WHPRMS Webinar Series Presents: Hospital Finance 101: Making sense of cost and payment issues in the hospital marketplace

Speaker: Brian Potter, VP, Wisconsin Hospital Association • bpotter@wha.org

As a health care marketing professional, if you understand how hospitals are paid, and from whom, you can develop the materials and messaging that will be helpful to consumers as they assume a greater financial responsibility for their health care decisions. To help us navigate the waters, we took notes from Brian’s webinar on May 27. Here is a list of takeaways from his presentation:

• The ACA and health care reform continue to drive change at the national and state level. Brian discussed the need for us to understand where we are today and how we got to this point.
  • Prior to 1920 there wasn’t much in terms of value in health care. Around this time, the use of antibiotics came too.
  • 1940: An unplanned event took place with World War 2 the economy lead employers to salary wage freezes. For businesses to entice employees, they started employee benefits.
  • 1960: Gaps in coverage emerged.
  • 1965: The U.S. government passed Medicare and Medicaid to fill those gaps.

• Today: Health care is much more political. Governments now dictate contracts. We now have a variety in care where people want individualized care. Patients want infinite variety.
  • We now have drug interactions and health complexities such as new cancers and diseases. Diseases that were once isolated are no longer due to worldwide travel. Requires new procedures. Creates new challenges.
  • Treatment options are different: pharmaceutical, outpatient services, home health, hospice, and long-term care. Hospitals must have the right infrastructures than even just 10 years ago.
  • Insurance has a challenge too with ethical considerations. Cost treatments are different. Creates pressures to hospitals in addition to patients.
  • Hospitals now have different access needs. Rural, suburban – changes the payer mix. Some hospitals see large volumes, some are small. Trauma levels are different. Overhead hospitals like teaching hospitals create provider network challenges.
  • Hospitals that are independent. Many big systems (and small) are merging and/or partnering.

• From a PR perspective: the expense isn’t that great when looking at the grand scheme. A building is a big expense, it is meant to serve for 20-30 years. Appreciation rather than depreciation.
  • New buildings are more adapt to create efficiencies in staffing. It also reduces utility and capital cost.
  • Health care is labor intensive: 60% of expenses is employee salary. Labor cost. Highly intensive in terms of labor. That’s why WHA is concerned about shortages in workforce.
  • Expenses cover overhead costs to support service availability. Emergency preparedness, trauma care, 24/7 care, medical education cost for teaching hospitals. Such as personal costs are high for highly skilled personnel and 24/7 coverage; Payer mix/cost shifting; Compliance and legal and low-revenue services.

• Charges vary because of many reasons:
  • Type of patients
  • Service and setting
  • Payer mix such as age, surgery duration, supplies and drugs needed and length of stay.

• Insurance coverage in Wisconsin: 60% government payment is covered by reimbursements. Commercial payments are dictated by contracts.

• Third party payment system: Medicare and Medicade
  • Significant barriers to reduce charges: Medicare charge structures: 83%; private payer contracts: 76%; community responses/PR 67%
  • To reduce you must renegotiate payer contracts. Takes time.

• Who pays the bill: Gov. payers, commercial payer, payer mix, and charity care.

• Enrollment has grown: 1.2 million are covered by Medicaid (mostly BadgerCare). That is over 20% of Wisconsin population.
  • Medicaid expansion is good but it’s also an indication of where the economy is right now.
  • Medicare: typically pays significantly less than the cost of care. Medicare also pays for 84% of cost of care.
  • Payment variety: commercial 3 types: commercial, individual and exchange plans

• Who has no coverage: charity care provided with little or no payment: 2008: $464 m, 1.65% gross revenue
  • 2013: $722 million in charity care; 1.71 of gross
  • Bad debt: patient is responsible but doesn’t pay 2008: $581 million; 2013: $713 million in bad debt

• Shift in payer mix: government payers from 49.6% to 58.8%; Commercial payers: 43.9% to 34.8 %

• How does all of this create PR challenges?
  • Charity care, bad debt govt payment shortfalls + community services = community benefits
  • WHA’s community reporting can help hospitals highlight the good stories, charity care benefits.

• PAYMENTS:
  • Fee-for-service payment structure. You provide a service and you get a fee.
  • Percentage of charges: negotiate percent of the billed amt. (simple concept) Cost-based: for CAHs mostly. Complicated. Payment reconciled to allowable expenses incurred in the provision of care. Don’t always know payment until the end of the year. Complicated system. Cost based and generally there is no margin built in. Generally payer defines the cost with incurred challenge/problems
  • Prospective payment system (PPS) for larger systems still fee-for-service – it’s an adjusted flat fee payment for similar cases, provides incentive for cost effective care. Mostly diagnosis related groups (DRGs) heart attack – principal look up and can determine how much the hospital will get paid. But the duration of stay and other factors are not factored. Assumes high volumes of service to minimize hospital financial risk. So it makes hospitals be more efficient in getting the heart congestive failure patient out in 2 days rather than 5 days.

• The future: payment models
  • ACO
  • Affiliations
  • Risk-sharing arrangements
  • Additional concerns: protecting and sharing patient info/ environment that fosters integration

• Great resources for PR people: Wipricepoint.org wicheckpoint.org
  • Review and keep on the lookout. Transparency and cost and quality.

• Conclusion: still many finance related topics we didn’t cover
  • 1) Coverage, 2) integration, 3) compliance/audits, 4) workforce
  • Health care financing is complex and current system was designed for third party payers, not patients who now have to pay due to plan designs, high deductibles
  • Reforms now and into the future are all an out better aligning incentives to get the outcomes we all want.
  • Transparency’s that demonstrate value will continue to evolve.

This post was written and researched by Trish (Skram) Reed. If you have other news, resources or links to share, please comment below or email Trish (Skram) Reed, blogger and research content specialist for WHPRMS, at trishskram@gmail.com.