Happy New Year!
October 1 marked the beginning of the 2013 Federal Fiscal Year. As with each new federal fiscal year, the new Medicare hospital inpatient prospective payment system (IPPS) final rule took effect today. As with most years, payment rates to general acute care hospitals will increase, this year by 2.8 percent. The 2.8 percent is a net update after the typical market basket update, improvements in productivity, a statutory adjustment factor, and adjustments for hospital documentation and coding changes.
But there’s also something very new and different about the IPPS final rule this year. Starting this Monday, Medicarenow adjusts hospital payments based on how well the hospital has performed previously on a set of standard clinical quality measures and on surveys of patients’ experience. Hospitals that have done well receive higher Medicare payments, while poor performers have seen their payments cut. Also, Medicare now shaves up to one percent from payments to hospitals with high readmission rates.
These are two small steps forward on the long journey of payment and delivery system reform. A study published in Health Affairs last month estimates that Medicare payments to more than two-thirds of hospitals will be affected by just a fraction of one percent.
While they may have limited financial impact today, the new VBP payment adjustment and readmission penalty make it difficult to deny the fact change is coming. Over time, we can expect tried-and-true strategies to maximize fee-for-service reimbursement to begin unraveling, as they are inconsistent with the principles underlying value-based purchasing. Leaders face the challenge of living in two worlds: maintaining current fee-for-service reimbursement to build the foundation for quality and efficiency essential to new payment models.
October 1 also marked a major milestone for PYA, as the firm officially opened its new Kansas City office. Chris Wilson, Jonas Varnum and I are thrilled to join the most creative and innovative health care consulting firm in the country. And, we look forward to the addition of our colleague and good friend Jeff Ellis in January. ContinuingPYA’s reach into the Midwest, the KC office also adds a new public policy service line for the firm.
Drawing on decades of experience in healthcare transactional and regulatory work, we will help providers translate evolving public policy issues and challenges into informed strategic direction. We also will serve as a backbone organization for the facilitation of public policy initiatives for providers and public entities. Finally, our public policy service line will deliver practical and accessible education and analysis on the forces impacting healthcare for the public, employers, providers, governmental agencies, and others.
October 1 marks more than the beginning of a new federal fiscal year: it marks the beginning of the biggest change in health care since the introduction of DRG-based reimbursement. Payment and delivery system reform holds the promise of aligning providers, payers, and patients in a manner than improves overall population health while containing costs. Like the healthcare industry we serve, PYA consistently evolves and responds to the needs of providers and patients. The addition of our new Kansas City office, our new colleagues, and public policy service line are part of the next exciting chapter in our firm’s story. Now, more than ever, PYA is ready to support your strategic visioning for the future.