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5 ways hospitals can buffer financial losses from Medicare

Hospitals lost nearly $40 billion treating Medicare patients in 2013, experts say.

Beth Jones Sanborn, Managing Editor

With the ranks of Medicare swelling by the month, pressure on hospitals to manage these patients and the financial losses caused by the programs reimbursement rates is mounting. Roughly three-quarters of short-term acute care hospitals lost money treating Medicare patients in 2016, according to MedPAC, and are actually losing more money treating Medicare patients than Medicaid patients, according to two experts who authored a post in the Harvard Business Review

Navigant Consulting National Adviser Jeff Goldsmith and Navigant Healthcare Managing Director Richard Bajner said U.S. Hospitals lost nearly $40 billion treating Medicare patients in 2013, but lost roughly $15 billion treating Medicaid patients, citing data from an American Hospital Association survey from 2016. If hospitals don't "aggressively manage" the cost of caring for Medicare patients in light of the fixed reimbursement rate received for their care, their financial future could be jeopardized. Goldsmith and Bajner laid out five strategies for stemming these losses.

1. Mining data for potential profitability

Hospitals have no shortage of data, but all too often they aren't making that data for all it is actually worth. Honing their analytics can help find cost-reduction opportunities that apply to all patients. Some execs are using data to develop methods for improving operations and achieving cost cuts based on "forecasts of cost elements both in the care process and in administration."

2. Cutting corporate overhead

The need to compete, and maintain state-of-the-art status is always there. IT security, data systems, digital technology, human resources, and compliance investments are increasing, fueing corporate service costs spikes totaling as high as 10 percent annually, often eclipsing revenue growth. Reigning in such costs is crucial.

"This requires sorting out the appropriate level of the organization responsible for key functions and clarifying decision rights, or, indeed whether it is more efficient to outsource those functions than to provide them in-house," authors said.

3. Streamline purchase and use of medical technology

Supplies and technology tend to soak up anywhere from 13 to 20 percent of a hospital's budget. Hospitals need to work with clinicians on evidence-based reviews of technology purchases, achieve staff consensus on those reviews and try to lower procurement prices. Scientific evidence and clinical consensus across medical staff should also be used by hospitals to tighten drug formularies and lower the cost of the drugs they buy. 

4. "Blueprint" methods of treatment

Variations in how different physicians treat the same condition can lead to higher Medicare costs. Laying out detailed protocols for how to optimally treat conditions, especially common ones, all the way through recovery to post-intervention and even rehabilitation can lower costs by reducing or eliminating those variations in care. Embedding those care pathways in a hospital's EHR can also help ensure concensus of care no matter which doctor is in.

5. Achieving clinical discipline

Once blueprints are established, responsibilities should be assigned to the clinician's managing a patient to ensure the prescribed path is followed. Advanced practice nurses, physician assistants, and care coordinators can also help manage episode expenses, especially in helping to usher and supervise care transitions and the recovery process.

"All these steps are necessary to achieve and maintain control over the cost of clinical episodes, the key to reducing losses from treating Medicare patients. The very same processes can result in better clinical results for commercially insured and Medicaid patients, assuring that hospitals can improve their margins in the face of far-more-demanding payment constraints," authors wrote.

Twitter: @BethJSanborn
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