prepare young, new clinical hires for the challenges of the next few years, assuming more experienced clinical employees are available for mentoring.”

Interestingly, most respondents expressed the least concern about the availability of executive talent, with just under three-fourths expecting no change in the supply of hospital executives and administrators. The survey report noted that basing predictions of needs on present circumstances could be misleading. Leadership competencies needed for the future will be very different, and savvy hospital leaders will need to start the process now of defining the leadership profile for the future.

“Given the industry’s legitimate economic concerns, hospitals are about to face some of their toughest challenges. To compete and flourish in this new environment, they will need to develop strategies for closing gaps in capability, staffing and structure,” said Toppel.

Study: Hospital Outpatient Costs Highest in States Without Fee Schedules

A recent study by the not-for-profit Workers Compensation Research Institute (WCRI), Hospital Outpatient Cost Index for Workers’ Compensation, shows that states without fee schedule regulations have higher hospital outpatient/ambulatory surgical center (ASC) costs for common surgeries compared to states with fee schedules.

 

The costs in states without fee schedules were 27 percent to 73 percent higher than the median of the study states with fee schedules.

 

In addition, states with fee schedule regulations that were based on a percentage of charges had higher costs compared to states with other types of fee schedules, such as per-procedure-based and ambulatory payment classification (APC) based fee schedules, with the exception of Illinois.

 

The study noted that after fee schedule changes, growth in hospital outpatient/ASC costs resumed at faster rates in states with fee schedule regulations that were based on a percentage of charges. For example, California and Florida enacted fee schedule reforms around the same time, but the APC-based fee schedule in California constrained cost growth more than the percent-of-charge-based fee schedules in Florida, according to the study.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Video:

Medical Payment Reform
Employers and insurers should pay health care providers for the quality of outcomes, not the quantity of services, says Andy Webber, CEO of the National Business Coalition on Health.
View this video

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform Resource Page

Sign up for SHRM’s free Compensation & Benefits e-newsletter

Copyright Image Obtain reuse/copying permission


Sections