June 20, 2024

Unlike elements of the Patient Protection and Affordable Care Act that will not be implemented for several years, and even then initially on a pilot basis, Medicare market basket productivity adjustments have already begun, and will have a significant impact on every hospital. These adjustments, which reduce reimbursement based on prospective improved productivity, will affect hospitals and health systems, as well as skilled nursing facilities, long term care hospitals, inpatient rehabilitation facilities and other ancillary care facilities. The Congressional Budget Office projects the adjustments will save Medicare an estimated $157 billion over 10 years.Healthcare organizations that are currently in a good financial position will have to continue to improve just to maintain their position. Organizations whose financial position is currently unstable will need to take action right away to reduce expenses, increase revenue, or both.Healthcare executives can determine the impact of these reimbursement reductions on their organizations by using calculators available through the American Hospital Association or state hospital associations. The number that results from this calculation should then be used as a target for improvement within the next 6-12 months.Basic “blocking and tackling work” (improvements in revenue cycle, reductions in labor, non-labor and supply chain expenses) can create short term benefits, and buy an organization some time. But healthcare leaders should also be planning beyond that for permanent changes – clinical, operational, and financial – to be able to provide care at Medicare rates or below, while meeting the future demands of reform.BOTTOM LINE
Within the next 6-12 months, healthcare organizations will need to find a way to reduce their expenses or increase revenue by 3-5% to offset Medicare productivity adjustments. This will give them some breathing room to work on the transformational clinical and operational changes that reform will demand.