Understanding How Payment Reform has Impacted Hospital Operations

Multiple health reform legislative changes are impacting hospitals. Specifically, the payment model for hospitals is shifting from a fee-for-service model to a payment based on outcomes. These changes impact all hospitals that receive reimbursement from the Medicare program. Hospitals that have a non-profit and for-profit status are both equally impacted by the payment reform changes. The two pieces of legislation that have the greatest impact on hospital reimbursement models includes the Affordable Care Act (ACA) and the Medicare Access and CHIP Reauthorization Act (MACRA). Both legislative bills require health systems, hospitals, and physicians to begin moving towards a reimbursement model that pays for outcomes and requires provider participation in alternative payment models (APMs).

Generally, an alternative payment model is a form of payment reform in which the provider receives payment or a financial penalty based on the overall outcome of the care that is provided to a beneficiary or group of beneficiaries. These new alternative payment models extend risk to providers for the outcome of the services they render.

Increased Focus on High-Risk Populations

The shift toward payment for outcomes, contrasted with traditional fee-for-service payment models, has brought renewed emphasis on the impact of social determinants of health on high-risk populations. When poor outcomes are potentially attributed to social determinants of health, it is incumbent upon providers to identify resources to address these non-medical factors that impact health. If providers do not effectively address the social determinants of health, their resulting reimbursement may be reduced or they may face a financial penalty.

Dual eligible beneficiaries are an example of a population that is disproportionately impacted by social determinants of health and has a greater utilization of healthcare resources. A dual eligible beneficiary is an individual that is eligible for both Medicare and Medicaid. To qualify for both programs, an individual must meet the state Medicaid definition for poverty and meet the Medicare age (65+) or disability eligibility requirements.

All Medicare beneficiaries are included in alternative payment model programs, including dual eligibles. Hospitals are increasingly looking for strategies to address the health and welfare of their most vulnerable patient populations, which usually includes dual eligible beneficiaries.

Additional ACA requirements that are directly impacting hospital reimbursement and business operations include each of the value-based payment programs. CMS defines value-based programs as those that reward health care providers with incentive payments for the quality of care they give to Medicare beneficiaries. The value-based programs impacting hospitals include the following:

• Hospital Value-Based Purchasing (HVBP) Program: The Hospital VBP Program rewards acute care hospitals with incentive payments for the quality of care they provide to individuals with Medicare. This program adjusts payments to hospitals under the Inpatient Prospective Payment System (IPPS) based on quality of care.
• Hospital Readmission Reduction (HRR) Program: A hospital will incur penalties if its overall percentage of readmissions is greater than the national average. The penalty can be up to 3% of the total Medicare reimbursement. The penalty is assessed prior to the start of each calendar year and impacts the hospital’s global reimbursement for the remainder of that year.
• Hospital Acquired Conditions (HAC) Program: The HAC Program rewards or penalizes hospitals based on the percentage of Medicare beneficiaries that experience a hospital acquired condition, such as a pressure ulcer or infection.

Each of these programs can potentially exact a financial penalty to hospital reimbursement when a hospital has poor outcomes related to readmissions, hospital acquired conditions, and/or patient satisfaction ratings.

Unique Requirements for Non-Profit Hospitals

Both for-profit and non-profit hospitals are equally impacted by mandatory health reform measures. However, additional requirements are levied upon non-profit hospitals. The ACA mandates that for a hospital to maintain its 501(c)(3) non-profit status, it must comply with new reporting and excise taxes. Each 501(c)(3) hospital organization is required to meet four general requirements on a facility-by-facility basis:

1. Establish written financial assistance and emergency medical care policies.
2. Limit amounts charged for emergency or other medically necessary care to individuals eligible for assistance under the hospital’s financial assistance policy.
3. Make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy before engaging in extraordinary collection actions against the individual.
4. Conduct a Community Health Needs Assessment (CHNA) and adopt an implementation strategy at least once every three years. 

The Community Health Needs Assessment, one of the four requirements that a non-profit hospital to must meet, is included in Section 501(r) of the IRS code. An organization that seeks to do business with a hospital can use the information that is reported in the Community Health Needs Assessment to develop a strategy and business model to support these critical requirements. For example, a Community Health Needs Assessment that outlines diabetes as a primary health issue impacting the community, may lead to additional financial support to address diabetes preventive health efforts for the target population. The hospital expenditures can be counted toward the community benefit resource allocation that supports the maintenance of the hospital non-profit status. The Community Health Needs Assessment is often made available to the public, along with the Community Benefit Report, via the hospital website.

Position Your Community-Based Organization for Hospital Partnerships

Generally, hospitals and physicians are more open to different models of care when they are directly impacted by risk-based payment contracts. Providers that take on more risks are more likely to be willing to engage in alternative approaches to care. It is critical to assess the status of payment reform activity in your market. You should begin with an assessment of CMS alternative payment models that are active in your market. The Centers for Medicare and Medicaid Services (CMS) provides public reports, which list all health care providers that are participating in one or more Medicare alternative payment models. This listing is posted on the CMS website, and the participating providers can be found under the following program titles:

• Accountable Care Organizations (ACOs)
• Bundled Payment for Care Improvement (BPCI)
• Comprehensive Joint Replacement (CJR)
• Oncology Care Model

Each of these payment models requires the participating providers to begin taking financial risks, based on their performance. The hospital and physician participants should improve quality and reduce the total cost of care for the Medicare beneficiaries they serve. The greater the participation in these risk models, the more likely that the hospitals will want to adopt new approaches to care delivery. In addition, these providers will want to increase efforts to improve patient activation, increase patient self-management activity, and achieve improved health outcomes. These broad objectives will require providers to integrate with community-based organizations to achieve targeted outcomes.

In addition to assessing alternative payment model participation, your market analysis should also include a review of the non-profit hospital Community Health Needs Assessment and Community Benefit Report, as well as the hospital readmission penalties and ratings. These items will provide your organization with an assessment of the current health needs and priorities for the hospital. In addition, the hospital’s participation in risk-based payment model programs provides insight into the hospital’s potential desire to develop new models of care.

Lastly, you should assess the prevalence of Medicare beneficiaries that are at-risk for social determinants of health. This population is generally comprised of large numbers of dual eligible beneficiaries with greater utilization of healthcare resources and worse health outcomes. The American Hospital Association and MedPAC have both noted that hospitals that serve a greater percentage of dual eligible beneficiaries have worse health outcomes, more readmissions, and greater utilization of healthcare resources for the population they serve. Therefore, these hospitals are disproportionately impacted by penalties related to health outcomes.

Choosing a Hospital Partner

Once you have decided to pursue a partnership with a hospital, the first step is to select or decide on the hospital to partner with. You might begin by considering which hospital(s) are looking for and how post-acute programming can benefit them.

It is important to understand a hospital’s openness to entering into a partnership and its willingness to engage in multiple conversations to explore related issues and opportunities that can be mutually beneficial. Below are some questions to ask in helping to determine a hospital’s “readiness” to partner.

1. Is the hospital involved with Care Transitions?: This program is focused on providing resources to help community-based organizations and hospitals begin addressing hospital readmission rates. Hospitals that participate in this initiative have higher than average readmissions and a committed desire to address the problem by partnering with community-based organizations.
2. What is are the readmission rates?: CMS publishes data each year on hospital readmission rates. This is required by the Affordable Care Act. The data shows the comparative readmission rates for all hospitals (except Maryland) and the associated penalties that were applied to hospital reimbursement rates, due to the readmissions.
3. What are the major goals for the next fiscal year, and how can your community-based program fit within these goals?: Non-profit hospitals must complete a Community Health Needs Assessment and a Community Benefit Report. If the hospital maintains non-profit status, you can access the health needs and goals for the facility, based on these reports. Per the American Hospital Association (AHA), 18% of U.S. hospitals are private, for-profit hospitals; 23% are owned by state and local governments; and 59% hold non-profit status. See hospital ownership status by state.
4. Does it have a unified all-payer system?: An all-payer reimbursement system occurs when a state applies for a special waiver to the Centers for Medicare and Medicaid Services to regulate payment to hospitals and providers in the state across all payers/insurers, including Medicare and Medicaid. Currently, there are only two states that have all-payer waivers, Maryland and Vermont. If a state is considering adopting an all-payer waiver, it must first get approval from CMS. This approval process must include the State Division of Medicaid preparing a State Plan Amendment and obtain stakeholder input on the impact of the proposed waiver on beneficiaries in the State.
5. Is there a population health department?: To prepare for the multiple payment reform initiatives in the market, many hospitals are bringing on new staff members to prepare and track performance in the programs. Many hospitals have created a division related to population health to spearhead their work in alternative payment models and payment reform initiatives. This unit is often linked with the quality improvement division of a hospital. If you are not sure whether or not your hospital partner has a population health department, you should inquire with the leadership overseeing quality, performance, and payment to determine the appropriate contact.
6. What is the hospital’s position on community involvement?: Most major hospitals are non-profit, and all non-profit hospitals are required to show a benefit to the communities they serve. This information can be found by researching the Community Health Needs Assessment and Community Benefit Report if the hospital holds non-profit status.
7. Is the hospital offering similar or related programs?: Hospital-based health promotion programs are generally limited to participants that seek care at the hospital. However, most of the health reform payment models require a hospital to address the health of the entire population served in the market. Therefore, many hospitals can have a greater impact on the health of the community by partnering with community-based organizations to extend health promotion activities into community settings.

Information regarding the first five questions provides insight into the basic organization of the hospital and how such a partnership might be achievable, e.g., operating under a unified all-payer system may ease issues regarding finances. Information about questions 6 and 7 provide insight into the hospital’s experience in delivering a health promotion program and working with a community organization.

Sample Memorandum of Understanding (MOU) with a Hospital