Analyzing the pressures on admissions

By Jeff Englander

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Over the last several weeks the publicly traded hospital companies we follow completed reporting their quarterly earnings. One notable item was the continued unevenness in the trend of same store adjusted patient admissions, which have remained between a negative 0.5% and positive 1.0% for the last five quarters. Similarly, in late August, Moody's reported that median admissions in 2010 for multi-state not-for-profit healthcare systems declined by almost 11% vs. the prior year. In this environment we felt it would be helpful to review some of the forces pressuring admissions.

The biggest factor pressuring admissions is the continued high levels of unemployment, and in particular the large numbers who have been unemployed or underemployed for significant periods. Since the majority of people get health insurance coverage from their employer, as people lose their jobs they lose coverage. However, a defining factor of this economic cycle has been the large numbers of workers who have remained unemployed for significant periods thus not only losing coverage but also their ability replace coverage before extension of coverage under COBRA expires. In addition, given the damage done to family balance sheets by the combined effects of both the housing crisis and the ensuing disruption to the capital markets, some of those who have been able to find work have been required to accept positions which are not comparable to their prior positions and/or less than full time employment, often leaving them unable to afford health care coverage or obtain it through their employer, further reducing the rolls of the insured.

Another contributing factor has been the increase in health plan consumer cost sharing and the increased use of high deductible health plans (HDHPs)/consumer driven health plans (CDHPs). For example, according to the Kaiser/HRET Employer Health Benefit Survey, between 2007 and 2011 the average annual family contribution to healthcare insurance premiums and the average annual family deductible for a PPO plan have risen at annual rates of approximately 6% and 10% respectively. In addition, according to the National Business Group on Health/Towers Watson Employer Survey on Purchasing Value in Health Care, the percentage of employers offering a CDHP is expected to reach over 74% in 2013 from only 2% in 2002. As a result of higher co-pays & deductibles, studies such as one which recently appeared in the Journal of Managed Care, have found that enrollees in such plans use lower levels of medical services and preventative medicine vs. comparable enrollees. As a result, anecdotal evidence has shown that people with coverage now appear to be deferring elective procedures and even some not previously viewed as elective.

Additional pressure is also being felt as a result of the rise in observation stays, which typically require a patient be observed as an outpatient for 24 hours before being admitted or discharged. Not only are these stays not counted as inpatient admissions decreasing utilization figures but since reimbursement is at dramatically lower rates they tend to markedly impact revenues as well. Unfortunately, given the European sovereign debt crisis, the U.S. deficit debate and continued focus by employers on controlling healthcare costs as well as regulatory scrutiny on observation visits all factors appear likely to persist at least near-term.

As such it is important to carefully review capacity planning answering questions such as: Are resources devoted to observation patients aligned with reimbursement rates and differentiated from those applied to inpatients? Have you undertaken capacity reviews given the employment outlook for your local markets? Are you tracking trends in commercial plan enrollment among the relevant MCO's in your local markets?

Comments (2)

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  • Chad Mulvany December 8, 2011 11:15 AM

    Jeff, you make some great points. Other questions providers will want to consider as they review capacity are:
    • How aggressively payers are moving to curb utilization?
    • What impact will value based reimbursement methodologies have on volume in their markets?

    At HFMA we’re hearing anecdotally that payers in some markets are using a variety of tactics to manage/reduce both in and outpatient utilization. Some examples include:

    • Calling beneficiaries who have scheduled imaging services at hospital owned imaging centers and educating them to the price differential compared to a freestanding center located in the area. At the end of the call, the plan offers to reschedule the beneficiary at the lower priced site of service.
    • Negotiating bonus payments for physicians with lower volumes of potentially preventable admissions and readmissions.

    The impact of value-based reimbursement arrangements will depend on how quickly they are adopted within a market. At a minimum all providers should experience reduced volume as a result of Medicare’s potentially preventable readmissions program. I would expect to see similar language in commercial contracts within a couple of years.

    Beyond the readmissions program, volume in markets where one or more providers participates in the CMMI bundled payment pilot, CMS ACO program or a private sector medical home could see either changes in referral patterns or decreased volumes. As part of the review, it will be important to understand how other hospitals and large physician groups will respond to these opportunities.

    The CMMI bundled payment pilot probably has the most potential to change referral patterns. While participants in CMS’s ACE demo haven’t seen splitting physicians alter behavior that might change under the CMMI pilot as providers are free to suggest their own gainsharing methodologies. The risk is particularly acute for profitable services such as cardiac and orthopedic surgeries where high implant costs should allow for relatively easy wins.

    In markets where they develop, Medicare ACOs and medical homes supported by MA plans or other private payers could have a broader impact on volume. It’s not uncommon for participants in medical home pilots to reduce ED and inpatient expense by 17 and 12 percent respectively. The biggest risk will likely come from large independent practices as improvements in care delivery and management that reduce utilization will have a smaller impact on their traditional revenue streams.

  • Jeff Englander December 12, 2011 12:12 PM


    Thanks for the post.

    You raise a number of very good points, however, I think in the near-term, the move among employers toward high deductible and consumer driven health plans will have the greatest impact on utilization. For example, according to the American Journal of Managed Care article I referenced in the blog, families enrolling in such plans for the first time spent approximately 14% less overall than similar families and used less preventive care. Given the greater penetration of these plans among employers going forward, this could create even greater challenges on the utilization front for providers.

    In regard to payors, radiology benefit management has long been used by commercial payors, and given the examples you cited payors may be even getting more aggressive. As a result, providers must constantly educate themselves about competitive factors in their markets as well as any additional cost containment approaches payors may be taking. In addition, as of January 1, 2012 CMS will be requiring accreditation of diagnostic imaging providers as a condition of reimbursement, so providers must make sure they have applied for and completed the accreditation process.

    Longer term bundled payments, ACO’s and primary care medical homes are likely to put further pressure on inpatient utilization requiring providers to make sure they have allocated and aligned resources apropriately. However, as HFMA has pointed out, financial incentives will certainly play a role in the adoption of some of these initiatives, such as in the bundled payment pilot where an absence of financial incentives has created a level of uncertainty regarding the level of provider participation. Nevertheless, given that most of these initiatives are still in the early stages, (i.e., the bundled payment pilot is not expected to begin until the first quarter of 2012), these will need to be observed closely to evaluate the impact pilots have on admissions, and if results from the pilots can be extrapolated to larger populations.

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