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Regulations Are Changing the Way We Pay and Build for Healthcare

In my last post I outlined the shift in the delivery of healthcare to the decentralized model. There's another massive shift in healthcare, and it is the way providers are and will be getting paid. Who’s making those decisions and how is it affecting the facilities being designed and built?

With some recent announcements by the Centers for Medicare and Medicaid Services (CMS), these changes are happening more rapidly than some may have planned for. Before we take a look at the recent announcements, let’s recap some history on federal healthcare payment legislation to give these recent updates context.

Legislating Changes to Federal Healthcare Payment

In 1965 Congress passed federal legislation establishing the Department of Health and Human Services (DHHS). One of the duties of DHHS was to establish the Centers for Medicare and Medicaid Services programs (CMMS, aka CMS).

By federal law, CMS set reimbursement rates for Medicare and Medicaid patients and programs. For the covered population, Medicare and Medicaid negotiated payments to healthcare systems, hospitals and practitioners on behalf of these patients. As a general rule, these payments were based on a percentage of cost plus operating margins as submitted by the recipients, then reviewed and set by CMS.

With the passage of the Patient Protection and Affordable Care Act (PPACA), commonly called the Affordable Care Act (ACA) or Obamacare, CMS was to downwardly adjust CMS reimbursement rates over a five year period. Private payor reimbursements to the health systems, via the ACA, became competitive to the CMS rates.

During the first week of August 2016 the Centers for Medicare and Medicaid Services issued three significant revisions to the rules. Brought together, they spell out the beginning of the next phase of financial adjustments by healthcare organizations. Understand that CMS has become the “gold standard” by which most insurers and health programs in the U.S. are now setting their payment and reimbursement rates for healthcare services.

Announcement 1: CMS Cuts Reimbursement Rates to Acute Care Hospitals

On Friday, August 5, 2016, it was reported in Healthcare Management that “CMS will cut 1.5% in reimbursement to acute care hospitals in order for them to recoup $11 billion in "overpayments." Public Law 114-10 had the cut at 0.8%, but CMS decided to ignore it.”

Source: Congressional Federal Record Document 42 CFS Parts 405, 412, 413, and 489; CMS-1655-F; CMS 16644-F; CMS 1632-F2; RIN 0938-AS77; 0938-AS88; 0938-AS41

Announcement 2: CMS Releases Overall Hospital Quality Star Ratings Program

“On July 27, after a three-month delay and stakeholder pushback, (CMS) (sic) released its Overall Hospital Quality Star Ratings program. This is the first time the agency has overhauled the system by taking 64 quality measures such as patient experience, outcomes, safety, and readmission rates and consolidating them into a unified rating of one to five stars.

“The overall star ratings, scheduled to be updated quarterly, apply to 3662 hospitals. In the current rankings, 102 (2.2%) received five stars; 934 (20.3%) four stars; 1770 (38.5%) three stars; 723 (15.7%) two stars; and 133 (2.9%) one star. The remaining 937 (20.4%) were not rated as they did not report sufficient data.

"Stakeholders have called the ratings confusing and unfair for seemingly penalizing teaching hospitals and hospitals serving low income populations.”  –Raymond James & Associates, August 2016

Announcement 3: CMS Proposes Further Bundled Payment Models

“Under the new proposed bundled payment model released on July 25, hospitals in 98 randomly selected metropolitan statistical areas (MSAs) would be accountable for the for-service beneficiaries during their inpatient stay and 90 days after discharge. CMS also announced a new financial incentive model designed to encourage increased use of cardiac rehab (sic) services. CMS is currently seeking comments on the proposal… to be implemented July 1, 2017. In addition to the new cardiac bundles, CMS also announced an expansion of the Comprehensive Care for Joint Replacement (CJR) bundled payment program … CMS seems determined to move forward.” –Raymond James & Associates, August 2016

Why the Construction Industry Needs to Know About These Changes to Healthcare Payments

So why would someone involved in the planning, design and construction of medical facilities need to know these detailed moves by CMS? Here’s why: each of these alone are rather innocuous, mere progressions of the ACA provisions along a mandated path to assist in achieving higher quality of care while lowering the cost. However, taken together in short succession with coordinated implementation timelines, these three provisions push the revenue available to health systems and practitioners even further downward while costs are going up at the rate of inflation or faster.

Translate these moves to the availability of capital – the financial grease required to move the engine of construction – and one begins to close the two ends of the chain. Revenues decrease while the delivery systems are shifting from an acute care to a wellness model, requiring a fundamental shift in the size, type and services offered in the facilities. The healthcare systems, taken as a greater whole, are hard-pressed to invest in these models.

We are in a transition period when the systems are shifting in very fundamental ways, while the buildings where care is delivered are likewise reflecting this in size, type and structure. As service providers to this market, it is paramount that we understand the delivery of care and financial motivators of our clients in order to meet their needs in a very different environment.

Speed to market, lean construction methodologies, modularity, integrated project delivery, patient-centered design, flexibility, adaptive reuse, maximization of the investment... all of these phrases point in the same direction: toward a much different building environment in which care is provided.

Smaller footprints, better access for partially handicapped, quicker pathways to our providers, wayfinding that makes it easier to navigate buildings and healthcare campuses, better lighting, environments that embrace the outdoors versus push it away, consciousness towards utilization of natural resources – all of this and more must become part of our lexicon while serving this market.

Now that we’ve laid the foundation of “Why,” I’ll have more about how to address these shifts in the upcoming posts. Subscribe to the blog so you don't miss out.

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