GLG News by Richard Baland

Implications: This will soon be the best time in history to be selling Healthcare IT software and services. More money will be spent in the next three years than ever before. It may not be the best time for the staff at many hospitals. The staff are woefully unprepared for a quantum leap in Healthcare Technology.

Analysis:  Healthcare IT usually progresses in the following order. Physicians lead the way because of a long term perspective. One can often justify the acquisition of new technology when considering the benefits over the lifetime of a physician practice. For profit hospitals tend to be next in line. Competitive pressures and stockholder oversight tend to be effective motivators for investment in efficient IT. Not for profit hospitals trail all others. This is due to the general lack of sophistication by Not for profit hospital boards and the short time frame of a Hospital CEO. Most Hospital CEO’s and CFO’s stay in one role for about two years. It is hardly enough time to see the benefit in a major IT investment.   Physicians and for profit hospitals are well on their way to Electronic Medical Records. In fact, some are there already. The Not for profit hospitals will be waiting for Federal and State grants as well as Medicare incentives. Since 2011 is the deadline, many will be waiting for up to three years.   In addition, each state has limited the number of IT vendors which can participate in the current grant process. Louisiana for example, only has three approved vendors, including Siemens. Any hospital wishing to proceed currently will have to select one of those three.   The bottom line is that hundreds of millions will be spent over the next three years for Healthcare IT upgrades and replacements. Some of these hospitals will jump from spending one percent of their operating budgets on IT, to millions in one step. It will be the largest investment they have made, other than their own real estate.

Implications: Increasing interest rates and debt service, a Decrease in available cash, a Migration to more fixed rate borrowing and appeals to state governments for assistance, a delay in physical plant additions/upgrades

Analysis:  The sub-prime lending market trouble has reverberated to the auction rate securities market. For two months, we have seen failed auctions.  Some hospitals have seen their interest rates double or triple. According to the article “The interest rate University Hospitals paid climbed from 3.7 percent in January to 11 percent by mid-February, Bond said. “   Possible responses include turning to bank lines of credit, issuing long term fixed rate revenue bonds, cutting expenditures on the operating side and delaying capital spending.   Hospitals in the first tier of borrowing will be able to find all of the funds they need to obtain. However, the interest rates will be significantly higher. This will have an adverse impact on both operating and capital budgets this year. Although the budgets are approved and in motion, the actual debt service component will be higher than that represented in the Operating budget. Some funds can be obtained by postponing some of the lower priority items in the capital budget. Medical equipment items, especially those costing less than $1 million, should survive the cuts. Physical plant additions and upgrades and equipment costing more than $1 million, may be delayed one or two years. High priority items such as digital radiography and the Electronic Medical Record (EMR) will probably continue to be added without a noticeable decline in activity.   Second tier borrowing hospitals may not enjoy as much success in finding funds. However, they are less likely to have been involved in the auction rate securities market and therefore may already have established borrowing patterns. Third tier borrowing hospitals already had trouble finding funds and the current market will be no different. Their interest rates on new borrowing or leasing will also rise.   For all hospitals, payroll cuts may be an option. Hospitals spend about one half of every dollar on salaries and benefits. However, it is an area that may be easier to control than debt service, utilities, medical supplies, medical equipment or physician fees. The additional portion that will now be spent on higher debt service may be found in personnel cost savings.

Implications: For one reason, this industry has outperformed the commercial average for the most recent eight years. Secondly, demographics are driving medical services. More of the population is aging. People are living longer. And Medical technology is improving at a rate that provides new and better healthcare services. Thirdly, there is never a down year for Healthcare space. Whether there is a recession or not, the demand for Healthcare services continues.

Analysis:  California, Florida, Texas and Illinois were mentioned in the article as accounting for one third of the Healthcare starts in 2007. They are also states with growing populations. And where the population grows, the baby boomers are a part of the equation. More importantly, the need for Healthcare services is an important part.  Even in the other 46 states, there should be opportunity for Medical office space, etc.  There is also another factor that was not mentioned in this article. That is the average age of the assets for the Hospital industry. It was 11.4 in 2007 according to Lester, Miller and Wells, a Public Accounting firm. What does this mean? It means that it will soon be time to upgrade and/or replace many physical plants and hospital medical equipment.   If the authors of the article are correct about the growth in the over 65 age group from 2010 to 2020 that represents significant revenue to Healthcare providers. In our hospital, 55% of the revenue is from Medicare reimbursement already. The obvious conclusion is that senior citizens have more health problems than the average person. If so, that means more revenue from this age group. Also, most seniors have Medicare coverage or some form. Many people under the age of 65, even those employed, have little or no healthcare coverage. If a third party is paying for your care you are more likely to see medical treatment. There is another factor. People over 65 generally do not work. They have time to visit the doctor. We have seniors that eat lunch in our hospital but they are not here for Healthcare. In other words, this is a good subset of the population to serve. Seniors have Healthcare needs and they have the time and a revenue source to obtain treatment. Try marketing a service like a Prostate examination to working men in the age group of 25-39.   The article discusses the decline in the number of hospital beds. Aside from the obvious factor of the inconvenience of spending a few days in a hospital, there is more to the trend to outpatient services. It is costly to provide 24 hour care. Labor costs (nursing, radiology, laboratory, dietary, housekeeping, maintenance, respiratory therapy, etc.) plus utilities are oftentimes more than the reimbursement. If Medicare pays the hospital less than they spend on an inpatient, the hospital would prefer to provide services on an outpatient basis. If an insurance company is involved, they may demand the service be provided on an outpatient basis. Here we have the convergence. The patient, their families, the hospital and the third party payor all prefer an outpatient procedure. There are few issues in this industry where all of these parties agree. Since that is true, the investments including venture capital are flowing to outpatient facilities (e.g. cancer centers) rather than inpatient hospitals.

Implications: Yes, WalMart has a large pool of patients. And there are competitive advantages with regard to the convenience of a pharmacy and over the counter remedies. However, having patients is only one piece of the puzzle. The business of medicine is more complex than merely having patients or customers.

Analysis: A walk in clinic inside WalMart or any other retail store, would face eight challenges. 1) A portion of our population expects to receive free healthcare. There is no such expectation in any other industry. Even a person in a low income group expects that they have to pay for their gasoline and clothes. 2) Such a clinic would need to master up front collections. If the patient has insurance, copays and deductibles must be quickly determined and asked for. For those without insurance, an estimated bill must be quickly determined and asked for. 3) Patient registration must be accurate. A segment of the population is accustomed to providing false or misleading demographic or contact information. 4) Where does the patient go for diagnostic testing or laboratory work? 5) How long does it take to get an answer? A physician must delay his or her opinion until certain test results are obtained. 6) Will you see the same physician the second time you visit? Many people prefer some type of relationship. 7) What about staffing? Many WalMarts operate 24/7. The Clinic cannot afford to do so. 8) Men, women and children represents distinct business segments. How will the various lines of business be coordinated? If a Walk in Clinic corporation can solve these eight challenges, they may have a very happy relationship with WalMart.

Implications: The government has paid hundreds of millions less as a result of these measures. Now, the government has targeted the Hospice industry. Of course, there is no physician that can predict how long a patient will live. Physicians sign orders for Hospice patients that are terminal. The physician cannot know how many days of Hospice care will be provided. Much of the Hospice care is provided in a patient’s home and not in an acute care hospital or skilled nursing facility. Of course, there is no physician that can predict how long a patient will live. Physicians sign orders for Hospice patients that are terminal. The physician cannot know how many days of Hospice care will be provided. Much of the Hospice care is provided in a patient’s home and not in an acute care hospital or skilled nursing facility.

Analysis:  

The article stated that “Congress in 1998 removed limits on how long a person could receive Medicare hospice services but did not remove a cap on the aggregate amount that hospice could be reimbursed each year.” In other words, the pie has to be divided into smaller pieces. More and more patients receive hospice care. How much of this increase is due to the baby boom (aging population), people living longer with serious illness, or physicians and hospice agencies trying to include more types of patients in their hospice programs?

The physicians want the best care for their patients, even terminal cases. If Hospice is available in their area, they will find a way to ask for it. The Hospice agency is providing a valuable service within the Healthcare industry. My grandfather was care for by a Hospice agency. It fills a need within the range of Healthcare services. Hospitals cannot send nurses to the homes of hospice patients. Home Health agencies are not usually geared up in terms of personnel, supplies, drugs and protocols, to provide these services. What will be the impact if the Federal government runs 10% of the nation’s hospices out of business?

The government would like us to believe that mismanagement might be a greater issue than the reimbursement cap. If that is true, why focus on the Hospice industry? Or Home Health? Or Rehabilitation? Let’s be realistic. Whether the Hospice is mismanaged or not, somebody is going to lose an element of Healthcare or be significantly inconvenienced finding another. The mismanaged Hospices may be driven out of business. However, small rural not for profit Hospice care agencies could also be adversely impacted. It seems that if the reimbursement is too high for the government to pay, the reimbursement could be reduced. Asking organizations to repay funds which have already been spent seems a burden too costly to bear.

Implications: Board restructuring, Implementation of appropriate information systems, Productivity and staffing, Debt restructuring, Revenue cycle improvements, Supply expense reductions, New contracts and capital equipment approval processes are the Turnaround areas that scorecards can be helpful with.

Analysis:  

Board restructuring. Reducing the hospital's board from 20 to 12 directors may be a good solution. The more board members there are, the more difficult it is to reach a consensus. I would submit however, that who is on the board is more important than how many are on it. People with a personal agenda may be a hindrance to a turnaround. Directors with business management acumen are worth a great deal as well.

Implementation of appropriate information systems. This is important although it does not have to be expensive. Even the most cash poor organization can produce monthly departmental scorecards on Microsoft Excel. This type of two way communication is invaluable and costs very little.

Productivity and staffing. Tracking FTE’s per discharge is a valuable benchmarking tool for inpatient hospitals. It is even more valuable now that Medicare is paying on the basis of PPS rather than DRG’s. In other words, the length of stay is no longer beneficial. Having a patient stay a few extra days will add to the cost but not to the revenue. Getting a handle on payroll is the single biggest ingredient in a financial turnaround. Every hospital with a cash flow problem has too many employees. This can be handled by attrition, better scheduling and departments becoming agile enough to help each other. There is no reason why a floor nurse could not be cross trained to help ICU or ER.

Debt restructuring. This is important but oftentimes one of the easiest hurdles to overcome. If you can persuade the bank or lending institution to restructure, then this problem is solved. Employees, Physicians and Directors involve much greater challenges.

Revenue cycle improvements. No hospital is charging for everything they do, charging correctly or following up correctly. Some do much better than others. However, in a turnaround, many improvements in this area can be achieved relatively quickly.

Supply expense reductions. Although important, the potential savings are relatively small.

New contracts and capital equipment approval processes. Hospitals in trouble have generally allowed almost any manager or department head to commit to purchases, leases or service contracts. The first step is to find out what is already in place. The next step is to ensure that only the CEO, CFO or COO can obligated the hospital in further contracts

Implications: The first step is to find out what copays are in the Emergency Room. A simple Excel spreadsheet needs to be developed showing what Medicare, Medicaid, Commercial insurance and managed care companies require as a copay. The second step is to communicate to the Admissions department, insurance department; patient financial services representatives, collectors and non-clinical staff involved. Once everyone knows what the copay is then collection can be attempted. The third step is to find out how many of the ER visits are represented by each of the aforementioned categories. It is assumed that there are more self pay visits in ER than in any other area of a hospital. It is helpful to know however, how many are in what payor group. Then we can estimate how much is lost from various copays. There are also restrictions on Medicare bad debts.

Analysis:  

Hospital collections are a difficult area. It is one of the only services that people can obtain without an expectation of payment.

For small hospitals, the billing system probably cannot produce an accurate bill until the following day. As soon as the person has survived their medical crisis, their interest in paying for the service has significantly lessened. Combine a customer who does not want to pay, a physician who could not care less if the hospital is paid, a nurse that cares only slightly more, EMTALA Regulations that postpone any and all financial discussions, a computer system that cannot produce a quick bill on-site, a poor physical design or layout and a poor work flow process. That adds up to a poor collection rate.

The most difficult aspect of the equation is the physician involvement. We saved that to the last in the hope that they would support our efforts in other changes in the ER.

We verify the patient’s co-payment at the time of treatment. We use a software program to verify aspects of the identity (name, social security number, address and phone number). We use a second software system to verify insurance coverage. And then we use our own system to look for prior service and the associated unpaid bills if any. We ask the patient to pay. Most of the time their answer is no. However, we collect more than we did when we did not ask. We have payment plans and a discount for early payment.

Implications: Some hospitals review swing bed utilization as follows: 1)Initial review within 24 hours to see if inpatient criteria are met. Criteria incorporate Severity of illness and Intensity of Service. Severity of Illness can be shortness of breath, multiple effusions or other symptoms. In other words, the patient has to be sufficiently sick to merit an acute care setting; 2)After 3 days in acute care, if stable or in need of therapy or other services, they can be moved to Swing beds. They can have IV antibiotics in Swing bed but the goal is to migrate them to taking the fluids by mouth by day 5; and, 3)The UR nurse reviews the patient’s medical chart, interviews the patient and compares the review results to the established guidelines. The UR nurse contacts the payer to justify the stay including but not limited to the medical necessity and the covered services.

Analysis:  

Admission is the time that criteria need to be met. To care for a patient without the necessary assessment, runs the risk that Medicare or another payor might recoup funds. Co-morbidities can be incorporated into the admission criteria. Insurance companies seem to deny extra days about 12 percent of the time. Denials require a return visit to the patient by the UR nurse. Appeals may or may not include the X-rays, lab results and other medical chart information. Sometimes, the physician is enlisted to help with the appeal. In rare cases, there may be a negotiation for the contested days of care.

Discharge can be to home, home with home health, Rehab facility or an LTAC unit.

Implications: The Health insurance industry is anticipating a profit windfall with the Universal Health Coverage proposals. Where is that money coming from? Will it come from the Federal government? Or, will the money come from a segment of society that has less influence on this debate? Could it be that the industries with powerful lobbyists are trying to pull a fast one?

Analysis:  

There has been significant debate regarding Universal Health Coverage. Who wins and who loses? The biggest winner is the Health insurance industry and their executives. They will reap the windfall of significantly more premiums paid into their coffers. This will be a larger windfall than when automobile liability insurance began to be required. This anticipated windfall may explain why the Health insurance industry has contributed so heavily to the current Presidential campaign.

What about Business? Now businesses have an additional expense, even a hidden tax. Who pays for that? It certainly will erode one method some businesses have used to attract and retain staff. Having insurance as a benefit, when others did not, used to be of value. Now all employers may offer some type of health insurance.

What about individuals and their families? The insurance companies are masters at using pre-existing condition clauses, high deductibles and co pays, and other techniques to avoid paying on claims. These people, in some cases, may lose Medicaid coverage since they are now insured. However, if the insurance company does not pay, are they better off than when they had Medicaid? Their doctor will not see them now if they do not pay.

What about the government? The Federal government may be able to reduce the Medicaid and Medicare rolls. However, the state and local governments will pick up the cost for the uninsured and underinsured.

Let's be honest about who is really going to pay for these changes.

Implications: Infection Rates and Quality Indicators now impact reimbursement. The Revenue Cycle Team at a hospital must incorporate both features into any work plan.

Analysis:  With the new Infection standard and the withholding of reimbursement for associated stays, the impact should be felt more at larger hospitals. The national hospital infection rate is 9 percent. Our hospital boasts of a 0.5 percent rate. Most smaller hospitals have better infection rates and should suffer less with the new policy.

In addition, Medicare pays a 2% bonus to hospitals that report quality indicators. There is definitely a trend by CMS to both reward and penalize hospitals based upon quality standards.