Medicaid pay cuts drive home need to reach out to commercial business

This Friday the Florida Legislature is expected to pass a new state budget that includes a 7 percent Medicaid rate cut for most hospitals, reports Health News Florida. On the "positive" side, the 2010-11 budget, which takes effect July 1, limits the rate reduction to 3.5 percent for rural hospitals, Miami Children's Hospital and All Children's Hospital in Tampa and includes the option to reduce the general rate cut to 5 percent if the state obtains increased federal matching funds.

The situation in Florida obviously isn't unique. Nationwide, hospitals that participate in Medicaid programs are dealing with threatened or realized rate reductions. Medicare business is taking a hit, as well. Last week the Centers for Medicare and Medicaid Services (CMS) announced plans to reduce fiscal year (FY) 2011 payments by 0.1 percent for general inpatient acute-care hospitals. In addition, CMS sent an email alerting institutional providers that they would see Medicare payment changes under Sections 3401 and 3137 of the Patient Protection and Affordable Care Act (PPACA) in late April/early May. For acute-care hospitals, these provisions include a 0.25 percentage point reduction to the Inpatient Prospective Payment System (IPPS) market basket for FY 2010, effective for discharges on or after April 1 through September 30.

Further, at last week's Hospital & Hospital Quality Open Door Forum, CMS officials revealed plans to issue "a supplemental proposed rule and notice" to address the implementation of additional PPACA provisions that could result in additional payment reductions.

What all of this means is that hospitals need to develop an innovative strategic plan that grows their often-sagging commercial business so they can achieve revenue sustainability, says Peter Young, president of the consulting firm HealthCare Strategic Issues in Naples, Fla.

Over the past few years, many hospitals have responded to reimbursement cuts by focusing on performance improvement (i.e., doing more with less money). For example, Brigham and Women's Hospital in Boston plans to trim 3 percent (about $35 million) from its budget starting Oct. 1 to prepare for potential rate reductions, reports the Boston Globe.

But cost-cutting is only the first step, notes Young. The commercial percentage of hospitals' payer mix has been on a downward spiral during the recession. "That's not good because that is where the margin of the business is," he adds.

So hospitals have to find new ways to increase their paying patient base "and to get closer to the large pockets of commercial insured," says Young. "What I mean by getting closer is bringing the hospital to city, county and state governments, manufacturers and other large employer groups and demonstrating the added value that the hospital is going to bring to that particular base of paying patients." Most often these days, that added value will be lowered costs, he points out.

The days are gone when hospitals can feel secure because, for example, they've signed a managed care contract and know X number of those enrollees live in their market area, says Young. "Hospital leadership needs to deliver better customer service to these paying patients."

Here are some examples of recent hospital efforts to expand their business reach:

  • In New Jersey, Robert Wood Johnson University Hospital is partnering with the city of New Brunswick, the New Brunswick Development Corp., and the New Brunswick Parking Authority to develop the 12-story, 625,000-square-foot New Brunswick Wellness Plaza, reports MyCentralJersey. The Wellness Plaza will include a 45,000-square-foot grocery store and the Robert Wood Johnson University Hospital Fitness and Wellness Center. The hospital-run facility will include an aquatic center, exercise equipment and classes, occupational and physical therapy, personalized consultations with trainers and nurses, and community health education. Parent Robert Wood Johnson Health System runs similar centers at its Hamilton and Rahway campuses.
  • Women & Infants Hospital in Middletown, R.I., is opening the Center for Health and Well-Being to provide complementary therapies for oncology patients and wellness programming for all women, reports the New England Business Bulletin. Treatments that will be offered include lymphedema therapy, acupuncture, therapeutic massage, reiki, hypnotherapy, guided imagery, reflexology, meditation, facials and skin care.
  • Baptist Healthcare System Inc., in Louisville, Ky., will run an on-site medical clinic for employees and dependents of the technology firm Appriss Inc., reports Business First of Louisville. The clinic will be open five hours a day, three days a week.
  • Children's Medical Center in Dallas will expand to the outlying suburb of Southlake by building a $21 million pediatric specialty care center, reports the Dallas Business Journal. The new facility will offer outpatient pediatric services including cardiology, gastroenterology, sports medicine, rehabilitation, lab services, and ear, nose and throat care.

Hospitals have numerous options to grow their business lines. All it takes is an open mind--and a lot of hard work. - Caralyn