The 2011 Financial Forecast: Understanding Cardiovascular & Neuroscience Reimbursement

Many hospitals across the country are facing the same or similar challenges: the need to reduce expenses and/or pressure to enhance revenue. Initiatives to achieve these and other more detailed financial goals affect all levels of the organization, and the impact can often be felt all the way from the administrative suite to the staff directly involved with patient care. Some of the biggest money-generating service lines include the cardiovascular and neuroscience specialties. Procedures in these areas have not only great revenue potential, but also great volume potential as well, which is why such attention and scrutiny is focused here — mostly in terms of operational efficiency, quality, and cost. Indeed, these specialties are often the only ones where growth opportunities are still prevalent in many markets. Cardiac, vascular, and neuro conditions are on the rise, and in some areas of the country, many communities remain underserved. If services in these specialties both at a programmatic and patient-care level are well-coordinated, then it is typically a win-win for the hospital and the community. From the perspective of hospitals, regulatory agencies, and insurance providers, the delivery of care in these specialties is becoming less restrictive, though payment(s) for the care that is provided is being tightened. And, due to industry-wide financial pressures, including recent changes to MS-DRGs and restricted access to capital, all hospital team members need to understand how money is generated for the hospital and/or for the program. At Corazon, we work diligently to remain on the forefront of the ever-changing healthcare industry. One area of focus is vigorous research and analysis of Medicare’s reimbursement rates for cardiovascular and neurosciences for both the proposed and final rulings. This year, there is good news in the immediate future! Final rates for fiscal year 2011 (which go into effect October 1, 2010) reveal some positive changes. In general, there are more notable payment increases in MS-DRGs grouped using the descriptors “with or without Complications and Comorbidities.” Therefore, if procedures are accurately documented/coded in the patient record, then the payments received will more adequately compensate the hospital for the cost of services, including staffing. Further, the outlook is favorable for certain specialties such as cardiac and neuro. While the Medicare IPPS overall base rate (calculated by combining the labor, non-labor, and capital rates) is expected to decline by 1.2% in fiscal year 2011, Corazon observes that reimbursement for the cardiovascular and neuroscience service lines is increasing. Indeed, the rates for fiscal year 2011 reveal some positive findings in these key subspecialties. This is the result of relative weights — assigned to specific DRGs in cardiac and neuro — which are increasing from the previous year, up 1.9% across the Major Diagnostic Category 5 (MDC 5) [or the entire grouping of Cardiovascular (CV) DRGs]. This can be further delineated within the MDC-5 classification to reveal a 2.0% increase across CV surgical DRGs, and a 1.7% increase across CV medical DRGs. The neurosciences relative weight values are following a similar course. The neurosciences DRG relative weights in MDC-1 are increasing 2.2% overall, with a 2.2% increase in the neurosurgical DRGs and a 2.6% increase within the neuromedicine DRGs. Corazon’s relative weight analysis is illustrated in the charts below. It should be noted that the medical CV DRGs, which typically include diagnoses such as syncope or angina, is the only category to display a decreased relative weight value of 1.4%. It should be noted that this decrease for the medical DRGs only appears significant if three full years of retrospective data is analyzed to include fiscal year 2009. There was an increase of 1.7% in the medical DRGs from fiscal year 2010 to fiscal year 2011 (Table 1). For those readers unfamiliar with the IPPS reimbursement structure, the relative weights per DRG are multiplied against the CMS overall [standard] base rate to achieve the payment rate for that particular DRG being examined. For example, the relative weight forecasted for DRG 287 (Diagnostic Catheterization wo MCC) is 1.0879, and this value has increased 5.4% from the following year. This relative weight multiplied against the base rate of $5,584.12, which assumes that the hospital has reported all quality measures for the previous year, equates to a reimbursement of $6,074.71. This example represents a payment increase of 4.1%, resulting in a much brighter financial forecast for the inpatient diagnostic cath patient population in this example. The financial forecast does not have as “sunny” an outlook from the Outpatient Payment Prospective System (OPPS) perspective, which was proposed in July and will be finalized in November. This can be a cause for concern, especially as procedures that have been traditionally treated and billed as inpatient continue to trend more towards outpatient status. The Ambulatory Payment Categories (APCs) experiencing the most negative impact with the new rulings include echocardiograms (APCs 0126 and 0269), which will experience a 13% to 25% reimbursement decline. Outpatient coronary stent placement, and pacemaker, lead, and generator procedures are also experiencing some decline in payment, though not as remarkable as with echo procedures. Table 2 summarizes the more common procedural cardiovascular DRG and APC reimbursement trends from 2009 final to 2011 final and proposed rates, and their respective two-year and three-year percent changes. The majority of open heart surgery DRGs, inclusive of bypass and valve procedures, are proposed to increase 0.6% to 3.4%, with exception of DRGs 216 & 218 (valve procedure with MCC and without MCC/CC), which will decline 2.9% and 0.3%, respectively. Interestingly, inpatient interventional and diagnostic catheterization procedures are experiencing an increase between 0.7% – 12.8%. The outpatient APCs for cath and PCI do not look so favorable, but it should be noted that the APC rates provided in the table do not include the reimbursement of other APC codes that may be billed in the same setting of care. Also, the outpatient rates listed are proposed and are subject to change in the final rulings, which have not been released at the time of this writing. Other changes expected for both prospective payment systems include updates with various revisions to their respective quality measures. For this year, an additional 12 IPPS measures were added and one mortality measure was retired. Meanwhile, a total of 17 new measures are proposed for the OPPS. Additional quality measures were also proposed for reporting in 2012 and 2013 for the prior year’s reimbursement calculation. Reporting outcomes on all quality measures further ensures that your organization will achieve the full base rate payment in the following year, maximizing Medicare reimbursement(s). Corazon recommends that all hospitals track quality consistently and appropriately, and report measures as required in order to ensure that full reimbursement potential is achieved. Regarding the recently enacted Patient Protection and Affordable Care Act (ACA), the proposed IPPS does not fully address the hospital-related provisions that will be required. We advise keen administrators to stay alert and attuned for future changes, and how they will impact the bottom line. ACA updates included in the OPPS are aimed at functions such as waiving co-pays for the majority of Medicare-covered preventive services, as well as factoring in an 0.25% reduction in the proposed rates; this decline is reflected in Table 2’s outpatient APC rates. Where we see potential reimbursement storms is within the Medicare Physician Fee Schedule, or MPFS. For proposed 2011, MPFS reimbursements estimates are not available due to CMS uncertainty with the sustainable growth rate (SGR) formula. This controversy related to the SGR in determining physician payment is nothing new. However, the newly-proposed rule will require CMS to utilize a SGR that will cut payment rates for physician services by 27%. This 27% is a combination of the 21.2% cut implemented for 2010, but delayed until December 2010, along with a 6.1% cut proposed for 2011. This difficulty with financial forecasting has caused Corazon to receive many inquiries from both hospital administrators and physicians. These parties are now looking for education and assistance with potential partnership developments in order to provide a sustainable patient practice model and revenue stream. Another impact of this change is that physicians are now looking once again at employment opportunities, as well as joint venture and co-management models within the cardiovascular and neuro service lines. Several of these partnership structures will equate to the hospital and physicians sharing the technical fee, which may be difficult to do given the dollar constraints facing hospital and physician providers in today’s economy. The financial projections for some of these models can be highly variable, because each model is dependent on the investment that is required to “seed” the structure and success with the maximization of revenue and cost savings. In our experience, models that succeed have engaged physicians with an understanding of the revenue cycle. And, these same physicians are intimately involved in the day-to-day operations, having a close eye on quality of care and efficiency of operations. We believe organizations should incorporate partnering opportunities into their strategic planning process, as well as investigate further whether a certain partnering model is an organizational fit. The final rulings will go into effect October 1st, 2010, for the IPPS and January 1st, 2011, for OPPS. Savvy hospitals should always be looking at the reimbursement for the cardiovascular and neuroscience service lines, as changes to these specialties can have a big impact on the bottom line. To ensure that the financial health of your organization remains viable, especially with many positive rate changes on the horizon, we recommend:

• Accurate cost tracking • Refined supply and device management processes • Sound supply and device usage criteria • Appropriate management of employee costs • Regular updating of cost reports • Accurate coding and documentation

Overall, we advise that all organizations regularly analyze expected Medicare reimbursement using anticipated procedural trends, as well as predicted payments from other top payers. For example, in most markets, Medicare volume accounts for nearly 51% of the volume to the cardiovascular service line. Understanding the additional 49% can be critical to an organization’s success. Factoring this information into the budgeting process and monitoring expense will help secure profitability and more accurate budgeting. Further, knowing what accounts for any difference in “expected” versus “actual” reimbursements, denial write-offs, and unpaid balances, can lead to some interesting findings that can give valuable insight into the financial health of your cardiovascular and neuro service lines, and perhaps, the hospital as a whole. Nicole is a consultant with Corazon, offering consulting, recruitment, and interim management for the heart, vascular, and neuro specialties. To learn more, visit www.corazoninc.com. To reach Nicole, email her at: nmckenna@corazoninc.com

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