From 1990 to 2007, the U.S. government increased healthcare spending by about $1 trillion. The problem with this statistic is that once figures reach thirteen digits they begin to sound like monopoly dollars. To put it another way, this 18-year period saw an annual growth rate of 7.3% in healthcare spending, which is more than double the 3% annual growth in real GDP.
Value-based care has emerged as one way to try and combat the rapid growth in healthcare spending. While the emphasis on quality holds promise for patient care, it has created financial challenges for hospitals. Let’s examine the impact it has had on the revenue cycle.
The shift to a value-based model
The Obama administration oversaw the shift to what it hoped would be a more affordable healthcare system by replacing the Fee-for-Service (FFS) model, which stressed quantity of care over quality, with a value-based system. From a national policy perspective, the Affordable Care Act (ACA) reduced spending on Medicare but increased incentive-based payments to hospitals who operated efficiently. The ACA essentially shortened the healthcare industry’s financial leash and told them to behave better.
Similarly, 2015’s MACRA legislation bolstered both the Merit Based Incentive Payments System (MIPS) and gave bonus payments for participation in Alternative Payment Models (APMS). These national initiatives, combined with like-minded actions on the state level, have incentivized the movement towards value-based healthcare. This change has been beneficial for patients but has meant tighter margins for hospitals and has created a host of revenue cycle issues that must be faced in this new reimbursement landscape.
What are the challenges caused by value-based care?
The new reimbursement structure is complex, and this has had an impact on hospitals’ revenue cycles. For example, decreased Medicare expenditure and a change in employers’ healthcare plans have increased the cost of deductibles in recent years.
According to an article written by Jacqueline LaPointe of RevCycle Intelligence, high deductible payments have, “caused out-of-pocket expenses to rise 225% since 2006”. This increase in individual expenditure has seen payment structures change so that hospitals now need to collect more money from patients. Naturally, individual payers are less reliable than the government or private insurers as they don’t often have the funds to pay. More financial burden for patients means greater stress for hospital administrators and more cracks for revenue to slip through. This financial leakage has become a serious problem. A 2016 report from The Poneman Institute showed that the average US hospital loses $17.4 million annually to incorrect billing information.
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