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Multiple cuts likely to total $5 million per hospital per year for next decade
EMERYVILLE, Calif., August 15, 2011 - The combination of multiple factors-Affordable Care Act (ACA)-mandated reductions, likely cuts to Medicare as a result of the recent debt ceiling legislation, the rise of risk-based reimbursement, and pressure from commercial payers-all portend a formidable, decade-long "perfect storm" for hospital finances, according to a comprehensive analysis released today by MedeAnalytics, a leading provider of healthcare performance management solutions. The 11-page report is titled, "Medicare ZeroTM: A Comprehensive Analysis of the Impact of Health Reform and the Debt Deal on Medicare Funding of Hospitals and Strategies for Financial Survival."
"The majority of hospitals already lose money on Medicare and are bracing for further cuts," says report author Ken Perez, director of MedeAnalytics' healthcare policy team and the company's senior vice president of marketing. "Hospitals have had to come to grips with the impacts of health reform and updates to Medicare's Inpatient Prospective Payment System (IPPS), and now they have the debt deal to worry about. To date, no one has attempted to quantify the cumulative financial challenge-let alone suggest strategies for successfully managing it."
Hospital Impact: Annual Reduced Medicare Payments of $5 Million Over Next Decade
The report estimates that for the 10-year period of FY2012 to FY2021, payments to hospitals under the IPPS will be sliced by $162 to $177 billion-the sum of ACA-mandated reductions (negative revisions and productivity adjustments to the IPPS market basket update) and an estimate of a reasonable range for proposed cuts from the Joint Committee per the debt deal (assuming that Medicare will bear its proportional share of the $1.2 to $1.5 trillion in total cuts and that, in turn, the IPPS will bear its proportional share of the cuts to Medicare). Collectively, these cuts would translate into a cut of approximately $5 million for the average IPPS-participating hospital (with 210 beds and Medicare accounting for an estimated 43 percent of revenue), relative to pre-health reform conditions.
Strategies to Offset Medicare Reimbursement Reductions
The report discusses in detail a number of strategies that are proven best practices to help hospitals reduce costs and create efficiencies. These include: 1) partnering with clinical leadership; 2) performing a detailed margin analysis; 3) engaging with service line managers and physicians; 4) revamping care coordination; 5) ensuring efficient operating room utilization; and 6) improving emergency room operations. According to Perez, each of the strategies can be implemented within six months. "The challenges described in our report will constitute a significant threat to hospital finances for many years," continues Perez. "Whether a hospital is currently profitable with the Medicare portion of its business, breaking even or losing money-because of the complexity and increased impact of reductions to Medicare reimbursement in the future-it is important to understand, monitor and take steps to mitigate the adverse effects of the reductions."
For More Information
To obtain a copy of the report, visit www.medeanalytics.com/medicarezero.
Founded in 1994, MedeAnalytics delivers performance management solutions across the healthcare system-including hospitals, physician practices and payers-to ensure accountability and improve financial, operational and clinical outcomes. For more information, visit www.medeanalytics.com.