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With Payment Cuts On the Way, Data Analytics Will Soon No Longer Be Optional

December 18, 2012
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As Medicare provider payment cuts inevitably move towards reality, providers will find analytics-facilitated clinical performance improvement to be crucial for survival


As I write this, President Barack Obama and Speaker of the House of Representatives John Boehner are involved in complex, perhaps rather tense, negotiations over the so-called "fiscal cliff" and what to do about federal taxes, revenues and programs. In the past couple of days, the news reports and rumors have changed almost hourly, with estimates of possible Medicare cuts to providers shifting quite frequently. What all the estimates have in common, though, is that they are all large—though of course $300 billion is quite a bit smaller than $400 billion or $600 billion, no doubt.

In any case, if the latest reporting from The New York Times is accurate, “The starting point of the current negotiations is President Obama’s most recent budget request, which proposed legislation that would save $300 billion, or 4 percent of projected Medicare spending, over 10 years. By contrast,” today’s report by Robert Pear and Reed Abelson notes, “Republicans in Congress are seeking savings of $400 billion to $600 billion, at least some of which should come from beneficiaries, they say.”

When it comes to legislation, the devil is always in the details, of course. But whatever the ultimate amount, what is virtually certain is that significant Medicare reimbursement cuts to hospitals and physicians will be one result of whatever agreement emerges from the “fiscal cliff” negotiations now taking place on Capitol Hill.

Pear and Abelson quote several hospital CEOs in their story, including Nancy M. Schlichting of Detroit’s famed Henry Ford Health System, who, they note, says that “severe cuts might make it harder for hospitals like hers to treat patients without insurance. It’s a big question whether we can continue to do that,’” Schlichting is quoted as saying.”’We would have to make tough decisions.’”

Pear and Abelson quote several other CEOs as well, including Jodi Schmidt of Labette Health, a small hospital in Parsons, Kan., who “was able to provide trauma services to people in nearby Joplin, Mo., after a tornado devastated the hospital there. ‘With more cuts, the reality is we’re going to have to really cut services,’” Schmidt told the Times reporters.

These comments are far from isolated; what’s more, they are reinforced by comments made recently to me by Ken Perez of MedeAnalytics. Perez recently did some analytics relating to the reimbursement savings coming out of the Affordable Care Act (ACA). Of the $716 billion carved out of Medicare as part of the legislation creating the ACA , Perez told me that $415 billion of that amount came out of what would otherwise have been increases in provider reimbursement, with $260 billion of that $415 billion directly affecting Medicare hospital payment over 10 years. “That $260 billion translates into about $6.5 million per year per hospital for the next 10 years, Perez told me. The hard part of this, he added, is that he’s aware of a number of multi-hospital systems whose senior executives are saying they’re laying off staff members now in anticipation of those cuts.

Then of course, we’ll need to add fiscal cliff-related reimbursement cuts to those coming out of the ACA. Perez believes that any fiscal cliff-related reimbursement cuts under Medicare will inevitably lead to more layoffs.

And whether or not that prediction comes to pass, what’s inevitable is this: the clash between the country’s fiscal challenges and a worsening demographic profile (an aging population, an explosion in the incidence of chronic illness) can only result in intensifying pressure on hospitals and physicians to provide higher-quality patient care more cost-effectively as we move forward.

That’s what three of the biggest mandatory “internal healthcare reform” programs under the ACA are meant to do: the value-based purchasing program, the healthcare-acquired conditions reduction program, and the avoidable readmissions reduction program. As Jane Metzger of CSC noted over a year ago, the hospitals that fall into the lowest quartile on all three of those programs could see their Medicare reimbursement cut as much as 9 percent a year, as the rigor of those programs intensifies over the next five years.

The bottom line in all this? Data analytics for continuous performance improvement is going to become an inevitable must-have for all hospitals and medical groups. Don’t forget: virtually all private health insurers are going to create versions of the mandatory quality improvement programs in the ACA, as well as continuing or amplifying their existing pay-for-performance programs.

So hospitals and medical groups whose leaders fail to engage in continuous analytics work, leveraging their EHRs, data warehouses, and analytics and report-writing tools, together with dashboard-based performance improvement initiatives for continuous clinical performance improvement will not only be hard-pressed to thrive in the emerging reimbursement environment—they’ll be hard-pressed to survive.