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Readers Write: Death to the Dinosaurs! DRGs and the Legacy of What it Means Under the Affordable Healthcare Act

January 5, 2015 Readers Write No Comments

Death to the Dinosaurs! DRGs and the Legacy of What it Means Under the Affordable Healthcare Act
By Matthew B. Smith

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You could really also call this piece “History Repeats Itself.”

For those of you who recall the reimbursement transformation of the healthcare industry from a cost-plus formula (no institution in the field lost money under this approach) to the DRG Era (October 1983), life is about to repeat itself.

Payment caps were placed on 466 diagnostic and therapeutic procedures based upon the type and place where a procedure was performed. The Old Guard of Dinosaur Hospital Administrators couldn’t adapt and the nearly 6,000 U.S. hospitals at the time underwent a financial operation that affected their health.

Prior to the enactment of the federal regulations, less than 1 percent of all inpatient facilities (which funneled about 80 percent of all healthcare dollars) were in financial straits. Within seven years, well more than half were suffering asset declines and nearly 20 percent were facing cash flow dilemmas that threatened their very existence as going concerns. New York State had more than half its hospitals in financial difficulty.

A new breed of administrator — drawn from outside the industry, by and large, and with MBAs, not the soon-to-be outdated MHA — had to find their way into the industry (along with substantially larger salaries and performance structures) to reformulate how these institutions play the game.

Now the Affordable Healthcare Act (AHCA) portends yet another drastic (read: draconian) change to our beloved industry. The current crop of dinosaurs will need to be replaced yet again.

The AHCA will drive reimbursement towards direct links with patient outcomes and be a distinct report card on the deliverers of care. Penalties for not achieving population catchment healthcare levels (too many readmissions; too many specific conditions with below average status; higher costs per unit of service relative to the patient’s achievement level; mistakes in medication administration; higher than normal nosocomial infection rates) will cause the bottom 3 –5 percent of providers to lose payments and have it redirected to the top 3-5 percent. This is a “taking from Peter to pay Paul”* concept so that net/net healthcare payments are flat.

The ability to achieve this and measure it so that it can be implemented (along with the other AHCA factors that are mandated) will give rise to a new healthcare administrator extremely well versed in IT and data accumulation and farming the data. The accent on secured and incontrovertible healthcare information adhering to the concepts of confidentiality, integrity and authenticity (CIA) to make an institution’s case will demand new management with a decided proficiency in not only amassing, but organizing and clinically and financially proving that the provider organization has successfully delivered care.

Failure to be a top performer or even a middling-level participant will have excruciating financial impact as it did when DRGs came into effect. These new breed leaders will look at industry and non-industry solutions to accumulate and manage the massive amount of data that the HITECH Act is encouraging. The New Breed will master it as other industries have shown they can, but the healthcare field will, once again, be strewn with the fossils of dinosaurs among providers and vendors who didn’t listen to the changing reimbursement and care outcome winds that are blowing.

*For those of you not familiar with the origins of this phrase, it arose when the Church of England separated from the Roman Catholic Church and the English King (Henry) levied taxes on the Cathedral of St. Peter (Catholic) in London to pay for the construction of the Church of St. Paul (which Henry headed as the Church of England) also in London.

Matthew B. Smith is president and CEO of SecLingua of Shelton, CT.

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