Payment trends achieving stability amid uncertainty: preparing for future payment policies and practices will require a balancing act involving a broad range of revenue-enhancing strategies

Healthcare Financial Management, Dec, 2003 by William O. Cleverley, James O. Cleverley

Ensure accurate payment. Frequently, payment is less than indicated by contract terms, even in hospitals that have sophisticated contract management systems in place. Many contracts are very complex, and their details may not be accurately reflected in contract management systems. Annual audits of claims payments by an outside party may help hospital executives identify the scope and magnitude of potential payment issues.

Improve coding and billing practices. Much present-day hospital payment is linked to accurate coding and billing. For example, failing to code respiratory failure as the principal diagnosis on a Medicare patient placed on a ventilator may mean a loss of $13,000 if the case is categorized as DRG 127, rather than DRG 475. The importance of accurate coding and billing cannot be overstated.

Examine pricing policies. Setting prices that do not cover the hospital's full "reasonable" costs, including a capital allowance, results only in shifting the economic burden of health care to the next generation of patients. In establishing price levels, healthcare financial managers should recognize similar hospitals with different payer mix should have different pricing. For example, hospitals with heavy percentages of Medicaid and uninsured patients must have higher prices to recover losses on those segments of business, unless there is some form of public or tax support to subsidize the payment/cost difference. In short, your overall price structure should be based on principle, not on public pressure.

A wide range of factors will have an impact on payment for hospitals and healthcare systems in the future. But an emphasis on revenue-enhancing strategies such as accuracy in coding, awareness of nonhospital competition, appropriate pricing, and astute contract management can help hospitals gain and maintain firm financial footing. Stay tuned.

THE FUTURE OF HEALTHCARE FINANCING

* Payment from public payers is expected to stabilize until 2010, when the level of public financing is expected to be 57 percent.

* For community hospitals in particular, Medicare is expected to account for a growing percentage of hospital expenditures beginning in 2011 when the first baby boomers turn 65.

* The fiscal pressure on Medicare will dramatically affect healthcare financing policies, and the federal government will respond by taking actions such as raising taxes or limiting provider payments.

* The relationship of payment to cost will almost certainly be reduced in coming years for both Medicare and Medicaid.

* Prices for healthcare services will probably be linked to quality.

* Hospitals' core businesses will continue to shift to the outpatient arena, due to healthcare developments such as genomic patterning and pharmaceutical advances. Hospitals therefore may need to focus more heavily on payment issues in outpatient services.

* Medicare payment methodology for inpatient and outpatient services will change little in coming years. Coding and billing will continue to be crucial to obtaining accurate payment from Medicare.